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Budgeting

Budgeting
Project description
Hair Accessories Inc. makes plastic combs and hairbrushes and operates at capacity. Although the combs and hairbrushes are a matching set, they are sold individually as well. Therefore, the sales mix is not 1:1. Hair Accessories Inc. is planning its annual budget for fiscal year 2013.
Information for 2012 follows:
Input Prices
Direct materials
Plastic
$0.20 per ounce
Bristles
$0.50 per bunch
Direct manufacturing labor
$12 per direct manufacturing labor-hour
Input Quantities per Unit of Output
Combs
Brushes
Direct materials
Plastic
5 ounces
8 ounces
Bristles
16 bunches
Direct manufacturing labor
0.05 hours
0.2 hours
Machine-hours (MH)
0.025 MH
0.1 MH
BU315: Week 3 Budgeting and Variances
Analysis 3.1
Budgeting
2
Inventory Information, Direct Materials
Plastics
Bristles
Beginning inventory
1,600 ounces
1,820 bunches
Target ending inventory
1,766 ounces
2,272 bunches
Cost of beginning inventory
$304
$946
Sales and Inventory Information, Finished Goods
Combs
Brushes
Expected sales in units
12,000
14,000
Selling price
$6
$20
Target ending inventory in units
1,200
1,400
Beginning inventory in units
600
1,200
Beginning inventory in dollars
$1,800
$18,120
Hair Accessories Inc. uses a FIFO cost flow assumption for finished goods inventory.
Combs are manufactured in batches of 200 and brushes are manufactured in batches of 100. It takes 20 minutes to set up for a batch of combs and one hour to set up for a batch of brushes.
BU315: Week 3 Budgeting and Variances
Analysis 3.1
Budgeting
3
Hair Accessories Inc. uses activity-based costing and has classified all overhead costs as shown in the following table:
Cost Type
Budgeted Variable
Budgeted Fixed
Cost Driver/Allocation Base
Manufacturing:
Materials handling
$11,490
$15,000
Number of ounces of plastic used
Setup
6,830
11,100
Setup-hours
Processing
7,760
20,000
Machine-hours
Inspection
7,000
1,040
Number of units produced
Nonmanufacturing:
Marketing
14,100
60,000
Sales revenue
Distribution
0
780
Number of deliveries
Tasks:
Delivery trucks transport units sold in delivery sizes of 1,000 combs or 1,000 brushes. Do the following for the year 2013:
1. Prepare the revenues budget.
2. Use the revenue budget to:
a. Find the budgeted allocation rate for marketing costs.
b. Find the budgeted number of deliveries and allocation rate for distribution costs.
3. Prepare the production budget in units.
4. Use the production budget to:
a. Find the budgeted number of setups, setup-hours, and the allocation rate for setup costs.
b. Find the budgeted total machine-hours and the allocation rate for processing costs.
c. Find the budgeted total units produced and the allocation rate for inspection costs.
BU315: Week 3 Budgeting and Variances
Analysis 3.1
Budgeting
4
5. Prepare the direct material usage budget and the direct material purchases budget in both units and dollars; round to whole dollars.
6. Use the direct material usage budget to find the budgeted allocation rate for materials handling costs.
7. Prepare the direct manufacturing labor cost budget.
8. Prepare the manufacturing overhead cost budget for materials handling, setup, and processing.
9. Prepare the budgeted unit cost of ending finished goods inventory and ending inventories budget.
Complete each of the given requirements (1-9) and then answer the following questions with conclusion and results: Based on the budgets created, what decisions did management make regarding production? Based on the production budget, what advantages does the company have if it increases or decreases the production? How would the numbers from the revenue and production budgets play into the companys strategic plan?
Submission Requirements:
Submit your work in a Microsoft Excel file, showing step-by-step solutions to all calculations.
Evaluation Criteria:
Your submission will be evaluated against the following criteria: Did you explain the management decisions in regard to production? Did you analyze whether the production increased or decreased? Did you analyze the revenue and production numbers to evaluate the companys strategic plan?
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