Chapter 8: Planning and Budgeting Problem 2 Your Mat Inc. YourMat Inc. manufactures green yoga mats, using eco-friendly rubber and pigment as direct materials. One mat is budgeted to use 36 ounces of rubber at a cost of $2 per ounce and 0.8 pints of pigment at a cost of $6 per pint. All other materials are indirect. At the beginning of the year Your Mat has an inventory of 458,000 ounces of rubber at a cost of $916,000 and 4,000 pints of pigment at a cost of $24,000. Target ending inventory of rubber and pigment is zero. YourMat green mats are very popular and demand is high, but because of capacity constraints the firm will produce only 200,000 green mats per year. The budgeted selling price is $200 each. There are no mats in beginning inventory. Target ending inventory of mats is also zero. YourMat makes mats in a process that is highly manual, but uses a machine to pigment the rubber. Thus, overhead costs are accumulated in two cost pools one for finishing and the other for pigmenting. Finishing overhead is allocated to products based on direct manufacturing labor- hours (DMLH). Pigmenting overhead is allocated to products based on machine-hours (MH). There is no direct manufacturing labor cost for coloring. YourMat budgets 6.2 direct manufacturing labor-hours to produce a mat at a budgeted rate of $13 per hour. It budgets 0.2 machine-hours to color each mat in the pigmenting process. The following table presents the budgeted overhead costs for the pigmenting and finishing cost pools: Pigmenting (based on 40,000 MH) Finishing (based on 1,240,000 DMLH) $0 182,222 209,722 $1,540,000 554,000 289,000 Variable costs Indirect materials Maintenance Utilities Fixed costs Indirect labor Depreciation Other Total budgeted costs 9,639 58,333 20,083 $480.000 170,000 27,400 581,600 $3.162.000 Required: 1. Prepare a direct materials usage budget in both units and dollars. 2. Calculate the budgeted overhead allocation rates pigmenting and finishing. 3. Calculate the budgeted unit cost of a green yoga mat for the year. 4. Prepare a revenues budget for green yoga mats for the year, assuming YourMat sells (a) 200,000 or (b) 185,000 green mats (that is, at two different sales levels). 5. Calculate the budgeted cost of goods sold for green mats under each sales assumption. 6. Find the budgeted gross margin for green yoga mats under each sales assumption. 7. What actions might you take as a manager to improve profitability if sales drop to 185,000 green mats? 8. How might top management at YourMat use the budget developed in requirements 1-6 to better manage the company? Chapter 8: Planning and Budgeting Problem 2 Your Mat Inc. YourMat Inc. manufactures green yoga mats, using eco-friendly rubber and pigment as direct materials. One mat is budgeted to use 36 ounces of rubber at a cost of $2 per ounce and 0.8 pints of pigment at a cost of $6 per pint. All other materials are indirect. At the beginning of the year Your Mat has an inventory of 458,000 ounces of rubber at a cost of $916,000 and 4,000 pints of pigment at a cost of $24,000. Target ending inventory of rubber and pigment is zero. YourMat green mats are very popular and demand is high, but because of capacity constraints the firm will produce only 200,000 green mats per year. The budgeted selling price is $200 each. There are no mats in beginning inventory. Target ending inventory of mats is also zero. YourMat makes mats in a process that is highly manual, but uses a machine to pigment the rubber. Thus, overhead costs are accumulated in two cost pools one for finishing and the other for pigmenting. Finishing overhead is allocated to products based on direct manufacturing labor- hours (DMLH). Pigmenting overhead is allocated to products based on machine-hours (MH). There is no direct manufacturing labor cost for coloring. YourMat budgets 6.2 direct manufacturing labor-hours to produce a mat at a budgeted rate of $13 per hour. It budgets 0.2 machine-hours to color each mat in the pigmenting process. The following table presents the budgeted overhead costs for the pigmenting and finishing cost pools: Pigmenting (based on 40,000 MH) Finishing (based on 1,240,000 DMLH) $0 182,222 209,722 $1,540,000 554,000 289,000 Variable costs Indirect materials Maintenance Utilities Fixed costs Indirect labor Depreciation Other Total budgeted costs 9,639 58,333 20,083 $480.000 170,000 27,400 581,600 $3.162.000 Required: 1. Prepare a direct materials usage budget in both units and dollars. 2. Calculate the budgeted overhead allocation rates pigmenting and finishing. 3. Calculate the budgeted unit cost of a green yoga mat for the year. 4. Prepare a revenues budget for green yoga mats for the year, assuming YourMat sells (a) 200,000 or (b) 185,000 green mats (that is, at two different sales levels). 5. Calculate the budgeted cost of goods sold for green mats under each sales assumption. 6. Find the budgeted gross margin for green yoga mats under each sales assumption. 7. What actions might you take as a manager to improve profitability if sales drop to 185,000 green mats? 8. How might top management at YourMat use the budget developed in requirements 1-6 to better manage the company
