XYZ Company makes two products, the A1 and the A2. They are both made of plastic with metal . Information for the two products for the month of October is given in the following tables:

Input Prices

Direct Materials

Plastic $4.5 per pound

Metal $ 3 per pound

Direct Manufacturing Labor $11 per direct manufacturing labor hours

Manufacturing Overhead Rate $20.5 per direct manufacturing labor hours

Input Quantities per unit of output

Direct Materials A1 A2

Plastic 5 Pounds 6.5 Pounds

Metal 1 Pounds 1.25 pounds

Direct manufacturing Labor 3 hours 5 hours

Inventory Information, direct materials

Plastic Metal

Beginning inventory 200 Pounds 75 Pounds

Target ending inventory 280 Pounds 80 pounds

Cost of beginning inventory $940 $240

Production & Inventory Information, finished goods

A1 A2

Units of finished goods to be produced 520 285

Target ending inventory in units 50 25

Beginning inventory in units 30 35

Beginning inventory in dollars $3,150 $6,300

Other Information:

Current Assets $160,000

Long-Term Assets 340,000

Budgeted operating income $10,000

Instructions:

I. Make a direct material usage budget and direct material purchase budget.

II.Determine budgeted unit cost of ending finished goods inventory.

III.Calculate XYZ Company's rate of return on investment. Compute the selling price for A1 and A2, if Neptune charge 60% mark-up on its unit product cost.

IV. What questions might the CEO ask the management team when reviewing the budgets that you have prepared earlier? Is there any problem in their budgeted results that you can identify? Should the CEO set stretch targets? Explain briefly. How does preparing the budget help management team better manage the company?

V. What are the key summary statements of financial budget?

VI Write the journal entries for normal and abormal spoilage. ( just mention what account is debited and credited)