6-43 Comprehensive budgeting problem; activity-based costing, operating and financial budgets. Tyva

makes a very popular undyed cloth sandal in one style, but in Regular and Deluxe. The Regular sandals

have cloth soles and the Deluxe sandals have cloth-covered wooden soles. Tyva is preparing its budget for

June 2015 and has estimated sales based on past experience.

Other information for the month of June follows:

Input Prices

Direct materials

Cloth $5.25 per yard

Wood $7.50 per board foot

Direct manufacturing labor $15 per direct manufacturing labor-hour

Input Quantities per Unit of Output (per pair of sandals)

Direct materials

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

Beginning inventory 610 yards 800 b.f.

Target ending inventory 386 yards 295 b.f.

Cost of beginning inventory $3,219 $6,060

Regular Deluxe

Cloth Wood

Tyva accounts for direct materials using a FIFO cost flow assumption.

246 CHAPTER 6 MASTER BUDGET AND RESPONSIBILITY ACCOUNTING

Sales and Inventory Information, Finished Goods

Expected sales in units (pairs of sandals) 2,000 3,000

Selling price $ 120 $ 195

Target ending inventory in units 400 600

Beginning inventory in units 250 650

Beginning inventory in dollars $23,250 $92,625

Regular Deluxe

Required

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

All the sandals are made in batches of 50 pairs of sandals. Tyva incurs manufacturing overhead costs,

marketing and general administration, and shipping costs. Besides materials and labor, manufacturing costs

include setup, processing, and inspection costs. Tyva ships 40 pairs of sandals per shipment. Tyva uses activity- based costing and has classified all overhead costs for the month of June as shown in the following chart:

Cost type Denominator Activity Rate

Manufacturing

Setup Setup-hours $18 per setup-hour

Processing Direct manufacturing labor-hours $1.80 per DMLH

Inspection Number of pairs of sandals $1.35 per pair

Nonmanufacturing

Marketing and general administration Sales revenue 8%

Shipping Number of shipments $15 per shipment

1. Prepare each of the following for June:

a. Revenues budget

b. Production budget in units

c. Direct material usage budget and direct material purchases budget in both units and dollars; round

to dollars

d. Direct manufacturing labor cost budget

e. Manufacturing overhead cost budgets for setup, processing, and inspection activities

f. Budgeted unit cost of ending finished goods inventory and ending inventories budget

g. Cost of goods sold budget

h. Marketing and general administration and shipping costs budget

2. Tyvas balance sheet for May 31 follows.

Tyva Balance Sheet as of May 31

Assets

Cash $ 9,435

Accounts receivable $324,000

Less: Allowance for bad debts 16,200 307,800

Inventories

Direct materials 9,279

Finished goods 115,875

Fixed assets $870,000

Less: Accumulated depreciation 136,335 733,665

Total assets $1,176,054

Liabilities and Equity

Accounts payable $ 15,600

Taxes payable 10,800

Interest payable 750

Long-term debt 150,000

Common stock 300,000

Retained earnings 698,904

Total liabilities and equity $1,176,054

ASSIGNMENT MATERIAL 247

Use the balance sheet and the following information to prepare a cash budget for Tyva for June. Round to

dollars.

All sales are on account; 60% are collected in the month of the sale, 38% are collected the follow- ing month, and 2% are never collected and written off as bad debts.

All purchases of materials are on account. Tyva pays for 80% of purchases in the month of pur- chase and 20% in the following month.

All other costs are paid in the month incurred, including the declaration and payment of a $15,000

cash dividend in June.

Tyva is making monthly interest payments of 0.5% (6% per year) on a $150,000 long-term loan.

Tyva plans to pay the $10,800 of taxes owed as of May 31 in the month of June. Income tax expense

for June is zero.

30% of processing, setup, and inspection costs and 10% of marketing and general administration

and shipping costs are depreciation.

3. Prepare a budgeted income statement for June and a budgeted balance sheet for Tyva as of June 30, 2015. (i just need answers for question three)