Comprehensive problem with ABC costing Animal Gear Company ...

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Comprehensive problem with ABC costing
 
  Animal Gear Company makes two pet carriers, the Cat-allac and the Dog-eriffic. They are both made of plastic with metal doors, but the Cat-allac is smaller. Information for the two products for the month of April is given in the following tables:
 
  Animal Gear accounts for direct materials using a FIFO cost flow assumption.
 
  Animal Gear uses a FIFO cost flow assumption for finished goods inventory.
 
   Animal Gear uses an activity-based costing system and classifies overhead into three activity pools: Setup, Processing, and Inspection. Activity rates for these activities are 105 per setup-hour, 10 per machine-hour, and 15 per inspection-hour, respectively. Other information follows:
 
  Nonmanufacturing fixed costs for March equal 32,000, half of which are salaries. Salaries are expected to increase 5 in April. The only variable nonmanufacturing cost is sales commission, equal to 1 of sales revenue.
  Prepare the following for April:
 
  Required:
  1. Revenues budget
  2. Production budget in units
  3. Direct material usage budget and direct material purchases budget
  4. Direct manufacturing labor cost budget
  5. Manufacturing overhead cost budgets for each of the three activities
  6. Budgeted unit cost of ending finished goods inventory and ending inventories budget
  7. Cost of goods sold budget
  8. Nonmanufacturing costs budget
  9. Budgeted income statement (ignore income taxes)
  10. How does preparing the budget help Animal Gear's management team better manage the company?

Question 2

The process of transferring account amounts from the book of original entry to the general ledger is called posting.
 a. True
   b. False
   Indicate whether the statement is true or false

[sokh]

Answer to Question 1

1.
Revenue Budget
For the Month of April

Units Selling Price Total Revenues
Cat-allac 530 205 108,650
Dog-eriffic 225 310 69,750
Total 178,400

2.
Production Budget
For the Month of April

Product
Cat-allac Dog-eriffic
Budgeted unit sales 530 225
Add target ending finished goods inventory 30 10
Total required units 560 235
Deduct beginning finished goods inventory 10 25
Units of finished goods to be produced 550 210

3.
Direct Material Usage Budget in Quantity and Dollars
For the Month of April

Material
Plastic Metal Total
Physical Units Budget
Direct materials required for
Cat-allac (550 units  4 lbs. and 0.5 lb.) 2,200 lbs. 275 lbs.
Dog-eriffic (210 units  6 lbs. and 1 lb.) 1,260 lbs. 210 lbs.
Total quantity of direct material to be used 3,460 lbs. 485 lbs.

Cost Budget
Available from beginning direct materials inventory
(under a FIFO cost-flow assumption)
Plastic: 290 lbs.  3.80 per lb.  1,102
Metal: 70 lbs.  3.10 per lb.  217
To be purchased this period
Plastic: (3,460  290) lbs. 5 per lb.
15,850
Metal: (485  70) lbs. 4 per lb.
_______ 1,660
Direct materials to be used this period 16,952 1,877 18,829

Direct Material Purchases Budget
For the Month of April
Material
Plastic Metal Total
Physical Units Budget
To be used in production (requirement 3) 3,460 lbs. 485 lbs.
Add target ending inventory 410 lbs. 65 lbs.
Total requirements 3,870 lbs. 550 lbs.
Deduct beginning inventory 290 lbs. 70 lbs.
Purchases to be made 3,580 lbs. 480 lbs.
Cost Budget
Plastic: 3,580 lbs. 5
17,900
Metal: 480 lbs. 4
_______ 1,920
Purchases 17,900 1,920 19,820

4.
Direct Manufacturing Labor Costs Budget
For the Month of April
Output Units Produced DMLH Total Hourly Wage
(requirement 2) per Unit Hours Rate Total
Cat-allac 550 3 1,650 10 16,500
Dog-eriffic 210 5 1,050 10 10,500
Total 27,000

5. Machine Setup Overhead
Cat-allac Dog-eriffic Total
Units to be produced 550 210
Units per batch  25 9
Number of batches (rounded up) 22 24
Setup time per batch 1.50 hrs. 1.75 hrs.
Total setup time 33 hrs. 42 hrs. 75 hrs.

Budgeted machine setup costs = 105 per setup hour 75 hours
= 7,875
Processing Overhead
Budgeted machine-hours (MH) = (11 MH per unit  550 units) + (19 MH per unit  210 units)
= 6,050 MH + 3,990 MH = 10,040 MH
Budgeted processing costs = 10 per MH  10,040 MH
= 100,400
Inspection Overhead
Budgeted inspection-hours = (0.5 22 batches) + (0.7 24 batches)
= 11 + 16.8 = 27.8 inspection hrs.
Budgeted inspection costs = 15 per inspection hr. 27.8 inspection hours
= 417

Manufacturing Overhead Budget
For the Month of April
Machine setup costs  7,875
Processing costs 100,400
Inspection costs 417
Total costs 108,692

6.
Unit Costs of Ending Finished Goods Inventory
April 30
Product
Cat-allac Dog-eriffic
Cost per Input per Input per
Unit of
Input Unit of
Output Total Unit of Output Total
Plastic  5 4 lbs.  20.00 6 lbs.  30.00
Metal 4 0.5 lbs. 2.00 1 lb. 4.00
Direct manufacturing labor 10 3 hrs. 30.00 5 hrs. 50.00
Machine setup 105 0.06 hrs.1 6.30 0.2 hr1 21.00
Processing 10 11 MH 110.00 19 MH 190.00
Inspection 15 0.02 hr2 0.30 0.08 hr.2 1.20
Total 168.60 296.20

1 33 setup-hours  550 units = 0.06 hours per unit; 42 setup-hours  210 units = 0.2 hours per unit
2 11 inspection hours  550 units = 0.02 hours per unit; 16.8 inspection hours  210 units = 0.08 hours per unit

Ending Inventories Budget
April 30

Quantity Cost per unit Total
Direct Materials
Plastic 410  5 2,050
Metals 65 4 260  2,310

Finished goods
Cat-allac 30 168.60 5,058
Dog-eriffic 10 296.20 2,962 8,020
Total ending inventory 10,330

7.
Cost of Goods Sold Budget
For the Month of April
Beginning finished goods inventory, April, 1 (1,000 + 4,650)  5,650
Direct materials used (requirement 3) 18,829
Direct manufacturing labor (requirement 4) 27,000
Manufacturing overhead (requirement 5) 108,692
Cost of goods manufactured 154,521
Cost of goods available for sale 160,171
Deduct: Ending finished goods inventory, April 30 (requirement 6) 8,020
Cost of goods sold 152,151

8.
Nonmanufacturing Costs Budget
For the Month of April
Salaries (32,000  2 1.05)
16,800
Other fixed costs (32,000  2) 16,000
Sales commissions (178,400 1)
1,784
Total nonmanufacturing costs 34,584

9.
Budgeted Income Statement
For the Month of April
Revenues 178,400
Cost of goods sold 152,151
Gross margin 26,249
Operating (nonmanufacturing) costs 34,584
Operating income  (8,335)

10. Preparing a budget helps Animal Gear manage costs based on revenues and production needs, look for opportunities to increase efficiencies, reduce costs, particularly in areas where costs are high, coordinate and communicate across different parts of the organization, create a framework for judging performance and facilitating learning, and motivate management and employees to achieve stretch targets of higher revenues and lower costs.

Answer to Question 2

True