Concept explainers
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:
Input Prices
Direct materials | |
Plastic | $5 per pound |
Metal | $4 per pound |
Direct manufacturing labor | $10 per direct manufacturing labor-hour |
Input Quantities per Unit of Output
Cat-allac | Dog-eriffic | |
Direct materials | ||
Plastic | 4 pounds | 6 pounds |
Metal | 0.5 pounds | 1 pound |
Direct manufacturing labor-hours | 3 hours | 5 hours |
Machine-hours (MH) | 11 MH | 19 MH |
Animal Gear accounts for direct materials using a FIFO cost-flow assumption.
Sales and Inventory Information, Finished Goods
Cat-allac | Dog-eriffic | |
Expected sales in units | 530 | 225 |
Selling price | $ 205 | $ 310 |
Target ending inventory in units | 30 | 10 |
Beginning inventory in units | 10 | 19 |
Beginning inventory in dollars | $1,000 | $4,650 |
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:
Cost-Driver Information
Cat-allac | Dog-eriffic | |
Number of units per batch | 25 | 9 |
Setup time per batch | 1.50 hours | 1.75 hours |
inspection time per batch | 0.5 hour | 0.7 hour |
If necessary, round up to calculate number of batches.
Nonmanufacturing fixed costs for March equal $32.000, half of which are salaries. Salaries are expected to increase 5% in April. Other nonmanufacturing fixed costs will remain the same. The only variable nonmanufacturing cost is sales commission, equal to 1% of sales revenue.
Prepare the following for April:
- 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?
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