ACC 406 Lecture Notes - Lecture 2: Cost Driver, Gross Margin, Fixed Cost
Get access
Related Documents
Related Questions
Show your work
Preparing a Comprehensive Budget
Ginnie Springs Company has been bottling and selling water since1940. The companyâs current owner would like to know how a newproduct would affect the companyâs rent income in the comingyear.
Required
Calculate Ginnie Springs net income for the new product in thecoming year by completing the operating budgets and budgeted incomestatement that follow. Assume that the selling price will remainconstant.
Sales budget
Ginnie Springs Company
Sales Budget
Forthe year Ended December 31
Quarter
1 | 2 | 3 | 4 | Year | |
Sales in Units | 40,000 | 30,000 | 50,000 | 55,000 | 175,000 |
Selling price per unit | X $1 | X ? | X ? | X ? | X ? |
Totals Sales | 40,000 | $ ? | X ? | X ? | X ? |
2. Production Budget:
Ginnie SpringsCompany
ProductionBudget
For the year Ended December31_____________
Quarter
1 | 2 | 3 | 4 | Year | |
Sales in Units | 40,000 | ? | ? | ? | ? |
Plus desired units of ending finished goods inventory* | 30,000 | ? | ? | 6000 | 6000 |
Desired total Units | 43000 | ? | ? | ? | ? |
Less desired units of ending finished goods inventory* | 4000 | ? | ? | ? | 4000 |
Total Production units | 39,000 | ? | ? | ? | ? |
*Desired units of ending finished goods inventory = 10% of nextquarterâs budgeted production needs in ounces. Desired ounces ofbeginning direct materials inventory = 20% of current quartersbudgeted production needs in ounces.
3.DirectMaterials Purchases budget
Ginnie SpringsCompany
Direct Materials PurchaseBudget
For the year Ended December31_____________
Quarter
1 | 2 | 3 | 4 | Year | |
Total production units | 39,000 | 32,000 | 50,500 | 55,500 | ? |
Ounces per unit | X 20 | X 20 | X 20 | X 20 | X 20 |
Total production needs in ounces | 780,000 | ? | ? | ? | ? |
Plus desired ounces of ending direct materials inventory* | 128,000 908,000 | ? ? | ? ? | 240,000 ? | 240,000 ? |
Less desired ounces of ending direct materials inventory* | 156,000 | ? | ? | ? | 156,000 |
Total ounces of direct material to be purchased | 752,000 | ? | ? | ? | ? |
Cost per ounce | X $0.01 | X ? | X ? | X ? | X ? |
Total cost of direct materials purchases | $7520 | ? | ? | ? | ? |
Desired ounces of ending direct material inventory =20% of nextquarters budgeted production needs in ounces.
Desired ounces of beginning direct materials inventory = 20% ofcurrent quarters budgeted production needs in ounces.
4.Directlabor budget:
Ginnie SpringsCompany
Direct LaborBudget
For the year EndedDecember 31_____________
Quarter
1 | 2 | 3 | 4 | Year | |
Total production units | 39,000 | ? | ? | ? | ? |
Direct labor hours per units | X 0.001 | X ? | X ? | X ? | X ? |
Total direct labor hours | 39.0 | ? | ? | ? | ? |
Direct labor cost per hour | X $8 | X ? | X ? | X ? | X ? |
Total direct labor cost | $312 | $ ? | $ ? | $ ? | $ ? |
5.Overheadbudget
Ginnie SpringsCompany
Overhead Budget
For the year EndedDecember 31_____________
Quarter
1 | 2 | 3 | 4 | Year | |
Variable overhead costs: | |||||
Factory supplies ($0.01) | $ 390 | $ ? | $ ? | $ ? | $ ? |
Employee benefits ($0.05) | 1,950 | ? | ? | ? | ? |
Inspection ($0.01) | 390 | ? | ? | ? | ? |
Maintenance and repairs($0.02) | 780 | ? | ? | ? | ? |
Utilities ($0.01) | 390 | ? | ? | ? | ? |
Total Variable overheadcosts | $3900 | $ ? | $ ? | $ ? | $ ? |
Total fixed overhead costs | 1416 | ? | ? | ? | ? |
Total overhead costs | $5,316 | $ ? | $ ? | $ ? | $ ? |
Note: The figures in parentheses are variable costs perunit.
6.Sellingand administrative expenses budget:
Ginnie SpringsCompany
Selling and Administrative Expenses Budget
For the year EndedDecember 31_____________
Quarter
1 | 2 | 3 | 4 | Year | |
Variable Selling and Administrative expenses | |||||
Delivery expenses ($0.01) | $ 400 | $ ? | $ ? | $ ? | $ ? |
Sales Commission ($0.02) | 800 | ? | ? | ? | ? |
Accounting ($0.01) | 400 | ? | ? | ? | ? |
Other administrative expenses($0.01) | 400 | ? | ? | ? | ? |
Total Variable selling and administrative exp. | $2,000 | $ ? | $ ? | $? | $? |
Total fixed selling and administrative exp. | 5000 | ? | ? | $? | ? |
Total selling and administrative expenses | $ 7,000 | $ ? | $ ? | $ ? | $ ? |
Note: The figures in parentheses arevariable costs per unit
7. Cost of goods manufactured budget:
Ginnie SpringsCompany
Cost of Goods Manufactured Budget
For the year EndedDecember 31_____________
Direct Material Used:
Direct Material Inventory,Beginning
Purchases
Cost of Direct materials available foruse
Less: Direct materials Inventory,ending
Cost of Direct Materialsused
Direct laborcosts:
Overhead costs:
Total manufacturing costs
Work in Process Inventory,beginning*
Less: work in process inventory,ending*
Cost of Goods Manufactured
Units produced
Manufactured cost perunit
It is the companyâs policy to have no units in process at theend of theyear.
8. Budgeted income statement
Ginnie Springs Company
Selling and Administrative Expenses Budget
For the year EndedDecember 31_____________
Sales
Cost of goods sold
Finished goods inventory beginning
Cost of goods manufactured
Cost of Goods available for sale
Less finished goods inventory, ending
Cost of good sold
Gross margin
Selling and administrative expenses
Income from operations
Income taxes expenses (30% tax rate)
Net Income
Using the below financial statements, determine certainnumber of variable costs and a fixed costs for the month of Dec.2016 and calculate the following:
Breakeven point in units
Breakeven point in $S
Assume a target income and determine how many units you need tosell in order to make your target income.
LINDSEYâS LIP SETS
Schedule of Cost of Goods Manufactured
For the Year Ending December 31, 2016
Direct Materials: | |||
Beginning Raw Materials Inventory, Jan. 1 | $100,000 | ||
Plus: Net purchases of raw material | $200,000 | ||
Raw materials available | $300,000 | ||
Less: Ending raw materials inventory, Dec. 31 | $150,000 | ||
Raw materials transferred to production | $150,000 | ||
Direct Labor | $200,000 | ||
Manufacturing Overhead | |||
Indirect materials | $10,000 | ||
Indirectlabor | $45,000 | ||
FactoryDepreciation | $10,000 | $65,000 | |
Total manufacturing costs | $415,000 | ||
Beginning work in process inventory Jan.1 | $50,000 | ||
Cost of goods manufactured | $530,000 | ||
Less: Ending work in process inventory, Dec. 31 | $2,000 | ||
Cost of goods manufactured | $528,000 |
LINDSEYâS LIP SETS
Schedule of Cost of Goods Sold
For the Year Ending December 31 2016
Beginning finished goods inventory, Jan. 1 | $20,000 |
Plus: Cost of goods manufactured | $528,000 |
Goods available forsale | $548,000 |
Less: Finished goods inventory, Dec. 31 | $10,000 |
Cost of goodssold | $538,000 |
LINDSEYâS LIP SETS
Income Statement
For the Year Ending December 31 2016
Sales | $3,200,000 | ||
Cost of goods sold | $538,000 | ||
Gross profit | $2,662,000 | ||
Operating expenses | |||
Online shop selling | $24,000 | ||
General administrative | $10,000 | $34,000 | |
Net income | $2,628,000 |
Outback, Ltd., manufactures tactical LED flashlights in Melbourne, Australia. The firm uses an absorption-costing system for internal reporting purposes; however, the company is considering using variable costing. Data regarding planned and actual operations for 20x4 follow: |
| Budgeted Costs | ||||||||
| |||||||||
Per Unit | Total | Actual Costs | |||||||
Direct material | $ | 12.20 | $ | 1,634,800 | $ | 1,512,800 | |||
Direct labor | 9.30 | 1,246,200 | 1,153,200 | ||||||
Variable manufacturing overhead | 4.30 | 576,200 | 533,200 | ||||||
Fixed manufacturing overhead | 4.50 | 603,000 | 613,000 | ||||||
Variable selling expenses | 7.50 | 1,005,000 | 877,500 | ||||||
Fixed selling expenses | 7.80 | 1,045,200 | 1,045,200 | ||||||
Variable administrative expenses | 2.80 | 375,200 | 327,600 | ||||||
Fixed administrative expenses | 2.80 | 375,200 | 384,200 | ||||||
| |||||||||
Total | $ | 51.20 | $ | 6,860,800 | $ | 6,446,700 | |||
| |||||||||
Planned Activity | Actual Activity | |||
Sales in units | 134,000 | 117,000 | ||
Production in units | 134,000 | 124,000 | ||
Beginning finished-goods inventory in units | 43,000 | 43,000 | ||
The budgeted per-unit cost figures were based on the company producing and selling 134,000 units in 20x4. Outback uses a predetermined overhead rate for applying manufacturing overhead to its product. A total manufacturing overhead rate of $8.80 per unit was employed for absorption costing purposes in 20x4. Any overapplied or underapplied manufacturing overhead is closed to the Cost of Goods Sold account at the end of the year. The 20x4 beginning finished-goods inventory for absorption costing purposes was valued at the 20x3 budgeted unit manufacturing cost, which was the same as the 20x4 budgeted unit manufacturing cost. There are no work-in-process inventories at either the beginning or the end of the year. The planned and actual unit selling price for 20x4 was $72.00 per unit. |
Required: |
1. | Compute the value of Outbackâs 20x4 ending finished-goods inventory under absorption costing. (Do not round intermediate calculations.) |
2. | Compute the value of Outbackâs 20x4 ending finished-goods inventory under variable costing. (Do not round intermediate calculations.) |
3. | Compute the difference between Outbackâs 20x4 reported operating income calculated under absorption costing and calculated under variable costing. (Do not round intermediate calculations.) |