ACTG 1P12 Lecture 3: Lecture 3 01:15:18

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redmosquito980

16 Apr 2018

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Product cost = direct material + direct labor + manufacturing overhead. Manufacturing cost = direct material + direct labor + manufacturing overhead. Balance sheet inventories: merchandising companies have only one category of inventory, merchandise inventory. Beginning merchandise inventory + purchases ending inventory = cost of goods sold. Typical balance sheet: merchandise purchases, product costs, balance sheet, merchandise inventory. Income statement: revenue, cogs, gross profit, marketing and admin costs (period costs, operating income. Beginning finished goods inventory + costs of goods manufactured ending finished goods. Cost of goods manufactured: work-in process partially completed units of product, total manufacturing costs sum of direct material costs, direct labor costs and manufacturing overhead, all incurred during the current period. Beginning work-in process + total manufacturing cost = total cost of work-in process. Total cost of work-in process ending work in process inv. Cost of goods manufactured = work-in process (1/1) + total mc work-in process (12/31)

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Information for this problem.

Tyva makes a very popular undyed cloth sandal in one style, butin Regular and Deluxe. The regular sandals have cloth soles andDeluxe sandals have cloth-covered wooden soles.

Tyva is preparing its budget for June 2015 and has estimatedsales based on past experience.

Input prices

Direct Materials

Cloth $5.25 per yard and Wood at $7.50 per boardfoot

Direct Manufacturing labor $15 per direct manufacturinglabor-hour

Input Quantities per Unit of Output (per pair ofsandals)

Direct Materials

Cloth 1.3 yards (Regular sandals) Cloth 1.5 yards (Deluxe Sandals)

Wood 0 (Regularsandals) Wood 2 b.f.(Deluxe sandals)

Direct Manufacturing labor hours(DMLH) 5 hours (Regularsandals) 7 hours (deluxe sandals)

Set-up hours per batch 2 hours(Regular sandals) 3 hours (Deluxesandals)

Inventory Information, Direct Materials

BeginningInventory (Cloth) 610 yards (Wood) 800b.f.

Target ending inventory (Cloth)386 yards (Wood) 295 b.f.

Cost of beginning inventory (Cloth) $3,219 (Wood) $6,060

Tyva accounts for direct materials using a FIFO costflow assumption.

Sales and Inventory Information, FinishedGoods

Expected sales in units (pairs of sandals) (Regular sandals)2,000 (Deluxesandals) 3,000

Selling price (Regular)$120 Deluxe($195)

Target ending inventory inunits (Regular)400 (Deluxe) 600

Beginning inventory in units (Regular) 250 (Deluxe) 650

Beginning inventory in dollars (Regular) $23,250 (Deluxe) $92,625

Tyva uses a FIFO cost flow assumption for finished goodsinventory.

All the sandals are made in batches of 50 pairs ofsandals. Tyva incurs manufacturing overhead costs, marketing andgeneral administration, and shipping costs. Besides materials andlabor, manufacturing costs include setup, processing, andinspection costs. Tyva ships 40 pairs of sandals per shipment. Tyvauses activitybased costing and has classified all overhead costsfor the month of June as shown in the following chart:

Manufacturing

Setup (CostType) Set-up hours (Denominator Activity) $18 per set up hr (Rate)

Processing (CostType) Directmanufacturing labor hours (D. Activity) $1.80 per DMLH(Rate)

Inspection (Cost Type) Number of pais of sandals (D.Activity) $1.35 per pair (Rate)

Nonmanufacturing

Marketing andGeneral Admin (CostType) Sales Revenue ( D.Activity) 8% (Rate)

Shipping (CostType) # of shipments (D.Activity) $15 pershipment (Rate)

1) Using the information provided prepare each of thefollowing for June:

a. Revenues budget

b.Production budget in units

c. Direct Material usage budget and Direct Materialpurchase 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

f. Budgeted unit cost of ending finished goods inventoryand ending inventories budget.

g. Cost of goods sold budget.

h. Marketing and General Admin. and shipping costsbudget.

2)Tyva's balance sheet for May 31 follows.

Assets:

Cash $9,435

A/R $324,000

Less: Allowance for bad debts $16,200

Inventories:

Direct Materials $9,279

Finished Goods $115,875

Fixed Assets $870,000

Less Accumulated Depreciation $136,335

Total Assets: $1,176,054

Liabilities and Equity

A/P $15,600

Taxes Payable $10,800

Interest Payable $750

Long Term Debt $150,000

Common Stock $300,000

Retained Earnings $698,904

Total Liabilities and equity $1,176,054

Using the balance sheet and the following information toprepare a cahs budget

for Tyva for June. Round to dollars.

- All sales are on account; 60% are collected in the month ofthe sale, 38% are collected the

following month, and 2 % are never collected and written off asbad 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 thedeclaration 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 themonth of June. Income tax

expense for June is zero.

- 30% of processing, setup, and inspection costs and 10% ofmarketing and general administration

and shipping costs are depreciation.

3) Prepare a budgeted income statement for June and abudgeted balance sheet for Tyva as of June 30,2105.

**** This is the third time I've submitted this questionhopefully someone can help!

cyanturtle423

Variable Costing

An approach to measuring profitability that avoids the problemsinherent in making fixed overhead look like a variable cost isvariable costing. Variable costing (sometimes called directcosting) assigns only unit-level variable manufacturing costs tothe product; these costs include direct materials, direct labor,and variable overhead. Fixed overhead is treated as a period costand is not inventoried with the other product costs. Instead, it isexpensed in the period incurred.

The result of treating fixed manufacturing overhead as a periodexpense is to reduce the factory costs that are inventoriable.Under variable costing, only direct materials, direct labor, andvariable overhead are inventoried. (Remember that marketing andadministrative expenses are never inventoried-whether variable orfixed.)

Example: Fender Company showed the followingunit costs for its product:


Direct materials	$1.15
Direct labor	0.60
Variable overhead	0.22
Fixed overhead*	2.44
*Based on capacity of 29,800units.

Last year, Fender made 29,800 units and sold 27,700 units at aprice of $9.01. Selling and administrative expense equaled $49,170(all fixed). Beginning Finished Goods Inventory contained 410 unitswith cost of $1,808.10.

Cost of one unit under variablecosting	= Direct materials + Direct labor +Variable overhead
	= $1.15 + $0.60 + $0.22 =$1.97

Units in ending Finished GoodsInventory	= 410 + 29,800 - 27,700 = 2,510units

Ending Finished GoodsInventory	= 2,510 Ã $1.97 = $4,944.70

The income statement for Fender Company is as follows:


Sales		$249,577
Variable cost of Goods Sold ($1.97Ã 27,700)		54,569
Contribution margin		$195,008
Less:
Fixed overhead	72,712
Selling andadministrative expense	49,170	121,882
Variable-costing operatingincome		$73,126

Notice that all of the fixed factory overhead of $72,712 ($2.44Ã 29,800) and the variable cost of manufacturing for the units sold($1.97 Ã 27,700 units sold) appear on the variable-costing incomestatement. None of the fixed factory overhead is attached to unsoldunits added to Finished Goods inventory because the fixed overheadis treated as a period expense. Only the variable cost ofmanufacturing ($1.97 Ã 2,100) is added to Finished Goods inventory- attached to the 2,100 units that were produced but not sold.

1.	Under variable costing, ifbeginning Finished Goods Inventory equaled zero, the value ofending Finished Goods Inventory would be $?? .

2.	Ignoring question 1 above,if Fender Company sold 30,020 units, there wouldbe units in ending Finished Goods Inventory with a valueof $?? (round to the nearest cent).

Reconciling the Difference Between Absorption andVariable Costing

When inventories change from the beginning to the end of theperiod, the two costing approaches will give different operatingincomes. The reason for this is that absorption costing assignsfixed manufacturing overhead to units produced. If those units aresold, the fixed overhead appears on the income statement under costof goods sold. If the units are not sold, the fixed overhead goesinto inventory. Under variable costing, however, all fixed overheadfor the period is expensed. As a result, absorption costing allowsmanagers to manipulate operating income by producing for inventory.Let's compare the income statements under the two methods forFender Company.

Example: Fender Company showed the followingunit costs for its product:


Direct materials	$1.15
Direct labor	0.60
Variable overhead	0.22
Fixed overhead*	2.44
*Based on capacity of 29,800units.

Absorption-CostingIncome		Variable CostingIncome
Sales	$249,577.00	Sales	$249,577.00
COGS ($4.41 Ã 27,700)	122,157.00	Variable COGS ($1.97 Ã 27,700)	54,569.00
Gross margin	$127,420.00	Contribution margin	$195,008.00
Less:		Fixed overhead	72,712
Selling & admin.exp	49,170	Selling & admin. exp.	49,170
Operating income	$78,250.00	Operating income	$73,126.00

There is a difference of $5,124 between the absorption-costingoperating income and the variable-costing operating income. This$5,124 is caused by the different treatment of fixed factoryoverhead. Under absorption costing, the 2,100 units added to endinginventory took not only the $1.97 of variable manufacturing cost,but also $2.44 per unit in fixed overhead. Under variable costing,however, all the fixed factory overhead of $72,712 was expensed.None of it was added to units going into ending inventory.

Absorption-costing income -Variable-costing income	= Change in inventory Ã fixedoverhead rate
	= 2,100 units Ã $2.44 = $5,124

What if more units are sold than are produced? That is, what ifending inventory is less than beginning inventory? Let's look atthe comparative income statement assuming Fender sells 29,890units.

Absorption-CostingIncome		Variable CostingIncome
Sales	$269,308.9	Sales	$269,308.9
COGS ($4.41 Ã 29,890)	131,814.9	Variable COGS ($1.97 Ã 29,890)	58,883.3
Gross margin	$137,494	Contribution margin	$210,425.6
Less:		Fixed overhead	72,712
Selling & admin.exp	49,170	Selling & admin. exp.	49,170
Operating income	$88,324	Operating income	$88,543.6

Now we see that variable-costing income is higher thanabsorption costing income. This is because each of the 90 unitsthat came out of inventory had $2.44 of fixed overhead attached.However, this did not occur under variable costing.

Absorption-costing income -Variable-costing income	= Change in inventory Ã fixedoverhead rate
	= 90 units Ã $2.44 = $219.60

The following table summarizes the impact of changes ininventory on the difference between absorption-costing income andvariable-costing income.

Changes in Inventoryunder Absorption and Variable Costing
If	Then
Production > Sales	Absorption-costing income >Variable-costing income
Production < Sales	Variable-costing income >Absorption-costing income
Production = Sales	Absorption-costing income =Variable-costing income

The variable-costing income statement has an advantage inaddition to providing better signals regarding performance. It alsoprovides more useful information for management decision making.For example, how much more will Fender Company earn if it sells onemore unit? Under absorption costing, the per-unit gross profit is$4.60 ($9.01 - $4.41). However, that figure includes some fixedoverhead, and fixed overhead will not change if another unit isproduced and sold. The variable-costing gives more usefulinformation. Additional contribution margin of the extra unit is$7.04 ($9.01 - $1.97). The key insight of variable costing is thatfixed expenses do not change as units produced and sold change.Therefore, while the variable-costing income statement cannot beused for external reporting, it is a valuable tool for somemanagement decisions.

peachbee229

Comprehensive budgeting problem; activity-based costing,operating and financial budgets. Tyva makes a very popular undyedcloth sandal in one style, but in Regular and Deluxe. The Regularsandals have cloth soles and the Deluxe sandals have cloth-coveredwooden soles. Tyva is preparing its budget for June 2015 and hasestimated 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 manufacturinglabor-hour

Input Quantities per Unit of Output (per pair ofsandals)

	Regular	Deluxe
Direct materials
Cloth	1.3 yards	1.5 yards
Wood	0	2 b.f.
Direct manufacturing labor-hours	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 flowassumption.

Sales and Inventory Information, FinishedGoods

	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 goodsinventory.

All the sandals are made in batches of 50 pairs of sandals. Tyvaincurs manufacturing overhead costs, marketing and generaladministration, and shipping costs. Besides materials and labor,manufacturing costs include setup, processing, and inspectioncosts. Tyva ships 40 pairs of sandals per shipment. Tyva usesactivity-based costing and has classified all overhead costs forthe month of June as shown in the following chart:

Cost Type	Denominator Activity	Rate
Manufacturing
Setup	Setup hours	$18 per setup hour
Processing	Direct man. Labor-hours	$1.80 per DMLH
Inspection	Number of pairs of sandals	$1.35 per pair
Nonmanufacturing
Marketing & general admin	Sales revenue	8%
Shipping	Number of shipments	$15 per shipment

Questions

1.Prepareeach of the following for June:

a.Revenuesbudget

b.Productionbudget in units

c.Directmaterial usage budget and direct material purchases budget in bothunits and dollars, round to dollars

d.Directmanufacturing labor cost budget

e.Manufacturing overhead cost budgets forsetup, processing, and inspection activities

f.Budgetedunit cost of ending finished goods inventory and ending inventoriesbudget

g.Cost ofgoods sold budget

h.Marketingand general administration and shipping costs budget

Tyvaâs balance sheet for May 31 follows.

TYVA BALANCE SHEET AS OF MAY 31

Assets
Cash		9,435
Accounts Receivable	324,000
Less: allowance for bad debts	16,200	307,800
Inventories
Direct materials		9,279
Finished goods		115,875
Fixed assets	870,000
Less: accumulated depreciation	136,335	733,665
Total assets		1,176,054

Liabilities and Equity

Liabilities and Equity
Accounts payable	15,600
Taxes payable	10,800
Interest payable	750
Long-term debt	150,000
Common stock	300,000
Retained earnings	698,904
Total liabilities & equity	1,176,054

Use the balance sheet and the following information to prepare acash budget for Tyva for June. Round to dollars.

All sales are on account; 60% are collected in the month of thesale, 38% are collected the following month, and 2% are nevercollected and written off as bad debts.

All purchases of materials are on account. Tyva pays for 80% ofpurchases in the month of purchase and 20% in the followingmonth.

All other costs are paid in the month incurred, including thedeclaration and payment of a $15,000 cash dividend in June.

Tyva is making monthly interest payments of 0.5% (6%per year) ona $150,000 long-term loan.

Tyva plans to pay the $10,800 of taxes owed as of May 31 in themonth of June. Income tax expense for June is zero.

30% of processing, setup, and inspection costs and 10% ofmarketing and general administration and shipping costs aredepreciation.

Prepare a budgeted income statement for June and a budgetedbalance sheet for Tyva as of June 30, 2015.

Listed below are the answers to the first question. Ijust need help with preparing a cash budget for June, and abudgeted income statement and budgeted balance sheet as of June30.

1
a.	Revenue Budget
	For the Month of June 2015
				Regular	Deluxe
	Expected sales in units			2,000	3,000
	Selling price			120	195
	Total sales			$240,000	$585,000

b.	Production Budget in Units
	For the Month of June 2015
						Regular	Deluxe
	Budgeted unit sales					2,000	3,000
	Add: target ending finished goods inventory					400	600
	Total required units					2,400	3,600
	Deduct: beginning finished goods inventory					250	650
	Units of finished goods to be produced					2,150	2,950

c.	Direct Material Usage Budget in Units andDollars
	For the Month of June 2015
	Direct materials required for
			Cloth	Wood	Cloth	Wood
		Units	Yards	B.F.	Total	Total
	Regular	2,150	1.3	0	2,795	0
	Deluxe	2,950	1.5	2	4,425	5,900
					7,220	5,900
	Cost Budget - to be purchased
			Beg.	Need to	Cost to
			Inv.	purchase	purchase
	Cloth	7,220	610	6,610	5.25	34,703
	Wood	5,900	800	5,100	7.5	38,250
						72,953

	Cost of direct materials to be used thisperiod
			available from beginning inventory				Total
	Cloth	34,703	3,219				37,922
	Wood	38,250	6,060				44,310
							82,232

	Direct Materials Purchases Budget
	For the Month of June 2015
						Cloth	Wood	Total
	Physical units budget
	To be used in production					7,220	5,900
	Add: target ending direct material inventory					386	295
	Total requirements					7,606	6,195
	Deduct: beginning direct material inventory					610	800
	Purchases to be made					6,996	5,395
	Cost of product					5.25	7.5
	Totals					36,729	40,463	77,192

d.	Direct Manufacturing Labor Cost Budget
	For the Month of June 2015
		Output	Labor hrs	Total	Wage	Total
		units	per unit	hours	rate
	Regular	2,150	5	10,750	15	161,250
	Deluxe	2,950	7	20,650	15	309,750
				31,400		471,000

e.	Manufacturing Overhead Cost Budget for Setup,Processing, and Inspection Activities
	For the Month of June 2015
	Total production		2,150	2,950	5,100
	Total sales		2,000	3,000	5,000
	No. of setup hours		86	118	204
	No. of shipments		50	75	125
	Labor hours		10,750	20,650	31,400

			Setup	Processing	Inspection	Total
	Allocation		Setup hrs	Labor hrs	No. pairs
	Rate		18	1.8	1.35
	No. of Activity		204	31,400	5,100
	Total		3,672	56,520	6,885	67,077

f.	Budgeted Unit Cost of Ending Finished GoodsInventory
	For the Month of June 2015
				Cost per	Regular	Total	Deluxe	Total
				Unit of	Input per		Input per
				Input	Unit		Unit
					Output		Output
	Cloth			5.25	1.3	6.825	1.5	7.875
	Wood			7.5	0	0	2	15
	Direct Manufacturing hours			15	5	75	7	105
	Machine setup			18	0.04	0.72	0.06	1.08
	Processing			1.8	5	9	7	12.6
	Inspection			1.35	1	1.35	1	1.35
	Total					92.895		142.905

	Ending Inventories Budget
	For the Month of June 2015
			Quantity	Cost per		Total
				Unit
	Direct materials
	Cloth		386	5.25	2026.5
	Wood		295	7.5	2212.5	4239
	Finished goods
	Regular		400	92.895	37158
	Deluxe		600	142.905	85743	122901
	Total ending inv.					127140

g.	Cost of Goods Sold Budget
	For the Month of June 2015
						Regular	Deluxe
	Beginning finished goods inventory, Jun 1					23250	92625		115875
	Direct materials used (c)							82232
	Direct manufacturing labor (d)							471000
	Manufacturing overhead (e)							67077
	Cost of goods manufactured								620309
	Cost of goods available for sale								736184
	Deduct ending finished goods inventory, June 30(f)								122901
	Cost of goods sold								613283

h.	Nonmanufacturing Costs Budget
	For the Month of June 2015
	Marketing and general administration				825000	0.08	66000
	Shipping
	(5,000 pairs / 40 pairs per shipment)				125	15	1875
	Total						67875

Again, I just need help with the cash budget question, and thebudgeted income statement and budgeted balance sheet as ofJune.

Thank you!

fuchsiacrow438

ACTG 1P12 Lecture 3: Lecture 3 01:15:18

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