ACCT 2203 Lecture Notes - Lecture 6: Budget, Indian Railways, Fixed Cost

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7 Mar 2017

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This will (cid:271)e o(cid:374) test 2, it"s i(cid:373)po(cid:396)ta(cid:374)t to k(cid:374)ow the o(cid:396)de(cid:396). It will (cid:271)e(cid:374)efit you g(cid:396)eatly if you study this a little every day. Units to sell x selling price: production. Units to make: dm this is a process! Materials needed for production (1000) (+200) (-100) (1100) (1100) (x 2) (2,200) X cost per unit (-200) (2,400) (x 5) Total cost of materials purchases (12,000: dl. Budgeted oh (1100) (x . 5) (x 12) (6,600) (1100) (x . 5) (550) (50,000) (50,550: this will not be on test 2 administrative costs. Total actual cost (standard price x quantity) Materials quantity variance (actual usage standard usage) x standard price. Labor efficiency variance (actual usage standard usage allowed) x standard price. Total actual cost- (standard price x act quantity) Fixed oh per unit x (units budgeted units made) Fixed cost per hour x (hours budgeted standard hours allowed) Find center line to find fixed cost on graph.

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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

lemonhamster976

1. Merchant Co. expects to sell 10,000 units at $120 each. Eachunit is expected to require 2lbs. of material @ $10/lb. and 3direct labor hours @ $5/DLH. The overhead rate is estimated to be$15/DLH. The beginning inventories are: DM 1,000 lbs. and FinishedGoods 2,000 units. The budgeted ending inventories are: DM 2,000lbs. and Finished Goods 1,000 units.

What is Merchant Co's budgeted sales (in $)?

What is Merchant Co's budgeted production (in units)?

Assuming a production of 9,500 units, what is the budgetedmaterials purchase (in lbs.& $)?

Based on your answer to (2), what is the budgeted cost perunit?

Based on your answer to (2), what is the budgeted cost of goodssold?

Based on your answer to (2), what is the budgeted cost for DL& FOH respectively?

Problem 2

Country Heather manufactures flower pots. It expects to sell26,000 pots in 2014. The company had enough beginning inventory ofdirect materials to produce 8,000 pots and wants to maintain anending direct materials inventory to produce 12,000 pots. Beginninginventory of finished pots totaled 2,000 pots and the company had adesired ending inventory of finished pots of 3,000 pots. The potssell for $12 each. Direct material cost is $2.50 per pot, directlabor cost is $1.35 per pot, and factory overhead is 85Â¢ perpot.

Determine the budgeted sales for 2014 (in $)

Determine the budgeted production for 2014 (in pots)

Determine the budgeted cost of goods sold for 2014 (in $)

Determine the budgeted cost for DM, DL, & FOH for 2014.

Problem 3

Maddox Co's forecast of sales is as follows: October $40,000;November $80,000; December $120,000. Sales are 70% cash and 30%credit in any month. Credit sales are collected in full in thefollowing month.

Determine the budgeted cash receipts for each of the 3months?

Calculate the balance of Accounts Receivable on October 31 &November 30?

Litres:
Beginning work in process inventory	2,800	litres
Started production	4,620	litres
Completed and transferred out to Packagingin March	6,420	litres
Ending work in process inventory (80% ofthe way through
the fermenting process)	1,000	litres
Costs:
Beginning work in process inventory($2,200 of direct
materials and $1,462 of conversioncost)	$3,662
Costs added during March:
Direct materials	10,414
Direct labour	950
Manufacturing overhead	1,920
Total costs added during March	$13,284

1.	Fill in the time line for the Fermenting Department.
2.	Summarize the flow of physical units and compute the totalequivalent units.
3.	Summarize total costs to account for and compute the cost perequivalent unit for direct materials and conversion costs.
4.	Assign total costs to unitsâ (litres):
	a. Completed and transferred out to thePackaging Department b. In the Fermenting Department ending work inprocess inventory
5.	Whatis the average cost per litre transferred out of Fermenting intoâpackaging? Why would JohnsonJohnson âVineyard's managers want toknow thisâ cost?

Requirement 1. Fill in the time line for the FermentingDepartment.

Start

100%

Complete

Transferred out to Packaging

Requirement 2. Summarize the flow of physical units and computethe total equivalent units.

Johnson Vineyards
Fermenting Department
Flow of Physical Units and Computation of Equivalent Units
	Flow of	Equivalent Units
	Physical	Direct	Conversion
Flow of Production	Units	Materials	Costs
Units to account for:



Units accounted for:



Total equivalent units

Requirement 3. Summarize total costs to account for and computethe cost per equivalent unit for direct materials and conversioncosts. â(Round the cost per equivalent unit to the nearestâcent.)

Johnson Vineyards
Fermenting Department
Cost per Equivalent Unit
	Direct	Conversion
	Materials	Costs	Total




Cost per equivalent unit

Requirement 4. Assign total costs to unitsâ (litres):

Now we can calculate the total cost of the units for a.completed and transferred out to the Packaging Department and b.the Fermenting Department ending work in process. â(Enterquantitiesâ first, then the cost per equivalent unit amounts in thesame order as calculated in the preceding step. Round your answersto the nearestâ cent.)

Johnson Vineyards
Fermenting Department
Assignment of Costs
	Assign costs:	Direct Materials		Conversion Costs		Total
a.			x (	+	)
b.
			x
					x

	Total cost accounted for

Requirement 5. What is the average cost per litre transferredout of Fermenting intoâ Packaging? Why would Johnson âVineyard'smanagers want to know thisâ cost?

First identify the labels to compute the average cost per litretransferredâ out, then compute the average cost per unit. â(Roundyour answer to the nearestâ cent.)

				Avg. cost
	/		=	per litre

Why would Johnson âVineyard's managers want to know thisâcost?

Managers will want to know this cost to compare it to their.................budgeted target costs cost per equivalent unitdirect material costs . They may also use the cost information when..................

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ACCT 2203 Lecture Notes - Lecture 6: Budget, Indian Railways, Fixed Cost

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