Baci is a well-known lollipops maker in Western Australia and produces lollipops in two size, i.e., regular and large. The company sells their products to convenience stores, fairs, schools for fundraisers and in bulk on the internet. 2018 summer is approaching and Baci is preparing its budget for the December. All Bacis lollipops are hand-made, mostly out of sugar, and attached to wooden sticks. Expected sales are based on past experience.

Other information for December 2018 is as follows:

Input prices :

Direct materials:

Sugar $0.50 per kg

Sticks $0.30 each

Direct manufacturing labour $8 per direct manufacturing labour hour (DMLH)

Input quantities per unit of output

Regular Large

Direct materials:

Sugar 0.25 kg 0.5 kg

Sticks 1 1

Direct manufacturing labour hour (DMLH) 0.2 hour 0.25 hour

Set-up hours per batch 0.08 hour 0.09 hour

Inventory data for direct materials1

Sugar Sticks

Beginning inventory 125 kg 350

Target ending inventory 240 kg 480

Cost of beginning inventory $64 $105

1: Baci accounts for direct materials using a FIFO cost flow assumption.

Sales and inventory data for finished goods2

Regular Large

Expected sales in units 3,000 1,800

Selling price $3 $4

Target ending inventory in units 300 180

Beginning inventory in units 200 150

Beginning inventory in dollars $500 $474

2: Baci uses a FIFO cost flow assumption for finished goods inventory.

All the lollipops are made in batches of 10. Baci incurs manufacturing overhead cost, and marketing and general administration costs, but customers pay for shipping. Other 3 than manufacturing labour costs, monthly processing costs are very small. Baci uses activity-based costing (ABC) and has classified all overhead costs for December 2018 as follows:

Cost type Denominator activity Rate

Manufacturing:

Set-up Set-up hours $20 per set-up hour

Processing Direct manufacturing labour hour (DMLH) $1.70 per DMLH

Non-manufacturing:

Marketing & general admin Sales revenue 10%

Required 1. Prepare each of the following for December 2018:

(a) Revenue budget

(b) Production budget in units

(c) Direct materials usage budget and direct materials purchases budget

(d) Direct manufacturing labour cost budget

(e) Manufacturing overhead cost budgets for processing and set-up activities

(f) Budgeted unit cost of ending finished goods inventory and ending inventories budget (14 marks) (g) Cost of goods sold budget

(h) Marketing and general administration costs budget

2. Bacis balance sheet for 30 November 2018 follows. Use it and the following information to prepare a cash budget for Baci for December 2018:

80% of sales are on account, of which 50% are collected in the month of the sale, 49% are collected the following month and 1% are never collected and written off as bad debts.

All purchases of materials are on account. Baci pays for 70% of purchases in the month of purchase and 30% in the following month.

All other costs are paid in the month incurred.

Baci is making monthly interest payments of 1% (12% per year) on a $20,000 long-term loan.

Baci plans to pay the $500 of taxes owed as of 30 November 2018 in December 2018. Income tax expense for December is zero.

40% of processing and set-up costs, and 30% of marketing and general administration costs, are depreciation.

Baci Balance Sheet as of 30 November 2018

Assets

Cash $587

Account receivable $4,800

Less: Allowance for bad debts 96 4,704

Inventories:

Direct materials 169

Finished goods 974

Fixed assets $190,000

Less: Accumulated depreciation 55,759 134,241

Total assets $140,675

Liabilities and equity

Account payable $696

Taxes payable 500

Interest payable 200

Long-term debt 20,000

Ordinary shares 10,000

Retained earnings 109,279

Total liabilities and equity $140,675

3. Prepare a budgeted income statement for December 2018 and a budgeted balance sheet for Baci as of 31 December 2018.