Comprehensive problem; ABC manufacturing, two products. Hazlett, Inc., operates at capacity and makes plastic combs and hairbrushes. Although the combs and brushes are a matching set, they are sold individually and so the sales mix is not 1:1. Hazletts management is planning its annual budget for fiscal year 2018. Here is information for 2018: Input Prices Direct materials Plastic $ 0.30 per ounce Bristles $ 0.75 per bunch Direct manufacturing labor $ 18 per direct manufacturing labor-hour Input Quantities per Unit of Output Combs Brushes Direct materials Plastic 5 ounces 8 ounces Bristles 16 bunches Direct manufacturing labor 0.05 hours 0.2 hours Machine-hours (MH) 0.025 MH 0.1 MH Required assignMent Material 265 Inventory Information, Direct Materials Plastic Bristles Beginning inventory 1,600 ounces 1,820 bunches Target ending inventory 1,766 ounces 2,272 bunches Cost of beginning inventory $456 $1,419 Hazlett accounts for direct materials using a FIFO cost flow. Sales and Inventory Information, Finished Goods Combs Brushes Expected sales in units 12,000 14,000 Selling price $ 9 $ 30 Target ending inventory in units 1,200 1,400 Beginning inventory in units 600 1,200 Beginning inventory in dollars $ 2,700 $27,180 Hazlett uses a FIFO cost-flow assumption for finished-goods inventory. Combs are manufactured in batches of 200, and brushes are manufactured in batches of 100. It takes 20 minutes to set up for a batch of combs and 1 hour to set up for a batch of brushes. Hazlett uses activity-based costing and has classified all overhead costs as shown in the following table. Budgeted fixed overhead costs vary with capacity. Hazlett operates at capacity so budgeted fixed overhead cost per unit equals the budgeted fixed overhead costs divided by the budgeted quantities of the cost allocation base. Cost Type Budgeted Variable Budgeted Fixed Cost Driver/Allocation Base Manufacturing Materials handling $17,235 $22,500 Number of ounces of plastic used Setup 10,245 16,650 Setup-hours Processing 11,640 30,000 Machine-hours Inspection 10,500 1,560 Number of units produced Nonmanufacturing Marketing $21,150 $90,000 Sales revenue Distribution 0 1,170 Number of deliveries Delivery trucks transport units sold in delivery sizes of 1,000 combs or 1,000 brushes. Do the following for the year 2018: 1. Prepare the revenues budget. 2. Use the revenues budget to: a. Find the budgeted allocation rate for marketing costs. b. Find the budgeted number of deliveries and allocation rate for distribution costs. 3. Prepare the production budget in units. 4. Use the production budget to: a. Find the budgeted number of setups and setup-hours and the allocation rate for setup costs. b. Find the budgeted total machine-hours and the allocation rate for processing costs. c. Find the budgeted total units produced and the allocation rate for inspection costs. 5. Prepare the direct material usage budget and the direct material purchases budget in both units and dollars; round to whole dollars. 6. Use the direct material usage budget to find the budgeted allocation rate for materials-handling costs. 7. Prepare the direct manufacturing labor cost budget. 8. Prepare the manufacturing overhead cost budget for materials handling, setup, processing, and inspection costs. 9. Prepare the budgeted unit cost of ending finished-goods inventory and ending inventories budget. 10. Prepare the cost of goods sold budget. 11. Prepare the nonmanufacturing overhead costs budget for marketing and distribution. 12. Prepare a budgeted income statement (ignore income taxes). 13. How does preparing the budget help Hazletts management team better manage the company? Required 266 ChaPter 6 Master Budget and resPonsiBility aCCounting 6-45 Cash budget. (Continuation of 6-44) (Appendix) Refer to the information in Problem 6-44. All purchases made in a given month are paid for in the following month, and direct material purchases make up all of the accounts payable balance and are reflected in the accounts payable balances at the beginning and the end of the year. Sales are made to customers with terms net 45 days. Fifty percent of a months sales are collected in the month of the sale, 25% are collected in the month following the sale, and 25% are collected two months after the sale and are reflected in the accounts receivables balances at the beginning and the end of the year. Direct manufacturing labor, variable manufacturing overhead and variable marketing costs are paid as they are incurred. Fifty percent of fixed manufacturing overhead costs, 60% of fixed marketing costs, and 100% of fixed distribution costs are depreciation expenses. The remaining fixed manufacturing overhead and marketing costs are paid as they are incurred. Selected balances for December 31, 2017, follow: Cash $29,200 Accounts payable 21,450 Accounts receivable 40,000 Selected budget information for December 2018 follows: Accounts payable $27,770 Accounts receivable 48,500 Hazlett has budgeted to purchase equipment costing $145,000 for cash during 2018. Hazlett desires a minimum cash balance of $25,000. The company has a line of credit from which it may borrow in increments of $1,000 at an interest rate of 12% per year. By special arrangement, with the bank, Hazlett pays interest when repaying the principal, which only needs to be repaid in 2019. 1. Prepare a cash budget for 2018. If Hazlett must borrow cash to meet its desired ending cash balance, show the amount that must be borrowed. 2. Does the cash budget for 2018 give Hazletts managers all of the information necessary to manage cash in 2018? How might that be improved? 3. What insight does the cash budget give to Hazletts managers that the budgeted income statement does not?