Neptune Transport Company makes per carriers, the Cat-allac. It is made of plastic with metal doors. Information for the product for the month of October is given in the following tables:

Input Prices:

Direct Materials-

Plastic is $4.5 per pound

Metal is $ 3 per pound

Direct Manufacturing Labor is $11 per direct manufacturing labor hours

Manufacturing Overhead Rate is $20.5 per direct manufacturing labor hours

Input Quantities per unit of output Cal-allac:

Direct Materials-

Plastic is 5 Pounds

Metal is 1 Pounds

Direct Manufacturing Labor is 3 Hours

Inventory Information; direct materials:

	Plastic	Metal
Beginning inventory	200 Pounds	75 Pounds
Target ending inventory	280 Pounds	80 pounds
Cost of beginning inventory	$940	$240

Production & Inventory Information, finished goods

	Cal-allac
Units of finished goods to be produced	520
Units of finished goods to be sold	500
Target ending inventory in units	50
Beginning inventory in units	30
Beginning inventory in dollars	$3,150

Other Information:

Current Assets is $160,000

Long-Term Assets is $340,000

Budgeted operating income is $10,000

Markup Percentage on Full Cost is 11.63%

Instructions:

I. Prepare a direct material usage budget and direct material purchase budget. (5+5)

II. Determine budgeted unit cost of ending finished goods inventory. (3)

III. Calculate Neptune’s rate of return on investment. Compute the selling price for Cal-allac if Neptune charge 60% mark-up on its unit product cost. (1+2+2)

IV. Assume that apart from direct materials, direct labor and 50% of its’MOH cost, other variable costs that Neptune incur per unit is $ 31.25. Calculate Neptune’s mark-up percentage on variable cost per unit (3).

V. What questions might the CEO ask the management team when reviewing the budgets that you have prepared earlier? Is there any problem in their budgeted results that you can identify? How does preparing the budget help the management team better manage the company? (3)