Fill in the yellow blank under "What if ?" Question

Problem 1-1 Budgets in Managerial Accounting Santiago's Salsa is in the process of preparing a production cost budget for May. Actual costs in April were: Santiago's Salsa Production Costs April 2020 Production - Jars of salsa Ingredient cost (variable) Labor cost (variable) Rent (fixed) Depreciation (fixed) Other (fixed) Total 25,000 $20,000 12,000 5,000 6,000 1,000 $44,000 Required a. Using this information, prepare a budget for May. Assume that production will increase to 30,000 jars of salsa, reflecting an anticipated sales increase related to a new marketing campaign. Ingredient cost per unit: $20,000 25,000 = $0.80 Labor cost per unit: $12,000 25,000 = $0.48 Santiago's Salsa Production Costs May 2020 Production - Jars of salsa Ingredient cost (variable) Labor cost (variable) Rent (fixed) Depreciation (fixed) Other (fixed) Total $24,000 14,400 5,000 6,000 1,000 $50,400 $20.00 b. Suppose the wage rate is needed in May? per hour. How many additional labor hours are Labor hours used in April Labor hours to be used in May Additional labor hours needed 600 720 120 Does budget suggest additional workers are needed? yes, it does suggest that additional workers are needed. Additional labor hours reuired = (14400- 12000)/20=120 What would happen if management did not anticipate the need for additional labor in May? If management did not anticipate the additional labor requirement in May, one of the consequences would be: *Loss of production and consequent loss of profits. "Engaging the existing workers on overtime. c. Calculate the actual cost per unit in April and the budgeted cost per unit in May. Total cost Jars of salsa Cost per jar of salsa April Actual May Budgeted $44,000 $50,400 25,000 30,000 $ 1.76 $ 1.68 Explain why the cost per unit is expected to decrease. The decrease in cost per unit is $0.08 which is due to the decrease in fixed cost per unit due to increase in production. When total fixed costs remain the same, increase in activity will reduce fixed costs per unit and hence total costs per unit. What if? Consider the following after you have completed the requirements of P1-1. 1. Assume that production will increase to 32,000 jars of salsa during June. By how much will the production cost increase compared to the May budget? Santiago's Salsa Production Costs June 2020 Production - Jars of salsa Ingredient cost (variable) Labor cost (variable) Rent (fixed) Depreciation (fixed) Other (fixed) Total Increase in cost 2. How does the cost per unit differ for May and June? What caused the cost per unit to decline? Unit cost in May Unit cost in June