Logo
Specialties manufactures, among other things, woolen blankets for the athletic
teams of the two local high schools. The company sews the blankets from fabric and
sews on a logo patch purchased from the licensed logo store site. The teams are
as follows:
·
Knights, with red
blankets and the Knights logo
·
Raiders, with black
blankets and the Raider logo
Also,
the black blankets are slightly larger than the red blankets.
The
budgeted direct-cost inputs for each product in 2012 are as follows:
Knight
Blanket Raider Blanket
Red wool fabric 3
yards 0
Black wool fabric 0 3.3
yards
Knight logo patches 1 0
Raider logo patches 0 1
Direct Manufacturing Labor 1.5 hr 2 hr
Unit
data pertaining to the direct materials for March 2012 are as follows:
Actual
beginning Direct Material Inventory (3/1/2012)
Knight
Blanket Raider Blanket
Red wool fabric 30
yards 0
Black wool fabric 0 10
yards
Knight logo patches 40 0
Raider logo patches 0 55
Target
Ending Direct Material Inventory (3/31/2012)
Knight
Blanket Raider Blanket
Red wool fabric 20
yards 0
Black wool fabric 0 20
yards
Knight logo patches 20 0
Raider logo patches 0 20
Unit
cost data for direct-cost inputs pertaining to February 2012 and March 2012 are
as follows:
February
2012 (actual) March 2012 (Budgeted
Red wool fabric (per yard) $8 $9
Black wool fabric (per yard) 10 9
Knight logo patches (per yard) 6 6
Raider logo patches (per yard) 5 7
Manufacturing labor cost per hour 25 26
Manufacturing
overhead (both variable and fixed) is allocated to each blanket on the basis of
budgeted direct manufacturing labor-hours per blanket. The budgeted variable
manufacturing overhead rate for March 2012 is $15 per direct manufacturing
labor-hour. The budgeted fixed manufacturing overhead for March 2012 is $9,200.
Both variable and fixed manufacturing overhead costs are allocated to each unit
of finished goods. Data relating to finished goods inventory for March 2012 are
as follows:
Knight
Blanket Raider
Blanket
Beginning Inventory
in Units 10 15
Beginning inventory
in Dollar (cost) $1,210 $2,235
Target ending
Inventory in Units 20 25
Budgeted
sales for March 2012 are 120 units of the Knights blankets and 180 units of the
Raiders blankets. The budgeted selling prices per unit in March 2012 are $150
for the Knights blankets and $175 for the Raiders blankets. Assume the
following in your answer:
·
Work-in-process
inventories are negligible and ignored.
·
Direct materials
inventory and finished goods inventory are costed using the FIFO method.
·
Unit costs of direct
materials purchased and finished goods are constant in March 2012.
Required
1.
Prepare the following budgets for March 2012:
a. Revenues
budget
b.
Production budget in units
c.
Direct material usage budget and direct material purchases budget
d.
Direct manufacturing labor budget
e.
Manufacturing overhead budget
f.
Ending inventories budget (direct materials and finished goods)
g. Cost
of goods sold budget
2.
Suppose Logo Specialties decides to incorporate continuous improvement into its
budgeting process. Describe two areas where it could incorporate continuous
improvement into the budget schedules in requirement 1.
Budget schedules for a
manufacturer.
1a. Revenues
Budget
|
|
Knights
Blankets
|
Raiders
Blankets
|
Total
|
|
Units sold
|
120
|
180
|
|
|
Selling price
|
$150
|
$175
|
|
|
Budgeted revenues
|
$18,000
|
$31,500
|
$49,500
|
b. Production
Budget in Units
|
|
Knights
Blankets
|
Raiders
Blankets
|
|
Budgeted unit sales
|
120
|
180
|
|
Add budgeted ending fin.
goods inventory
|
20
|
25
|
|
Total requirements
|
140
|
205
|
|
Deduct beginning fin.
goods inventory
|
10
|
15
|
|
Budgeted production
|
130
|
190
|
c. Direct
Materials Usage Budget (units)
|
|
Red
wool
|
Black
wool
|
Knights
logo patches
|
Raiders
logo patches
|
Total
|
|
Knights blankets:
|
|
|
|
|
|
|
1. Budgeted input per f.g. unit
|
3
|
–
|
1
|
–
|
|
|
2. Budgeted production
|
130
|
–
|
130
|
–
|
|
|
3. Budgeted usage (1 × 2)
|
390
|
–
|
130
|
–
|
|
|
Raiders
blankets:
|
|
|
|
|
|
|
4. Budgeted input per f.g. unit
|
–
|
3.3
|
–
|
1
|
|
|
5. Budgeted production
|
–
|
190
|
–
|
190
|
|
|
6. Budgeted usage (4 × 5)
|
–
|
627
|
–
|
190
|
|
|
7. Total direct materials
|
|
||||
|
usage (3 + 6)
|
390
|
627
|
130
|
190
|
|
|
Direct Materials Cost
Budget
|
|
|
|
|
|
|
8. Beginning inventory
|
30
|
10
|
40
|
55
|
|
|
9. Unit price (FIFO)
|
$8
|
$10
|
$6
|
$5
|
|
|
10.
Cost of DM used from beginning inventory (8 × 9)
|
$240
|
$100
|
$240
|
$275
|
$855
|
|
11.
Materials to be used from purchases (7 – 8)
|
360
|
617
|
90
|
135
|
|
|
12.
Cost of DM in March
|
$9
|
$9
|
$6
|
$7
|
|
|
13.
Cost of DM purchased and used in March (11 × 12)
|
$3,240
|
$5,553
|
$540
|
$945
|
$10,278
|
|
14.
Direct materials to be used (10 + 13)
|
$3,480
|
$5,653
|
$780
|
$1,220
|
$11,133
|
|
|
|
|
|
||
|
|
Red
wool
|
Black
wool
|
Knights
logos
|
Raiders
logos
|
Total
|
|
Budgeted usage
(from line 7)
|
390
|
627
|
130
|
190
|
|
|
Add
target ending inventory
|
20
|
20
|
20
|
20
|
|
|
Total requirements
|
647
|
150
|
210
|
|
|
|
Deduct beginning inventory
|
30
|
10
|
40
|
55
|
|
|
Total DM purchases
|
380
|
637
|
110
|
155
|
|
|
Purchase price (March)
|
$9
|
$9
|
$6
|
$7
|
______
|
|
Total purchases
|
$3,420
|
$5,733
|
$660
|
$1,085
|
$10,898
|
d. Direct
Manufacturing Labor Budget
|
|
Budgeted
|
Direct
Manuf. Labor-
|
|
|
|
|
|
Units
|
Hours per
|
Total
|
Hourly
|
|
|
|
Produced
|
Output
Unit
|
Hours
|
Rate
|
Total
|
|
Knights blankets
|
130
|
1.5
|
195
|
$26
|
$5,070
|
|
Raiders blankets
|
190
|
2.0
|
380
|
$26
|
$9,880
|
|
|
|
|
575
|
|
$14,950
|
e. Manufacturing
Overhead Budget
Variable manufacturing overhead costs
(575 × $15) $8,625
Fixed manufacturing overhead costs 9,200
Total manufacturing overhead costs $17,825
Total manuf. overhead cost per
hour =
$17,825 / 575 = $31 per direct manufacturing labor-hour
Fixed manuf. overhead cost per
hour = $ 9,200 / 575 = $16
per direct manufacturing labor-hour
f. Computation
of unit costs of ending inventory of finished goods
|
|
Knights Blankets
|
Raiders Blankets
|
|
Direct
materials
|
|
|
|
Red wool ($9 × 3, 0)
|
$ 27.0
|
$
0.0
|
|
Black wool ($9 x 0, 3.3)
|
0.0
|
29.7
|
|
Knights logos ($6 x 1, 0)
|
6.0
|
0.0
|
|
Raiders logos ($7 x 0, 1)
|
0.0
|
7.0
|
|
Direct
manufacturing labor ($26 ×1.5, 2)
|
39.0
|
52.0
|
|
Manufacturing
overhead
|
|
|
|
Variable ($15 ×1.5, 2)
|
22.5
|
30.0
|
|
Fixed ($16 ×1.5, 2)
|
24.0
|
32.0
|
|
Total
manufacturing cost
|
$118.5
|
$150.7
|
Ending
Inventories Budget
|
|
Cost per Unit
|
Units
|
Total
|
|
Direct
Materials
|
|
|
|
|
Red wool
|
$9.0
|
20
|
$
180.0
|
|
Black wool
|
9.0
|
20
|
180.0
|
|
Knight logo patches
|
6.0
|
20
|
120.0
|
|
Raider logo patches
|
7.0
|
20
|
140.0
|
|
|
|
|
620.0
|
|
|
|
|
|
|
Knight blankets
|
118.5
|
20
|
2,370.0
|
|
Raider blankets
|
150.7
|
25
|
3,767.5
|
|
|
|
|
6,137.5
|
|
Total
|
|
|
$6,757.5
|
g. Cost
of goods sold budget
Beginning fin. goods inventory, March
1, 2012 ($1,210 + $2,235) $ 3,445.0
Direct materials used (from Dir.
materials cost budget) $11,133.0
Direct manufacturing labor (Dir.
manuf. labor budget) 14,950.0
Manufacturing overhead (Manuf.
overhead budget) 17,825.0
Cost of goods manufactured 43,908.0
Cost of goods available for sale 47,353.0
Deduct ending fin. goods inventory,
March 31, 2012 (Inventories budget) 6,137.5
Cost of goods sold $41,215.5
2. Areas
where continuous improvement might be incorporated into the budgeting process:
(a) Direct materials. Either an improvement in
usage or price could be budgeted. For example, the budgeted usage amounts for
the fabric could be related to the maximum improvement (current usage – minimum
possible usage) of yards of fabric for either blanket. It may also be feasible to decrease the price
paid, particularly with quantity discounts on things like the logo patches.
(b) Direct manufacturing labor. The budgeted usage
of 1.5 hours/2 hours could be continuously revised on a monthly basis.
Similarly, the manufacturing labor cost per hour of $26 could be continuously
revised down. The former appears more feasible than the latter.
(c) Variable
manufacturing overhead. By budgeting more efficient use of the allocation base,
a signal is given for continuous improvement. A second approach is to budget
continuous improvement in the budgeted variable overhead cost per unit of the
allocation base.
(d) Fixed manufacturing overhead. The approach here
is to budget for reductions in the year-to-year amounts of fixed overhead. If
these costs are appropriately classified as fixed, then they are more difficult
to adjust down on a monthly basis.
