Korna Company manufactures a product, gizmo that uses the following direct inputs:
Price Quantity Cost per
unit of output
Direct materials................................$4 per gram........10 grams per unit......$40 per unit
Direct manufacturing labour-hours ....$15 per DMLH........2 DMLH per unit......$30 per unit
Korna has no direct materials inventory. All manufacturing overhead costs are variable costs. The manufacturing overhead cost comprises two activities: setup and operations. The cost driver for setup is setup-hours, and the cost driver for operations is direct manufacturing labour-hours. Korna allocates setup cost at a rate of $80 per setup-hour, and each setup takes two hours. Korna Company makes gizmos in batches of 100 units. Operations costs are allocated at a rate of $1.60 per direct manufacturing labour-hour.
Required
1. Korna plans to make and sell 20,000 gizmos in the first quarter of next year. The selling price for the product is $120. Prepare the revenue budget for the first quarter.
2. Prepare the direct material usage budget for the first quarter of next year.
3. Prepare the direct manufacturing labour usage budget for the first quarter of next year.
4. Prepare the manufacturing overhead cost budget for each activity for the first quarter of next year.
5. Compute the budgeted unit cost of a gizmo for the first quarter of next year.
6. Prepare the cost of goods sold budget for the first quarter of next year. Assume Korna needs 1,000 units of beginning finished goods inventory at a cost of $72 per unit. Korna uses the FIFO cost flow assumption for finished goods inventory. Korna expects to sell 20,000 gizmos in the first quarter.
7. Calculate the budgeted gross margin for the first quarter of next year.
8. Korna Company managers want to implement Kaizen costing. They budget a 1% decrease in materials quantity and direct manufacturing labour-hours and a 3% decrease in setup time per unit for each subsequent quarter. Calculate the budgeted unit cost and gross margin for the second and third quarters.
Assume no change in budgeted output.
9. Refer to requirement 8 above. How could the reduction in materials and time be accomplished? Are there any problems with this plan?