Surrey Bikes, Inc. manufactures double bench bikes for resorts and other vacation properties. Management is preparing the budget 2022 and has asked for the accountants help. Sales in 2021 were 600 units. They are bringing on a new customer and management is expecting a 10% increase in 2022. They will increase the selling price to $3,300 this year to account for anticipated rising costs. Expected sales units Unit selling price Total sales Surrey Bikes, Inc. Sales Budget For the Year Ended December 31, 2022 At the end of 2021, there were no bikes left in inventory to sell in 2022. Management would like to start 2022 with inventory on hand. They would like to budget to end 2022 with 60 completed and finished bikes. Surrey Bikes, Inc. Production Budget For the Year Ended December 31, 2022 Expected sales units Add: Desired ending finished goods units (ending balance 2022) Total required units Less: Beginning finished goods units (ending balance 2021) Required production units Management expects to end 2021 with some direct materials. They want to make sure that at the end of 2022, they have enough direct materials on hand to start production right away in 2023. Expected Electrical sets direct materials: Per Unit 1 set 2022 Cost $ 100.00 Wheel and tire sets direct materials 4 wheel & tire sets $ 10.00 Metal parts direct materials: Canvas fabric direct materials: 200 pounds $ 0.50 3 yards $ 10.00 Ending Balance Ending Balance 2021 2022 50 200 150 400 1,000 5,000 20 200 Surrey Bikes, Inc. Direct Materials Budget For the Year Ended December 31, 2022 Required production units Electrical sets per unit produced: Total needed for production Add: Desired ending direct materials Total materials required Less: Beginning direct materials Direct materials purchases Cost per set Total cost of electrical sets direct materials purchases Required production units Wheel and tire sets per unit produced Total wheel and tire sets needed for production Add: Desired ending direct materials (ending balance 2022) Total materials required Less: Beginning direct materials (ending balance 2021) Direct materials purchases Cost per unit Total cost of wheel and tire sets direct materials purchases Required production units Metal parts direct materials pounds per unit produced: Total pounds needed for production Add: Desired ending direct materials in pounds (ending balance 2022) Total materials required Less: Beginning direct materials in pounds (ending balance 2021) Direct materials purchases Cost per pound Total cost of metal parts direct materials purchases Required production units Canvas direct material yards per unit produced: Total yards needed for production Add: Desired ending direct materials in yards (ending balance 2022) Total materials required Less: Beginning direct materials in pounds (ending balance 2021) Direct materials purchases Cost per yard Total cost of canvas direct materials purchases Total cost of ALL direct materials purchases Management expects that it will take 50 hours of direct labor to manufacture each bike. Direct labor is billed at $20/hour. Surrey Bikes, Inc. Direct Labor Budget For the Year Ended December 31, 2022 Units to be produced Direct labor time (hours) per unit Total required direct labor hours Direct labor cost per hour Total direct labor cost Machine usage is the only component of manufacturing overhead. It will take 75 machine hours per bike and the cost is $8/hour. Surrey Bikes, Inc. Manufacturing Overhead Budget For the Year Ended December 31, 2022 Units to be produced Machine hours per unit Total required machine hours Machine cost per hour Total manufacturing overhead Management also anticipates the following fixed costs, some anticipated changes from last year: Building and Equipment Depreciation Company Insurance Company Advertising Selling and Administrative Salaries and Benefits Fixed expenses Building and Equipment Depreciation Company Insurance Company Advertising Selling and administrative salaries and benefits Total selling and administrative expenses Surrey Bikes, Inc. Selling and Administrative Expense Budget For the Year Ended December 31, 2022 $45,000 $23,000 $117,000 $300,000 Management had to borrow some money from the bank to start the business five years ago. As a result, they still have some interest expense. It is $10,000 per year. Management anticipates a 20% tax rate for 2022. Surrey Bikes, Inc. Budget Income Statement For the Year Ended December 31, 2022 Sales "Cost of goods sold Gross profit Selling and administrative expenses Income from operations Interest expense Income before income taxes Income tax expense Net Income *Supplemental Schedule - COGS Cost Budget per Unit Cost Element Electrical sets direct materials: Quantity set set Wheel & tire sets Metal parts direct materials: pounds Canvas direct materials: yards Direct labor hour Manufacturing overhead - machine hours hour Total COGS Budget per Unit Unit Cost Total Surrey Bikes, Inc. manufactures double bench bikes for resorts and other vacation properties. Management now wants the accountants to complete an analysis to compare the budgeted costs to standard costs for 2022. During the year 2022, the company completed 680 bikes. Let's discuss changes from budget and standard that occurred during 2022. Overall, the company was able to increase several efficiencies. However, the company also experienced some increased costs. Use this information to complete the CH24 Budet Variances tab; the green section. Electrical Parts Direct Materials The purchase price increased by $2.50 per set. There was also an increase in freight of by $0.25 per set. Wheels and Tires Direct Materials: The company was able to secure the same materials from a new supplier at a cost of $9/set. However, freight cost increased by $0.50 per wheel and tire set. Metal Parts Direct Materials: The company was also able to reduce the amount of material used for each bike by 3 pounds. The acual cost of the metal parts was $0.52 per pound. Canvas Fabric Direct Materials: The company was also able to reduce the amount of material used for each bike by one-half a yard. The acual cost of the canvas fabric was $4.95 per yard. Direct labor: Employees were tasked with increasing equipment assembly and decreasing labor hours. They were successful in 2022 and brought hours down by 5/hours/unit! The company provided a $1/hour raise! This also lead to an increase of $0.25/hour in payroll taxes. Manufacturing overhead: There were no changes in manufacturing overhead, no variance needs to be computed Using this information, computer the budget variances incurred during 2022