Q.2 (Max Marks:90) Bombera Ltd operates at capacity and makes glass-topped dinin

Question

Q.2 (Max Marks:90)
Bombera Ltd operates at capacity and makes glass-topped dining tables and wooden chairs, which are then typically sold as sets of four chairs with one table. However, some customers purchase replacement or extra chairs, and others buy some chairs or a table only, so the sales mix is not exactly 4:1. Bombera Ltd is planning its annual budget for the financial year 2018. Information for 2018 follows:

Input prices   Direct materials Wood $5.30 per board metre Glass $11.5 per sheet Direct manufacturing labour $14 per direct manufacturing labour-hour

Input quantities per unit of output


Chairs Tables    Direct materials   Wood 1.2 board metres 1.7 board metres Glass — 2 sheets Direct manufacturing labour 3 hours 6 hours Machine-hours (MH) 2 MH 5 MH

Inventory information, direct materials


Wood Glass    Beginning inventory 27 200 board metres 8 700 sheets Target ending inventory 29 360 board metres 9 500 sheets   

ACT501 Semester 2, 2018 Page 4

Sales and inventory information, finished goods

Chairs Tables    Expected sales in units 172 000 45 000 Selling price $70 $900 Target ending inventory in units 8 400 2 050 Beginning inventory in units 7 500 2 150    Chairs are manufactured in batches of 500 and tables are manufactured in batches of 50. It takes three hours to set up for a batch of chairs and two hours to set up for a batch of tables. Bombera Ltd uses activity-based costing and has classified all overhead costs as shown in the table below:

Cost type
Budgeted variable
Budgeted fixed Cost driver/allocation base Manufacturing:    Materials handling $342 840 $600 000 Number of board metres used Set-up 97 000 300 740 Set-up hours Processing 789 250 5 900 000 Machine-hours Nonmanufacturing:    Marketing 2 011 200 4 500 000 Sales revenue Distribution 54 000 380 000 Number of deliveries

Delivery trucks transport units sold in delivery sizes of 500 chairs or 500 tables.
Required For the year 2018:


5. Prepare the direct materials usage budget and the direct materials purchases budget. (5 marks) 6. Use the direct materials usage budget to find the budgeted allocation rate for materials-handling costs. (2.5 marks) 7. Prepare the direct manufacturing labour cost budget. (1.5 marks) 8. Prepare the manufacturing overhead cost budget for materials handling, set-up and processing. (1.5 marks) 9. Prepare the budgeted unit cost of finished good (16.5 marks) and ending inventories budget. (4.5 marks) 10. Prepare the cost of goods sold budget. (3 marks) 11. Prepare the non-manufacturing overhead costs budget for marketing and distribution. (1 mark) 12. Prepare a budgeted income statement (ignore income taxes). (3 marks) 13. Compare the budgeted unit cost of a chair to its budgeted selling price. Why might Bombera Ltd continue to sell the chairs for only $70? (6 marks)

Explanation / Answer

5) S No Particulars Chairs (Units) Tables (Units) a) Estimated sales 172,000 45,000 b) Beginning Inventory                   7,500               2,150 c) Target Ending Inventory                   8,400               2,050 d) Production (a+c-b)               172,900             44,900 Material Requirements Input quantities per unit of output UOM Chairs Table Direct Material e) Wood board metres                 1.20          1.70 f) Glass sheets 2 Total wood Requirement for chair (board metres)            207,480 ( d*e) Total wood Requirement for Table (board metres)             76,330 (d*e) Total Glass Requirement (sheet)             89,800 (d*f) Direct Material Purchase Budget Wood (board metres) Glass (sheets) g) Total Requirement            283,810       89,800 h) Opening Inventory 27200 8700 i) Target Closing Inventory 29360 9500 j) Purchase (g+i-h)            285,970       90,600 Price $5.3 $11.50 Total Purchase Cost ($)         1,515,641 1,041,900 6) Budgeted Allocation Rate for Material Handling Budgeted Variable Budgeted Fixed Cost driver/allocation base Material Handling $ 342,840 600,000 Number of board metres used Estimated number of board metres to be used 283,810 Per unit Rate 1.21 Chair   Table number of board metres to be used per unit                 1.20               1.70 Variable Cost per unit of Material Handling Costs'                 1.45               2.05 Allocation of Fixed Overhead Total Number of Board meters       207,480.00       76,330.00 Allocated Fixed Material Handling Costs       438,631.48      161,368.52 3) Direct Manufacturing Labour cost Chairs Table Total k) Direct manufacturing hours required per unit 3 6 l) Budgeted Production (d)            172,900       44,900       217,800 m) No of Direct Manufacturing hours required (k*l)            518,700     269,400       788,100 n) Price per direct manufacturing labour hours $14 $14 $14 o) Budgeted Manufacturing Labour Hour Cost ($) (m*n)         7,261,800 3,771,600 11,033,400 7) Direct Manufacturing Overhead Budget Variable Fixed Cost Table/Chair Chair Table Table/Chair Chair Table Material Handling 342,840 Material Handling 600,000 Number of board metres per unit            283,810          1.20            1.70 Number of board metres 283810         207,480           76,330 Cost per unit board metre (u) 1.21          1.45            2.46 Allocation of Fixed Material Handling 438,631 161,369 (1.21*1.20) (1.21*1.70) Set up Cost             97,000         300,740 Set Up hours per unit ( r)               2,833 0.006 0.04             2,833             1,037             1,796 Cost per unit Setup Hours (v)                    34          0.21            0.01 Allocation of Fixed Setup Costs     110,126.25         190,656 (34*.006) (34*.04) Processing Cost            789,250       5,900,000 Machine Hours (t)            570,300 2 5         570,300         345,800         224,500 Cost per unit Machine Hours (w)                 1.38          2.77            6.92 Allocation of Fixed Machine Hours 3,577,450.46       2,322,550 (2*1.38) (5*1.38) Total Manufacturing Overheads ($)         1,229,090         600,000 1,829,090 Manufacturing cost per unit of production Calculation of Set Up Hours Chairs Table Total d) Budgeted Production            172,900       44,900       217,800 p) Batches 500 50 q) Set up hours per batch 3 2 r) Total Number of Setup hours (d/p*q)               1,037        1,796          2,833 Calculation of Machine Hours Chairs Table Total d) Budgeted Production            172,900       44,900       217,800 s) Machine hours required per unit 2 5 t) Total Machine hours required (d*s)            345,800     224,500       570,300 8) Budgeted Unit Cost of Finished goods and ending Inventory Budget Chair Table Budgeted Production (Units) (Chair+Table) (d)               172,900             44,900 Direct Material Consumption Wood                      5.3 5.3 Glass 11.5 Direct Manufacturing Labour Cost 14 14 Direct Variable Material Handling                     1.45                 2.46 Direct Fixed Material Handling (u/d)                     2.54                 3.59 Direct Variable Setup Costs                     0.21                 0.01 Direct Fixed Setup Costs (v/d)                     0.64                 4.25 Direct Variable Processing Costs                     2.77                 6.92 Direct Fixed Processing Costs (w/d)                   20.69               51.73 Total Per unit Cost of Production                   47.59               99.76 Inventory in Hand                   8,400             44,900 Total Value of Closing Inventory               399,736         4,479,201

Related Questions

Navigate

• Browse (All)
• Browse Q
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.