Requirement:

show in details how they solved scenario 2

Content of Each Product Unit Red Oak Granite Direct manufacturing labor Expected sales in units Selling price Target ending inventory in units Beginning inventory in units Beginning inventory in dollars Product Casual Granite Table Deluxe Granite Table 12 board feet 12 board feet 6 square feet 8 square feet 4 hours 6 hours Product Casual Granite Table Deluxe Granite Table 50,000 10,000 $ 600 $ 800 11,000 500 1,000 500 $384,000 $262,000 Direct Materials Red Oak Granite 70,000 b.f. 60,000 sq.ft. 80,000 b.f. 20,000 sq. ft. Beginning inventory Target ending inventory Schedule 1: Revenues Budget For the Year Ending December 31, 2012 Units Selling Price Total Revenues 50,000 $600 $30,000,000 10,000 8,000,000 $38,000,000 Casual Deluxe Total 800 Schedule 2: Production Budget (in Units) For the Year Ending December 31, 2012 Product Casual Deluxe Budgeted unit sales (Schedule 1) 50,000 10,000 Add target ending finished goods inventory 11,000 Total required units 61,000 10,500 Deduct beginning finished goods inventory 500 Units of finished goods to be produced 60,000 10,000 500 1,000 Total Schedule 3A: Direct Material Usage Budget in Quantity and Dollars For the Year Ending December 31, 2012 Material Red Oak Granite Physical Units Budget Direct materials required for Casual tables 720,000 b.f. 360,000 sq. ft. 160,000 units X 12 b.f. and 6 sq. ft.) Direct materials required for Deluxe tables 120,000 b.f. 80,000 sq. ft. (10,000 units X 12 b.f. and 8 sq. ft.) Total quantity of direct materials to be used 840,000 b.f. 440,000 sq. ft. Cost Budget Available from beginning direct materials inventory (under a FIFO cost-flow assumption) Red Oak: 70,000 b.f. X $7 per b.f. $ 490,000 Granite: 60,000 sq. ft. X $10 per sq. ft. $ 600,000 To be purchased this period Red Oak: (840,000 - 70,000) b.f. X $7 per b.f. 5,390,000 Granite: (440,000 - 60,000) sq. ft. X $10 per sq. ft. 3,800,000 Direct materials to be used this period $5,880,000 $4,400,000 $10,280,000 Total Schedule 3B: Direct Material Purchases Budget For the Year Ending December 31, 2012 Material Red Oak Granite Physical Units Budget To be used in production (from Schedule 3A) 840,000 b.f. 440,000 sq. ft. Add target ending inventory 80,000 b.f. 20,000 sq.ft. Total requirements 920,000 b.f. 460,000 sq. ft. Deduct beginning inventory 70,000 b.f. 60,000 sq. ft. Purchases to be made 850,000 b.f. 400,000 sq. ft. Cost Budget Red Oak: 850,000 b.f. x $7 per b.f. $5,950,000 Granite: 400,000 sq.ft. X $10 per sq. ft. $4,000,000 Purchases $5,950,000 $4,000,000 $9,950,000 Schedule 4: Direct Manufacturing Labor Costs Budget For the Year Ending December 31, 2012 Output Units Produced Direct Manufacturing Hourly (Schedule 2) Labor-Hours per Unit Total Hours Wage Rate 60,000 240,000 $20 10,000 60,000 300,000 Casual Deluxe Total $4,800,000 1,200,000 $6,000,000 Total $6,480,000 Schedule 5: Manufacturing Overhead Costs Budget For the Year Ending December 31, 2012 Manufacturing Operations Overhead Costs Variable costs Supplies $1,500,000 Indirect manufacturing labor 1,680,000 Power (support department costs) 2,100,000 Maintenance (support department costs) 1,200,000 Fixed costs (to support capacity of 300,000 direct manufacturing labor-hours) Depreciation 1,020,000 Supervision 390,000 Power (support department costs) 630,000 Maintenance (support department costs) 480,000 Total manufacturing operations overhead costs Machine Setup Overhead Costs Variable costs Supplies $ 390,000 Indirect manufacturing labor 840,000 Power (support department costs) 90,000 Fixed costs (to support capacity of 15,000 setup labor-hours) Depreciation 603,000 Supervision 1,050,000 Power (support department costs) 27,000 Total machine setup overhead costs Total manufacturing operations overhead costs 2,520,000 $9,000,000 $ 1,320,000 1,680,000 $ 3,000,000 $12,000,000 Schedule 6A: Unit Costs of Ending Finished Goods Inventory December 31, 2012 Product Casual Tables Deluxe Tables Cost per Unit Input per Unit Input per Unit of Input of Output Total of Output Total Red Oak $ 7 12 b.f. 12 b.f. $ 84 Granite 10 6 sq. ft. 60 8 sq.ft Direct manufacturing labor 20 4 hrs. 80 120 Manufacturing overhead 30 4 hrs. 120 6 hrs. 180 Machine setup overhead 200 0.2 hrs. 40 0.3 hrs. 60 Total $384 $524 $ 84 6 hrs. Under the FIFO method, this unit cost is used to calculate the cost of target ending inven- tories of finished goods in Schedule 6B. Total Schedule 6B: Ending Inventories Budget December 31, 2012 Quantity Cost per Unit Direct materials Red Oak 80,000* S 7 $ 560,000 Granite 20,000* 10 200,000 Finished goods Casual $4,224,000 Deluxe 262,000 Total ending inventory $760,000 11,000** 500** $384*** 524*** 4,486,000 $5,246,000 $ Total 646,000 Schedule 7: Cost of Goods Sold Budget For the Year Ending December 31, 2012 From Schedule Beginning finished goods inventory, January 1, 2012 Given* Direct materials used Direct manufacturing labor Manufacturing overhead Cost of goods manufactured Cost of goods available for sale Deduct ending finished goods inventory, December 31, 2012 Cost of goods sold $10,280,000 6,000,000 12,000,000 28,280,000 28,926,000 4,486,000 $24,440,000 Product design costs are fixed costs, determined on the basis of the product design work anticipated for 2012. The variable component of budgeted marketing costs is the commissions paid to sales people equal to 6.5% of revenues. The fixed component of budgeted marketing costs equal to $1,330,000 is tied to the marketing capacity for 2012. The cost driver of the variable component of budgeted distribution costs is cubic feet of tables moved (Casual: 18 cubic feet x 50,000 tables + Deluxe: 24 cubic feet x 10,000 tables = 1,140,000 cubic feet). Variable distribution costs equal $2 per cubic foot. The fixed component of budgeted distribution costs equals $1,596,000 and is tied to the dis- tribution capacity for 2012. Schedule 8 shows the product design, marketing, and distri- bution costs budget for 2012. Schedule 8: Nonmanufacturing Costs Budget For the Year Ending December 31, 2012 Business Function Variable Costs Fixed Costs Product design $1,024,000 Marketing (Variable cost $38,000,000 X 0.065) $2,470,000 1,330,000 Distribution (Variable cost: S2 X 1,140,000 cu.ft.) 2,280,000 1,596,000 $4,750,000 $3,950,000 Total Costs $1,024,000 3,800,000 3,876,000 $8,700,000 Home Insert Page Layout Formulas Data Review View $38,000,000 24,440,000 13,560,000 Budgeted Income Statement for Stylistic Furniture For the Year Ending December 31, 2012 3 Revenues Schedule 1 4 Cost of goods sold Schedule 7 5 Gross margin 6 Operating costs Product design costs Schedule 8 $1,024,000 Marketing costs Schedule 8 3 ,800,000 Distribution costs Schedule 8 3 ,876,000 10 Operating income 8,700,000 $ 4,860,000 Scenario 1: A 3% decrease in the selling price of the Casual table and a 3% decrease in the selling price of the Deluxe table. Scenario 2: A 5% increase in the price per board foot of red oak and a 5% increase in the price per square foot of granite. Exhibit 6-4 presents the budgeted operating income for the two scenarios. Note that under Scenario 1, a change in selling prices per table affects revenues (Schedule 1) as well as variable marketing costs (sales commissions, Schedule 8). The Problem for Self-Study at the end of the chapter shows the revised schedules for Scenario 1. Similarly, a change in the price of direct materials affects the direct material usage budget (Schedule 3A), the unit cost of ending finished goods inventory (Schedule 6A), the ending Exhibit 6-4 Effect of Changes in Budget Assumptions on Budgeted Operating Income for Stylistic Furniture Home A Insert | Page Layout Formulas Data B | C | D | Key Assumptions E Review | F View | G H I Direct Material Cost Units Sold Selling Price What If Scenario Master budget Scenario 1 Scenario 2 Casual 50,000 50,000 50,000 Deluxe 10,000 10,000 10,000 Casual $600 582 600 Deluxe $800 776 800 Red Oak Granite $7.00 $10.00 $7.00 $10.00 $7.35 $10.50 Budgeted Operating Income Change from Dollars Master Budget $4,860,000 3,794,100 22% decrease 4,483,800 8% decrease 6 Content of Each Product Unit Red Oak Granite Direct manufacturing labor Expected sales in units Selling price Target ending inventory in units Beginning inventory in units Beginning inventory in dollars Product Casual Granite Table Deluxe Granite Table 12 board feet 12 board feet 6 square feet 8 square feet 4 hours 6 hours Product Casual Granite Table Deluxe Granite Table 50,000 10,000 $ 600 $ 800 11,000 500 1,000 500 $384,000 $262,000 Direct Materials Red Oak Granite 70,000 b.f. 60,000 sq.ft. 80,000 b.f. 20,000 sq. ft. Beginning inventory Target ending inventory Schedule 1: Revenues Budget For the Year Ending December 31, 2012 Units Selling Price Total Revenues 50,000 $600 $30,000,000 10,000 8,000,000 $38,000,000 Casual Deluxe Total 800 Schedule 2: Production Budget (in Units) For the Year Ending December 31, 2012 Product Casual Deluxe Budgeted unit sales (Schedule 1) 50,000 10,000 Add target ending finished goods inventory 11,000 Total required units 61,000 10,500 Deduct beginning finished goods inventory 500 Units of finished goods to be produced 60,000 10,000 500 1,000 Total Schedule 3A: Direct Material Usage Budget in Quantity and Dollars For the Year Ending December 31, 2012 Material Red Oak Granite Physical Units Budget Direct materials required for Casual tables 720,000 b.f. 360,000 sq. ft. 160,000 units X 12 b.f. and 6 sq. ft.) Direct materials required for Deluxe tables 120,000 b.f. 80,000 sq. ft. (10,000 units X 12 b.f. and 8 sq. ft.) Total quantity of direct materials to be used 840,000 b.f. 440,000 sq. ft. Cost Budget Available from beginning direct materials inventory (under a FIFO cost-flow assumption) Red Oak: 70,000 b.f. X $7 per b.f. $ 490,000 Granite: 60,000 sq. ft. X $10 per sq. ft. $ 600,000 To be purchased this period Red Oak: (840,000 - 70,000) b.f. X $7 per b.f. 5,390,000 Granite: (440,000 - 60,000) sq. ft. X $10 per sq. ft. 3,800,000 Direct materials to be used this period $5,880,000 $4,400,000 $10,280,000 Total Schedule 3B: Direct Material Purchases Budget For the Year Ending December 31, 2012 Material Red Oak Granite Physical Units Budget To be used in production (from Schedule 3A) 840,000 b.f. 440,000 sq. ft. Add target ending inventory 80,000 b.f. 20,000 sq.ft. Total requirements 920,000 b.f. 460,000 sq. ft. Deduct beginning inventory 70,000 b.f. 60,000 sq. ft. Purchases to be made 850,000 b.f. 400,000 sq. ft. Cost Budget Red Oak: 850,000 b.f. x $7 per b.f. $5,950,000 Granite: 400,000 sq.ft. X $10 per sq. ft. $4,000,000 Purchases $5,950,000 $4,000,000 $9,950,000 Schedule 4: Direct Manufacturing Labor Costs Budget For the Year Ending December 31, 2012 Output Units Produced Direct Manufacturing Hourly (Schedule 2) Labor-Hours per Unit Total Hours Wage Rate 60,000 240,000 $20 10,000 60,000 300,000 Casual Deluxe Total $4,800,000 1,200,000 $6,000,000 Total $6,480,000 Schedule 5: Manufacturing Overhead Costs Budget For the Year Ending December 31, 2012 Manufacturing Operations Overhead Costs Variable costs Supplies $1,500,000 Indirect manufacturing labor 1,680,000 Power (support department costs) 2,100,000 Maintenance (support department costs) 1,200,000 Fixed costs (to support capacity of 300,000 direct manufacturing labor-hours) Depreciation 1,020,000 Supervision 390,000 Power (support department costs) 630,000 Maintenance (support department costs) 480,000 Total manufacturing operations overhead costs Machine Setup Overhead Costs Variable costs Supplies $ 390,000 Indirect manufacturing labor 840,000 Power (support department costs) 90,000 Fixed costs (to support capacity of 15,000 setup labor-hours) Depreciation 603,000 Supervision 1,050,000 Power (support department costs) 27,000 Total machine setup overhead costs Total manufacturing operations overhead costs 2,520,000 $9,000,000 $ 1,320,000 1,680,000 $ 3,000,000 $12,000,000 Schedule 6A: Unit Costs of Ending Finished Goods Inventory December 31, 2012 Product Casual Tables Deluxe Tables Cost per Unit Input per Unit Input per Unit of Input of Output Total of Output Total Red Oak $ 7 12 b.f. 12 b.f. $ 84 Granite 10 6 sq. ft. 60 8 sq.ft Direct manufacturing labor 20 4 hrs. 80 120 Manufacturing overhead 30 4 hrs. 120 6 hrs. 180 Machine setup overhead 200 0.2 hrs. 40 0.3 hrs. 60 Total $384 $524 $ 84 6 hrs. Under the FIFO method, this unit cost is used to calculate the cost of target ending inven- tories of finished goods in Schedule 6B. Total Schedule 6B: Ending Inventories Budget December 31, 2012 Quantity Cost per Unit Direct materials Red Oak 80,000* S 7 $ 560,000 Granite 20,000* 10 200,000 Finished goods Casual $4,224,000 Deluxe 262,000 Total ending inventory $760,000 11,000** 500** $384*** 524*** 4,486,000 $5,246,000 $ Total 646,000 Schedule 7: Cost of Goods Sold Budget For the Year Ending December 31, 2012 From Schedule Beginning finished goods inventory, January 1, 2012 Given* Direct materials used Direct manufacturing labor Manufacturing overhead Cost of goods manufactured Cost of goods available for sale Deduct ending finished goods inventory, December 31, 2012 Cost of goods sold $10,280,000 6,000,000 12,000,000 28,280,000 28,926,000 4,486,000 $24,440,000 Product design costs are fixed costs, determined on the basis of the product design work anticipated for 2012. The variable component of budgeted marketing costs is the commissions paid to sales people equal to 6.5% of revenues. The fixed component of budgeted marketing costs equal to $1,330,000 is tied to the marketing capacity for 2012. The cost driver of the variable component of budgeted distribution costs is cubic feet of tables moved (Casual: 18 cubic feet x 50,000 tables + Deluxe: 24 cubic feet x 10,000 tables = 1,140,000 cubic feet). Variable distribution costs equal $2 per cubic foot. The fixed component of budgeted distribution costs equals $1,596,000 and is tied to the dis- tribution capacity for 2012. Schedule 8 shows the product design, marketing, and distri- bution costs budget for 2012. Schedule 8: Nonmanufacturing Costs Budget For the Year Ending December 31, 2012 Business Function Variable Costs Fixed Costs Product design $1,024,000 Marketing (Variable cost $38,000,000 X 0.065) $2,470,000 1,330,000 Distribution (Variable cost: S2 X 1,140,000 cu.ft.) 2,280,000 1,596,000 $4,750,000 $3,950,000 Total Costs $1,024,000 3,800,000 3,876,000 $8,700,000 Home Insert Page Layout Formulas Data Review View $38,000,000 24,440,000 13,560,000 Budgeted Income Statement for Stylistic Furniture For the Year Ending December 31, 2012 3 Revenues Schedule 1 4 Cost of goods sold Schedule 7 5 Gross margin 6 Operating costs Product design costs Schedule 8 $1,024,000 Marketing costs Schedule 8 3 ,800,000 Distribution costs Schedule 8 3 ,876,000 10 Operating income 8,700,000 $ 4,860,000 Scenario 1: A 3% decrease in the selling price of the Casual table and a 3% decrease in the selling price of the Deluxe table. Scenario 2: A 5% increase in the price per board foot of red oak and a 5% increase in the price per square foot of granite. Exhibit 6-4 presents the budgeted operating income for the two scenarios. Note that under Scenario 1, a change in selling prices per table affects revenues (Schedule 1) as well as variable marketing costs (sales commissions, Schedule 8). The Problem for Self-Study at the end of the chapter shows the revised schedules for Scenario 1. Similarly, a change in the price of direct materials affects the direct material usage budget (Schedule 3A), the unit cost of ending finished goods inventory (Schedule 6A), the ending Exhibit 6-4 Effect of Changes in Budget Assumptions on Budgeted Operating Income for Stylistic Furniture Home A Insert | Page Layout Formulas Data B | C | D | Key Assumptions E Review | F View | G H I Direct Material Cost Units Sold Selling Price What If Scenario Master budget Scenario 1 Scenario 2 Casual 50,000 50,000 50,000 Deluxe 10,000 10,000 10,000 Casual $600 582 600 Deluxe $800 776 800 Red Oak Granite $7.00 $10.00 $7.00 $10.00 $7.35 $10.50 Budgeted Operating Income Change from Dollars Master Budget $4,860,000 3,794,100 22% decrease 4,483,800 8% decrease 6