Problem P1-1 Budgets in Managerial Accounting Santiago\'s Salsa is in the proces

Question

Problem P1-1 Budgets in Managerial Accounting
Santiago's Salsa is in the process of preparing a production cost budget for May. Actual costs in April were:

Santiago's Salsa
Production Cost Budget
April 2011
Production - Jars of salsa 25,000
Ingredient cost (variable) $20,000
Labor cost (variable) 12,000
Rent (fixed) 5,000
Depreciation (fixed) 6,000
Other (fixed) 1,000
Total $44,000

Required:
Part a: Using this information, prepare a budget for May. Assume that production will increase to
30,000 jars of salsa, reflecting an anticipated sales increase related to a new marketing
campaign.

Part b.1: Does the budget suggest that additional workers are needed? Suppose the wage rate is
$20 per hour. How many additional labor hours are needed in May?

Part b.2: What would happen if management did not anticipate the need for additional labor in May?
Narrative answer:

Part c: Calculate the actual cost per unit in April and the budgeted cost per unit in May. Explain why the cost per unit is expected to decrease.

Narrative answer:

Explanation / Answer

Part a:

Santiago's Salsa Production Cost Budget
MAY 2011
Production - Jars of salsa 30,000
Ingredient cost (variable) $24,000
Labor cost (variable) 14,400
Rent (fixed) 5,000
Depreciation (fixed) 6,000
Other (fixed) 1,000
Total $50,400

Part b.1:

yes

additional labor required = 2400/20 = 120

Part b.2:

If no additonal workers are engaged firm would incur an increase in profit for some jars and then sudden greater loss..incompetency

Part c: = total budget / no. of jars

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