Plaxico, Inc., operates at capacity and makes plastic combs and hairbrushes. Although the combs and brushes are a matching set, they are sold individually and so the sales mix is not 1:1. Advocates management is planning its annual budget for fiscal year 2020. Here is information for 2020:

Plaxico accounts for direct materials using a FIFO cost flow.

Plaxico uses a FIFO cost-flow assumption for finished-goods inventory. Combs are manufactured in batches of 200, and brushes are manufactured in batches of 100. It takes

20 minutes to set up for a batch of combs and 1 hour to set up for a batch of brushes. Advocate uses activity-based costing and has classified all overhead costs as shown in the following table. Budgeted fixed overhead costs vary with capacity. Plaxico operates at capacity so budgeted fixed overhead cost per unit equals the budgeted fixed overhead costs divided by the budgeted quantities of the

cost allocation base.

Delivery trucks transport units sold in delivery sizes of 1,000 combs or 1,000 brushes. Do the following for the year 2018:

Required:

1. How does preparing the budget help Plaxicos management team better manage the company?

2. What is the key to preparing the cash collections and cash payments budgets?

3. What can be done to prepare for possible changes in key underlying budget assumptions?