Section A Master Budget Problem

Comprehensive Master Budget: ABC Costing, Operating & Financial Budgets

Nupes is a famous stick-candy maker in Sydney and produces stick-candies in two sizes, i.e., regular and large. The company sells their products on several platforms such as stores, fairs, schools for fundraisers and in bulk on the internet. 2020 summer is approaching, and Nupes is preparing its budget for December. All Nupess stick-candies are hand-made, mostly out of sugar, and attached to sticks. Expected sales are based on past experience.

Other information for December 2020 is as follows:

		Input prices
	Direct materials:
	Sugar	$0.45 per kg
	Sticks	$0.55 each
	Direct manufacturing labour	$9 per direct manufacturing labour hour (DMLH)

Input quantities per unit of output

	Regular	Large
Direct materials:
Sugar	0.25 kg	0.50 kg
Sticks	1	1
Direct manufacturing labour hour (DMLH)	0.22 hour	0.31 hour
Set-up hours per batch	0.11 hour	0.13 hour

Inventory data for direct materials¹

	Sugar	Sticks
Beginning inventory	150 kg	415
Target ending inventory	275 kg	515
Cost of beginning inventory	$65	$107

1. Nupes accounts for direct materials using a FIFO cost flow assumption.

Sales and inventory data for finished goods²

	Regular	Large
Expected sales in units	3,500	2,300
Selling price	$5.5	$6.5
Target ending inventory in units	350	190
Beginning inventory in units	230	160
Beginning inventory in dollars	$510	$480

2. Nupes uses a FIFO cost flow assumption for finished goods inventory.

All the stick-candies are made in batches of 10. Nupes incurs manufacturing overhead cost, and marketing and general administration costs, but customers pay for shipping. Other than manufacturing labour costs, monthly processing costs are very small. Nupes uses activity-based costing (ABC) and has classified all overhead costs for December 2020 as follows:

	Cost type		Denominator activity	Rate
Manufacturing:
Set-up			Set-up hours	$24 per set-up hour
Processing			Direct manufacturing labour hour	$2.1 per DMLH
			(DMLH)
Non-manufacturing:
Marketing & general admin			Sales revenue	12%

	Required
	1. For December 2020, prepare the following:
	(a) Revenue (or sales) budget			(2 marks)
	(b) Production budget in units			(6 marks)

(c) Direct materials usage budget and direct materials purchases budget (10 marks)

(d) Direct manufacturing labour cost budget (6 marks)

(e) Manufacturing overhead cost budgets for processing and set-up activities (2 marks)

(f) Budgeted unit cost of ending finished goods inventory and ending inventories budget (18 marks)

(g) Cost of goods sold budget (4 marks)

(h) Marketing and general administration costs budget (2 marks)

2. Nupess balance sheet for 30 November 2020 follows. Use it and the following information to prepare a cash budget for Nupes for December 2020: (5 marks)

75% of Nupess sales are on credit sales (sales on account). Out of these credit sales, 50% are collected in the month of the sale, 49% are collected the following month and 1% are never collected and written off as bad debts.

All purchases of materials are on account. Nupes pays for 75% of purchases in the month of purchase and 25% in the following month.

All other costs are paid by Nupes in the month incurred.

Nupes is making monthly interest payments of 1% (12% per year) on a $20,000 long-term loan.

Nupes plans to pay the $500 of taxes owed as of 30 November 2020 in December 2020. Income tax expense for December is zero.

35% of marketing and general administration costs are depreciation, and 45% of processing and set-up costs are also depreciation.