Reference no: EM13335168

Compehensive budgeting problem: activity based costing, operating and financial budgets.

Borkenstick makes a very popular undyed cloth sandal in one style, but in Regular and Deluxe. The Regular sandals have such soles and the
Deluxe sandals have cloth covered wooden soles. Borkenstick is preparing its budget for June 2012 , and has estimated sales based on past
experience.

OTHER INFORMATION FOR THE MONTH OF JUNE FOLLOWS:

Input Prices
Direct Materials
Cloth $3.50 per Yard
Wood $5.00 per board foot
Direct Manufacturing labor $10 per direct manufacturing labor- hour

INPUT QUANTITIES PER UNIT OF OUTPUT(PER PAIR OF SANDALS)
Direct Materials REGULAR DELUXE
Cloth 1.3 Yards 1.5 Yards
Wood 0 2 b.f
Direct manufacturing labor-hours (DMLH) 5 hours 7 hours
Setup-hours per batch 2 hours 3 hours

Inventory Information, Direct Materials Cloth Wood
Beginning Inventory 610 Yards 800 b.f.
Target ending inventory 386 yards 295 b.f
Cost of beginning inventory $2,146 $4,040
Borkenstick accounts for direct materials using a FIFO cost flow assumption.

Sales and Inventory Information, Finished Goods REGULAR DELUXE
Expected sales in units (pairs of sandals) 2000 3000
Selling Price $80 $130
Target ending inventory in units 400 600
Beginning inventory in units 250 650
Beginning inventory in dollars $15,500 $61,750

Borkenstick uses a FIFO cost flow assumption for finished goods inventory.

All the sandals are made in bathces of 50 pairs of sandals. Borenstick incurs manufacturing overhead costs, marketing and general admin, and shipping costs.

Besides materials and labor, manufacturing costs include setup, processing, and inspection costs. Borkenstick ships 40 pairs of sandals per shipment. Borkenstick uses
activity-based costing and has classified al overhead costs for the month of June as shown in the following chart.

COST TYPE Denominator Activity Rate
Maufacturing
Setup Setup hours $12 per setup-hours
Processing Direct manufacturing labor-hours $1.20 per DMLH
Inspection Number of pairs of sandals $0.90 per pair

Nonmanufacturing:
Marketing and general administration Sales revenue 8%
Shipping Number of shipments $10 per shipment

****Instructions:

2. Borkenstick's balance sheet for May 31 follows. Use it and the following information to prepare a cash budget for Borkenstick for June. Round to dollars.
*All sales are on account; 60% are collected in the month of the sale, 38% are collected the following month, and 2% are never collected and written off as bad debt.

*All purchases of materials are on account. Borkenstick pays for 80% of purchases in the month of purchase and 20% in the following month.
*All other costs are paid in the month incurred, including the declaration and payment of a $10,000 cash dividend in June.
*Borkenstick is making monthly interest payments of 0.5% (6% per year) on a $100,000 long term loan.
*Borkenstick plans to pay the $7200 pf taxes pwed as pf May 31 in the month of June. Income tax expense for June is zero
*30% of processing and setup costs, and 10% of marketing and general administration costs are depreciation

Borkenstick Balance Sheet as of May 31
ASSETS Liabilities and Equity
Cash $6,290 Account payable $10,400
Account receivable $216,000 Taxes payable 7,200
Less: Allowance for bad debts 10,800 205,200 Interest payable 500
Inventories Long-termdebt 100,000
Direct Materials 6,186 Common Stock 200,000
Finished Goods 77,250 Retained earnings 465,936
Fixed Assets $580,000 Total liabilities and equity $784,036
Less: Accumulated depreciation 90,890 489,110
Total Assets $784,036