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Lolly Pops Inc. makes really big lollypops in two sizes, large & giant. The company sells lollipops to convenience stores, fairs, schools for fund raising
Lolly Pops Inc. makes really big lollypops in two sizes, large & giant. The company sells lollipops to convenience stores, fairs, schools for fund raising and in bulk on the internet. Summer is approaching & the company is preparing its budget for the month of December. The lollypops are handmade, mostly out of sugar and attached to wooden sticks. Expected sales are based on past experience. Other information for the month of December follows: Input prices: Direct materials $0.50 per kg Sugar Sticks $0.30 each Direct manufacturing labour $8 per direct manufacturing labour hour Input quantities per unit of output: Large Giant Direct material Sugar 0.25 kg 0.5 kg Sticks 1 1 Direct manufacturing labour hours (DMLH) 0.2 hours 0.25 hours Set up hours per batch 0.08 hours 0.09 hours Inventory Information, direct materials: Sugar Sticks Beginning inventory 125 kgs 350 Target ending inventory 240 kg 480 Cost of beginning inventory $64 $105 Note: Lolly Pops Inc. accounts for direct materials using FIFO cost flow assumption. Sales and inventory information, finished goods: Large Giant Expected sales in units 3000 1800 Selling price $3 $4 Target ending inventory in units 300 180 Beginning inventory in units 200 150 Beginning inventory in dollars $500 $474Note: Lolly Pops Inc. uses a FIFO cost flow assumption for finished goods inventory. All the lollipops are made in batches of 10. The company incurs manufacturing overhead costs, and marketing and general administration costs, but customers pay for shipping. Other than manufacturing labour costs, monthly processing costs are very small. The company uses activity-based costing and has classified all overhead cost for the month of December as shown in the following table: Cost type Activity Base Rate Manufacturing: Set-up Set up hours $20 per set up hour Processing DMLH's $1.70 per DMLH Non- manufacturing Marketing & Administration Sales Revenue 10% Other information: Eighty percent of sales are on account, of which half are collected in the month of trade, 49% are collected in the following month and 1% are never collected & written off as bad debt. All purchases of materials are on account. The company pays for 70% of purchases in the month of purchase and 30% in the following month. All other costs are paid in the month incurred. The company is making monthly interest payments at 12% p. a. on a $20,000 long term loan. The company plans to pay the $500 of taxes as of 30 November in the month of December. Income tax expenses for December are zero Forty percent of processing costs and 30% of marketing & general administration costs , are depreciation. Lolly Pop Inc. Balance Sheet As at 30 November Assets Cash $587 A/c Receivable 4 800 Less: Allowance for bad debt (96) 4 704 Inventories DM 169 Finished Goods 974Fixed Assets 190 000 Less: Accumulated Depreciation (55 759) 134 241 Total Assets 140 675 Liabilities & Equity Accounts payable $696 Taxes payable 500 Interest payable 200 Long term debt 20 000 Ordinary Shares 10 000 Retained Earnings 109 279 Total liabilities & equity 140 675
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