Concept explainers
Comprehensive budgeting problem; activity-based costing, operating and financial budgets. Tyva makes a very popular undyed cloth sandal in one style, but in Regular and Deluxe. The Regular sandals have cloth soles and the Deluxe sandals have cloth-covered wooden soles. Tyva is preparing its budget for June 2018 and has estimated sales based on past experience.
Other information for the month of June follows:
Input Prices
Direct materials | |
Cloth | $5.25 per yard |
Wood | $7.50 per board foot |
Direct manufacturing labor | $15 per direct manufacturing labor-hour |
Input Quantities per Unit of Output (per pair of sandals)
Regular | Deluxe | |
Direct materials | ||
Cloth | 1.3 yards | 1.5 yards |
Wood | 0 | 2 b.f. |
Direct manufacturing labor-hours (DMLH) | 5 hours | 7 hours |
Setup-hours per batch | 2 hours | 3 hours |
Inventory Information, Direct Materials
Cloth | Wood | |
Beginning inventory | 610 yards | 800 b.f. |
Target ending inventory | 386 yards | 295 b.f. |
Cost of beginning inventory | $3,219 | $6,060 |
Tyva accounts for direct materials using a FIFO cost-flow assumption.
Sales and Inventory Information, Finished Goods
Regular | Deluxe | |
Expected sales in units (pairs of sandals) | 2,000 | 3,000 |
Selling price | $ 120 | $ 195 |
Target ending inventory in units | 400 | 600 |
Beginning inventory in units | 250 | 650 |
Beginning inventory in dollars | $23,250 | $92,625 |
Tyva uses a FIFO cost-flow assumption for finished-goods inventory.
All the sandals are made in batches of 50 pairs of sandals. Tyva incurs manufacturing
Cost Type | Denominator Activity | Rate |
Manufacturing | ||
Setup | Setup-hours | $ 18 per setup-hour |
Processing | Direct manufacturing labor-hours (DMLH) | $1.80 per DMLH |
Inspection | Number of pairs of sandals | $1.35 per pair |
Nonmanufacturing | ||
Marketing and general administration | Sales revenue | 8% |
Shipping | Number of shipments | $ 15 per shipment |
- 1. Prepare each of the following for June:
- a. Revenues budget
- b. Production budget in units
- c. Direct material usage budget and direct material purchases budget in both units and dollars; round to dollars
- d. Direct manufacturing labor cost budget
- e. Manufacturing overhead cost budgets for setup, processing, and inspection activities
- f. Budgeted unit cost of ending finished-goods inventory and ending inventories budget
- g. Cost of goods sold budget
- h. Marketing and general administration and shipping costs budget
- 2. Tyva’s balance sheet for May 31 follows.
Tyva Balance Sheet as of May 31
Assets | ||
Cash | $ 9,435 | |
Accounts receivable | $324,000 | |
Less: Allowance for |
16,200 | 307,800 |
Inventories | ||
Direct materials | 9,279 | |
Finished goods | 115,875 | |
Fixed assets | $870,000 | |
Less: |
136,335 | 733,665 |
Total assets | $1,176,054 |
Liabilities and Equity | |
Accounts payable | $ 15,600 |
Taxes payable | 10,800 |
Interest payable | 750 |
Long-term debt | 150,000 |
Common stock | 300,000 |
698,904 | |
Total liabilities and equity | $1,176,054 |
Use the balance sheet and the following Information to prepare a
- All sales are on account; 60% are collected in the month of the sale, 38% are collected the following month, and 2% are never collected and written off as bad debts.
- All purchases of materials are on account. Tyva pays for 80% of purchases in the month of purchase and 20% in the following month.
- All other costs are paid in the month incurred, including the declaration and payment of a $15,000 cash dividend in June.
- Tyva is making monthly interest payments of 0.5% (6% per year) on a $150,000 long-term loan.
- Tyva plans to pay the $10,800 of taxes owed as of May 31 in the month of June. Income tax expense for June is zero
- 30% of processing, setup, and inspection costs and 10% of marketing and general administration and shipping costs are depreciation.
- 3. Prepare a
budgeted income statement for June and a budgeted balance sheet for Tyva as of June 30, 2018.
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