Question
Dear Tutors, Could you please assist me with my homework below? Q.2 (Max Marks:60) Warsaw Ltd operates at capacity and makes glass-topped dining tables and
Dear Tutors,
Could you please assist me with my homework below?
Q.2 (Max Marks:60)
Warsaw Ltd operates at capacity and makes glass-topped dining tables and wooden chairs, which are then typically sold as sets of four chairs with one table. However, some customers purchase replacement or extra chairs, and others buy some chairs or a table only, so the sales mix is not exactly 4:1. Warsaw Ltd is planning its annual budget for the financial year 2020. Information for 2020 is as follows:
Direct materials Wood
Glass
Direct manufacturing labour
Input prices
$5.30 per board metre $11.5 per sheet
$14 per direct manufacturing labour- hour
Input quantities per unit of output
Direct materials Wood
Glass
Direct manufacturing labour Machine-hours (MH)
Chairs
1.2 board metres
3 hours 2 MH
Tables
1.7 board metres 2 sheets
6 hours 5 MH
3
Wood
Beginning inventory 27 200 board metres Target ending inventory 29 360 board metres
Sales and inventory information, finished goods
Glass
8 700 sheets 9 500 sheets
Tables
45 000 $900
2 050 2 150
Inventory information, direct materials
Expected sales in units Selling price
Target ending inventory in units
Beginning inventory in units
Chairs
172 000 $70
8 400 7 500
Chairs are manufactured in batches of 500 and tables are manufactured in batches of 50. It takes three hours to set up for a batch of chairs and two hours to set up for a batch of tables. Warsaw Ltd uses activity-based costing and has classified all overhead costs as shown in the table below:
Cost type
Manufacturing: Materials handling
Set-up
Processing Non-
manufacturing: Marketing
Distribution
Budgeted variable
$342 840 97 000 789 250
2 011 200 54 000
Budgeted fixed
$600 000 300 740 5 900 000
4 500 000 380 000
Cost driver/allocation base
Number of board metres used Set-up hours Machine-hours
Sales revenue Number of deliveries
Delivery trucks transport units sold in delivery sizes of 500 chairs or 500 tables.4
Required
For the year 2020:
- Prepare the revenues budget. (1 mark)
- Use the revenues budget to:
- find the budgeted allocation rate for marketing costs (1.5 marks)
- find the budgeted number of deliveries and allocation rate for
- distribution costs. (3.5 marks)
- Prepare the production budget in units. (2 marks)
- Use the production budget to:
1. find the budgeted number of set-ups, set-up hours and the allocation rate for set-up costs (5 marks)
2. find the budgeted total machine-hours and the allocation rate for processing costs. (2.5 marks)
5. Prepare the direct materials usage budget and the direct materials purchases budget. (5 marks)
6. Use the direct materials usage budget to find the budgeted allocation rate for materials-handling costs. (2.5 marks)
- Prepare the direct manufacturing labour cost budget. (1.5 marks)
- Prepare the manufacturing overhead cost budget for materials handling, set-
up and processing. (1.5 marks)
9. Prepare the budgeted unit cost of finished good (16.5 marks) and ending inventories budget. (4.5 marks)
10. Prepare the cost of goods sold budget. (3 marks)
11. Prepare the non-manufacturing overhead costs budget for marketing and distribution. (1 mark)
12. Prepare the budgeted income statement (ignore income taxes). (3 marks)
13.Compare the budgeted unit cost of a chair to its budgeted selling price. Why might Warsaw Ltd continue to sell the chairs for only $70? (6 marks)
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