Activity-Based Budgeting (ABB) OFC Company of Kansas City prints business forms andother specialty paper products, such as writing paper, envelopes, note cards, and greeting cards. ItsBusiness Services division offers inventory management services and desktop delivery on request.The division uses an activity-based costing (ABC) system. The budgeted usage of each activity costdriver and cost-driver rates for January 2019 for the Business Services division are:Activity Cost Driver Budgeted Activity Cost-Driver RateStorage Cartons in inventory 400,000 $0.4925/carton/monthRequisition handling Requisitions 30,000 12.50Pick packing Lines 800,000 1.50Data entry Lines 800,000 0.80Requisitions 30,000 1.20Desktop delivery Per delivery 12,000 30.00For the month, the division expects to make 11,700 deliveries to deliver 1,170,000 cartons tocustomers.Required1. What is the total budgeted cost for each activity and for the Business Services division in January 2019?2. Assume, in contrast to requirement 1, that activity-related information was not available. Rather, theonly information available is that the budgeted fixed costs for the month are $1,000,000, and the budgeted variable cost per carton is estimated as $1.30. What is the budgeted total cost for the month usingthis single volume-based approach? Compare and comment on the difference in your answers to requirements 1 and 2.
Master Budget
A master budget can be defined as an estimation of the revenue earned or expenses incurred over a specified period of time in the future and it is generally prepared on a periodic basis which can be either monthly, quarterly, half-yearly, or annually. It helps a business, an organization, or even an individual to manage the money effectively. A budget also helps in monitoring the performance of the people in the organization and helps in better decision-making.
Sales Budget and Selling
A budget is a financial plan designed by an undertaking for a definite period in future which acts as a major contributor towards enhancing the financial success of the business undertaking. The budget generally takes into account both current and future income and expenses.
Activity-Based Budgeting (ABB) OFC Company of Kansas City prints business forms and
other specialty paper products, such as writing paper, envelopes, note cards, and greeting cards. Its
Business Services division offers inventory management services and desktop delivery on request.
The division uses an activity-based costing (ABC) system. The budgeted usage of each activity cost
driver and cost-driver rates for January 2019 for the Business Services division are:
Activity Cost Driver Budgeted Activity Cost-Driver Rate
Storage Cartons in inventory 400,000 $0.4925/carton/month
Requisition handling Requisitions 30,000 12.50
Pick packing Lines 800,000 1.50
Data entry Lines 800,000 0.80
Requisitions 30,000 1.20
Desktop delivery Per delivery 12,000 30.00
For the month, the division expects to make 11,700 deliveries to deliver 1,170,000 cartons to
customers.
Required
1. What is the total budgeted cost for each activity and for the Business Services division in January 2019?
2. Assume, in contrast to requirement 1, that activity-related information was not available. Rather, the
only information available is that the budgeted fixed costs for the month are $1,000,000, and the budgeted variable cost per carton is estimated as $1.30. What is the budgeted total cost for the month using
this single volume-based approach? Compare and comment on the difference in your answers to requirements 1 and 2.
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