Question 6-41 Compehensive budgeting problem: activity based costing, operating and financial budgets. Borkenstick makes a very popular undyed cloth sandal in one style, but in Regular and Deluxe. The Regular sandals have such soles and the Deluxe sandals have cloth covered wooden soles. Borkenstick is preparing its budget for June 2012 , and has estimated sales based on past experience. OTHER INFORMATION FOR THE MONTH OF JUNE FOLLOWS: Input Prices Direct Materials Cloth $3.50 per Yard Wood $5.00 per board foot Direct Manufacturing labor $10 per direct manufacturing labor- hour INPUT QUANTITIES PER UNIT OF OUTPUT(PER PAIR OF SANDALS) Direct Materials REGULAR DELUXE Cloth 1.3 Yards 1.5 Yards Wood 0 2 b.f Direct manufacturing labor-hours (DMLH) 5 hours 7 hours Setup-hours per batch 2 hours 3 hours Inventory Information, Direct Materials Cloth Wood Beginning Inventory 610 Yards 800 b.f. Target ending inventory 386 yards 295 b.f Cost of beginning inventory $2,146 $4,040 Borkenstick accounts for direct materials using a FIFO cost flow assumption. Sales and Inventory Information, Finished Goods REGULAR DELUXE Expected sales in units (pairs of sandals) 2000 3000 Selling Price $80 $130 Target ending inventory in units 400 600 Beginning inventory in units 250 650 Beginning inventory in dollars $15,500 $61,750 Borkenstick uses a FIFO cost flow assumption for finished goods inventory. All the sandals are made in bathces of 50 pairs of sandals. Borenstick incurs manufacturing overhead costs, marketing and general admin, and shipping costs. Besides materials and labor, manufacturing costs include setup, processing, and inspection costs. Borkenstick ships 40 pairs of sandals per shipment. Borkenstick uses activity-based costing and has classified al overhead costs for the month of June as shown in the following chart. COST TYPE Denominator Activity Rate Maufacturing Setup Setup hours $12 per setup-hours Processing Direct manufacturing labor-hours $1.20 per DMLH Inspection Number of pairs of sandals $0.90 per pair Nonmanufacturing: Marketing and general administration Sales revenue 8% Shipping Number of shipments $10 per shipment ****Instructions: 1. Prepare each of the following for June: a. Revenues budget b. Production budget in units c. Direct material usage budget and direct material purchases budget in both units and dollars; round to dollars. d. Direct manufacturing labor cost budget e.Manufacturing overhead cost budgets for processing and setup activities f. Budgeted unit cost of ending finished goods inventory and ending inventories budget g. Cost of goods sold budget h. Marketing and general administration cost budget 2. Borkensticks balance sheet for May 31 follows. Use it and the following information to prepare a cash budget for Borkenstick for June. Round to dollars. *All sales are on account; 60% are collected in the month of the sale, 38% are collected the following month, and 2% are never collected and written off as bad debt. *All purchases of materials are on account. Borkenstick pays for 80% of purchases in the month of purchase and 20% in the following month. *All other costs are paid in the month incurred, including the declaration and payment of a $10,000 cash dividend in June. *Borkenstick is making monthly interest payments of 0.5% (6% per year) on a $100,000 long term loan. *Borkenstick plans to pay the $7200 pf taxes pwed as pf May 31 in the month of June. Income tax expense for June is zero *30% of processing and setup costs, and 10% of marketing and general administration costs are depreciation Borkenstick Balance Sheet as of May 31 ASSETS Liabilities and Equity Cash $6,290 Account payable $10,400 Account receivable $216,000 Taxes payable 7,200 Less: Allowance for bad debts 10,800 205,200 Interest payable 500 Inventories Long-termdebt 100,000 Direct Materials 6,186 Common Stock 200,000 Finished Goods 77,250 Retained earnings 465,936 Fixed Assets $580,000 Total liabilities and equity $784,036 Less: Accumulated depreciation 90,890 489,110 Total Assets $784,036 3. Prepare a budgeted income statement for June and a budgeted balance sheet for Borkenstick as of June 30.