Comprehensive problem with ABC costing. Animal Gear Company makes two pet carriers, the Cat-allac and the Dog-eriffic. They are both made of plastic with metal doors, but the Cat-allac is smaller. Information for the two products for the month of April is given in the following tables: Input Prices Direct materials Plastic Metal Direct manufacturing labor S5 per pound S 4 per pound $10 per direct manufacturing labor-hour Input Quantities per Unit of Output Cat-allac Dog-eriffic Direct materials Plastic Metal Direct manufacturing labor-hours Machine-hours (MH) 4 pounds 0.5 pounds 3 hours 11 MH 6 pounds 1 pound 5 hours 19 MH Inventory Information, Direct Materials Beginning inventory Target ending inventory Cost of beginning inventory Plastic 290 pounds 410 pounds $1,102 Metal 70 pounds 65 pounds S217 Animal Gear accounts for direct materials using a FIFO cost-flow assumption. Sales and Inventory Information, Finished Goods Cat-allac Dog-eriffic Expected sales in units 530 225 Selling price S 205 S 310 Target ending inventory in units 30 10 Beginning inventory in units 10 19 Beginning inventory in dollars $1,000 $4,650 Animal Gear uses a FIFO cost-flow assumption for finished-goods inventory. Animal Gear uses an activity-based costing system and classifies overhead into three activity pools: Setup, Processing, and Inspection. Activity rates for these activities are $105 per setup-hour, $10 per -machine-hour, and $15 per inspection-hour, respectively. Other information follows: Number of units per batch Setup time per batch Inspection time per batch Cost-Driver Information Cat-allac 25 1.50 hours 0.5 hour Dog-eriffic 9 1.75 hours 0.7 hour If necessary, round up to calculate number of batches. to increase 5% in April. Other nonmanufacturing fixed costs will remain the same. The only variable Nonmanufacturing fixed costs for March equal $32.000, hall of which are salaries, Salaries are expected Prepare the following for April: nonmanufacturing cost is sales commission, equal to 1% of sales revenue. Required: 1. Revenues budget 2. Production budget in units 3. Direct material usage budget and direct material purchases budget 4. Direct manufacturing labor cost budget 5. Manufacturing overhead cost budgets for each of the three activities 6. Budgeted unit cost of ending finished-goods inventory and ending inventories budget 7 Cost of goods sold budget 8. Nonmanufacturing costs budget 9. Budgeted income statement (ignore income taxes) 10. How does preparing the budget help Animal Gear's management team better manage the company? 6-40 Comprehensive problem with ABC costing 1. Revenue Budget For the Month of April Units Selling Price Total Revenues Cat-allac Dog-eriffic Total $178,400 Production Budget For the Month of April Product Cat-allac Dog-criffic Budgeted unit sales Add target ending finished goods inventory Total required units Deduct beginning finished goods inventory Units of finished goods to be produced 216 Direct Material Usage Budget in Quantity and Dollars For the Month of April Material Plastic Metal Physical Units Budget Direct materials required for Cat-allac Dog-eriffic Total quantity of direct material to be used Total Cost Budget Available from beginning direct materials inventory (under a FIFO cost-flow assumption) Plastic: Metal: To be purchased this period Plastic: Metal: Direct materials to be used this period $19,033 Direct Material Purchases Budget For the Month of April Material Plastic Metal Total Physical Units Budget To be used in production (requirement 3) Add target ending inventory Total requirements Deduct beginning inventory Purchases to be made Cost Budget Plastic: Metal: $20,024 Purchases 3 Direct Manufacturing Labor Costs Budget For the Month of April Output Units Produced (requirement 2) DMLH Total Hours Hourly Wage Rate Total per Unit Cat-allac Dog-eriftic Total $27,300 5. Machine Setup Overhead Total Dog-eriffic Cat-allac Units to be produced Units per batch Number of batches (rounded up) Setup time per batch Total setup time 75 hrs. Budgeted machine setup costs Processing Overhead Budgeted machine-hours (MH) Budgeted processing costs = Inspection Overhead Budgeted inspection-hours Budgeted inspection costs = Manufacturing Overhead Budget For the Month of April Machine setup costs Processing costs Inspection costs Total costs 6. Unit Costs of Ending Finished Goods Inventory April 30 Product Cat-allac Dog-eriffic Cost per Input per Input per Unit of Unit of Unit of Input Output Total Total Output Plastic Metal Direct manufacturing labor Machine setup Processing Inspection Total $168.60 $296.20 Ending Inventories Budget April 30 Quantity Cost per unit Total Direct Materials Plastic Metals Finished goods Cat-allac Dog-eriffic Total ending inventory $10,330 Cost of Goods Sold Budget For the Month of April Beginning finished goods inventory, April, 1 Direct materials used (requirement 3) Direct manufacturing labor (requirement 4) Manufacturing overhead (requirement 5) Cost of goods manufactured Cost of goods available for sale Deduct: Ending finished goods inventory, April 30 (requirement Cost of goods sold $153.795 Nonmanufacturing Costs Budget For the Month of April Salaries Other fixed costs Sales commissions Total nonmanufacturing costs 9. Budgeted Income Statement For the Month of April Revenues Cost of goods sold Gross margin Operating (nonmanufacturing) costs Operating income $ 9,979) 10. Animal Gear is making a loss and will need to increase revenues and manage costs to turn around the business. Preparing a budget helps Animal Gear manage costs based on revenues and production needs, look for opportunities to increase efficiencies, reduce costs, particularly in areas where costs are high, coordinate and communicate across different parts of the organization, create a framework for judging performance and facilitat earning, and motivate management and employees to achieve "stretch" targets of higher revenues and lower costs. 6