Comprehensive budgeting problem; activity based costing, operating and financial budgets

Grant Shew is the product manager at Yummi-Lik. Yummi-Lik sells really big lollipops in two sizes, large and giant lollipops to convenience stores, at fairs, and to schools for fundraisers, as well as a bulk channel on the internet. The lollipops are handmade, mostly out of sugar, and attached to wooden sticks. Grant is preparing the sales budget for the summer, knowing a successful sales season will have a big impact on his performance review. Expected sales are based on past experience.

Other information for the month of June follows:

Input Prices

Direct materials

Sugar $0.50 per kilogram (lb)

Sticks $0.30 each

Direct manufacturing labour 0.008 per direct manufacturing labour-hour

Input Quantities per Unit of Output
	Large	Giant
Direct material
Sugar	0.25 lb	0.50 lb
Sticks	1	1
Direct manufacturing labour-hour (DMLH)	0.20 hours	0.25 hours
Setup-hours per batch	0.08 hours	0.09 hours
Inventory Information, Direct Materials
	Sugar	Sticks
Beginning Inventory	125 lb	350 lb
Target ending inventory	240 lb	480 lb
Cost of beginning inventory	$64	$105

Yummi-Lik accounts for direct materials using a FIFO cost flow assumption.

Sales and Inventory Information, Finished Goods
	Large	Giant
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

Yummi-Lik uses a FIFO cost flow assumption for finished goods inventory.

All the lollipops are made in batches of 10. Yummy-Lik incurs manufacturing overhead costs, and marketing and general administration costs, but customers pay for shipping. Other than manufacturing labour for the month of June as shown in the following chart.

Cost Type	Denominator Activity	Rate
Manufacturing:
Setup	Setup-hours	$20 per setup-hour
Processing	Direct manufacturing	$1.70 per DMLH
	labour-hours (DMLH)
Non-manufacturing:
Marketing and general administration	Sales revenue	10%

Required:

1. Revenue budget
2. Production budget in units
3. Direct material usage and direct material purchases budget
4. Direct manufacturing labour cost budget
5. Manufacturing overhead cost budgets for processing and setup activities
6. Budgeted unit cost of ending finished goods inventory and ending inventories budget
7. Cost of goods sold budget
8. Marketing and general administration costs budget

Grant knows that 80% of sales are on account, of which half 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, which has an impact on net revenues. In addition to this, all purchases of materials are on account. Yummi-Lik pays for 70% of purchases in the month of purchases and 30% in the following month, However, all other costs are paid in the month incurred. Knowing this, Grant has to create:

A budgeted income statement for June and a budgeted balance sheet for Yummi-Lik as of June 30

The following information is necessary:

1. Yummi-Lik balance sheet for May 31 follows. Use it and the following information to prepare a cash budget for Yummi-Lik for June
2. Yummi-Lik is making monthly interest payments of 1% (12% per year) on a $20,000 long-term loan.
3. Yummi-Lik plans to pay the $500 of taxes owed as of May 31 in the month of June. Income tax expenses for June is zero.
4. 40% of processing and setup costs, and 30% of marketing and general administration costs are depreciation.

Yummi-Lik Balance Sheet May 31
Assets
Cash		$587
Accounts receivable	$4,800
Less:Allowance for bad debts	96	$4,704
Inventories:
Direct materials		169
Finished goods		974
Fixed Assets	190,000
Less: Accummulated depreciation	55,759	134,241
Total Assets		$140,675
Liabilities and Equity
Accounts payable		$696
Taxes payable		500
Interest payable		200
Long-term debt		20,000
Common Shares		10,000
Retained Earnings		109,279
Total liabilities and equity		140,675