Question:
Question One
Alps Ltd manufactures & sells snowboards. The company manufactures a single model, the Slider. In the summer of 2020, Alps Ltd.’s management accountant gathered the following data to prepare budget for 2021.
Material & labour requirements:
|
Direct Materials |
|
|
Wood |
1.25 board meters (b.m.) per snowboard |
|
Fibreglass |
4.8 metres per snowboard |
|
Direct manufacturing labour |
5 hours per snowboard |
The company’s CEO expects to sell 1000 snowboards during 2021 at an estimated retail price of $700 per board. Further, the CEO expects 2021 beginning inventory of 100 snowboards and would like to end the 2021 with 200 snowboards in stock.
Direct material inventory:
|
|
Beginning inventory 1/1/21 |
Closing inventory 31/12/21 |
|
Wood |
500 b.m. |
375 b.m. |
|
Fibreglass |
800 metres |
1600 metres |
Variable manufacturing overhead is $14 per direct manufacturing labour hour. There are also $132 000 in fixed manufacturing overhead costs budgeted for 2021. The company combines both variable & fixed manufacturing overhead into a single rate based on direct manufacturing labour hours. Variable marketing costs are allocated at the rate of $250 per sales visit. The marketing plan calls for 30 sales visits during 2021. Finally, there are
$30 000 in fixed non-manufacturing costs budgeted for 2021. Other data include:
|
|
2020-unit price |
2021-unit price |
|
Wood |
$112.00 per b.m. |
$120.00 b m. |
|
Fibreglass |
$6 per metre |
$6.25 per metre |
|
Direct manufacturing labour |
$48 per hour |
$50 per hour |
The inventoriable unit cost for ending finished goods inventory on 31 December 2020 is
$580. 80. Assume Alps uses FIFO inventory method for both direct materials & finished goods. (Ignore work in process).
Budgeted balances as at December 31, 2021 are:
|
Cash |
$10 000 |
|
Property Plant & equipment (net) |
850 000 |
|
Current liabilities |
17 000 |
|
Non-Current liabilities |
178 000 |
|
Share Holders’ equity |
844 000 |
Required:
- Prepare Sales budget for 2021
- Prepare production budget for 2021
- Prepare the direct material usage & purchase budget
- Prepare direct manufacturing labour budget
- Prepare manufacturing overhead budget
- What is the budgeted manufacturing overhead rate?
- What is the budgeted manufacturing overhead cost per unit for 2021?
- Calculate the unit cost of a snowboard in closing inventory on 31 December
- Prepare ending inventory budget for 2021.
- Prepare cost of goods sold budget for 2021
- Prepare budgeted income & expenditure statement for year ending 31 December 2021
- Prepare the budgeted balance sheet for Alps Ltd as at 31 December 2021
Question Two
Romper Rugs is holding two-week carpet sale at Tommy’s Club, a local warehouse store. Romper Rugs plans to sell carpets for $500 each. The company will purchase the carpets from a local distributor for $350 each, with the privilege of returning any unsold units for a full refund. Tommy’s club has offered Romper Rugs two payment options for the use of space
A fixed payment of $5 000 for the sale period Option 2: 10% of total revenue earned during the sale period.
Required:
-
- For what range of unit sales will the company prefer option 1?
- For what range of unit sales will the company prefer option 2?
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