Question

​,​Inc., manufactures and sells snowboards. Skis

manufactures a single​ model, the Pipex. In late

2017 Ski management accountant gathered the following data to prepare budgets for January 2018

The inventoriable unit cost for ending finished goods inventory on December​ 31,

2017, is ​$230.00 Assume Skis uses a FIFO inventory method for both direct materials and finished goods. Ignore work in process in your calculations.

Materials and Labor Requirements

Direct materials

Wood

17

board feet (b.f.) per snowboard

Fiberglass

15 yards per snowboard Direct manufacturing labor 7 hours per snowboard

SkisSkis​'s

CEO expects to sell 3,910 snowboards during January

2018 at an estimated retail price of $ 1,320 per board.​ Further, the CEO expects

2018 beginning inventory of 700 snowboards and would like to end January 2018 with 900 snowboards in stock

Direct Materials Inventories

Beginning Inventory 1/1/2018

Ending Inventory 1/31/2018

Wood

2,100

b.f.

1,600

b.f Fiberglass 1,100 yards 2,100 yards

Variable manufacturing overhead is

$20

per direct manufacturing​ labor-hour. There are also $28,770

in fixed manufacturing overhead costs budgeted for January

20182018.

SkisSkis

combines both variable and fixed manufacturing overhead into a single rate based on direct manufacturing​ labor-hours. Variable marketing costs are allocated at the rate of

$ 350

per sales visit. The marketing plan calls for

44

sales visits during January 2018 ​Finally, there are

$41,000 in fixed nonmanufacturing costs budgeted for January

2018

	2017 Unit Price		2018 Unit Price
Wood	$38.00	per b.f.	$40.00	per b.f.
Fiberglass	$14.00	per yard	$15.00	per yard
Direct manufacturing labor	$34.00	per hour	$35.00	per hour

Requirement 1. Prepare the January

20182018

revenues budget​ (in dollars).

Revenue Budget
For January 2018
	Units	Selling price	Total revenues
Snowboards	3,910	$1,320	$5,161,200

Requirement 2. Prepare the January

20182018

production budget​ (in units).

Production Budget
For January 2018
Budgeted units sales		3,910
Add target ending finished goods inventory		900
Total required units		4,810
Deduct beginning finished goods inventory		700
Units of finished goods to be produced		4,110

Requirement 3. Prepare the direct material usage and purchases budgets for January

20182018.

Begin with the physical units​ portion, then prepare the cost budget portion of the direct material usage budget.

Direct Material Usage Budget in Quantity and Dollars
For January 2018
	Material
	Wood		Fiberglass		Total
Physical Units Budget
Direct materials required for
Snowboards	69,870	b.f.	61,650	yds

Cost Budget
Available from beginning direct materials inventory
(under a FIFO cost-flow assumption)
Wood	$79,800
Fiberglass			$15,400
To be purchased this period
Wood	2,710,800
Fiberglass			908,250
Direct materials to be used this period	$2,790,600		$923,650		$3,714,250

Now prepare the direct material purchases budget for January

20182018.

Direct Materials Purchases Budget
For January 2018
		Materials
		Wood		Fiberglass		Total
Physical Units Budget
To be used in production			b.f.		yards
Add target ending inventory		1,600	b.f.	2,100	yards
Total requirement			b.f.		yards
Deduct beginning inventory		2,100	b.f.	1,100	yards
Purchases to be made			b.f.		yards
Cost Budget
Purchases

1.	Prepare the January 20182018 revenues budget​ (in dollars).
2.	Prepare the January 20182018 production budget​ (in units).
3.	Prepare the direct material usage and purchases budgets for January 20182018.
4.	Prepare a direct manufacturing labor costs budget for January 20182018.
5.	Prepare a manufacturing overhead costs budget for January 20182018.
6.	What is the budgeted manufacturing overhead rate for January 20182018​?
7.	What is the budgeted manufacturing overhead cost per output unit in January 20182018​?
8.	Calculate the cost of a snowboard manufactured in January 20182018.
9.	Prepare an ending inventory budget for both direct materials and finished goods for January 20182018.
10.	Prepare a cost of goods sold budget for January 20182018.
11.	Prepare the budgeted income statement for SkisSkis​, ​Inc., for January 20182018.
12.	What questions might the CEO ask the management team when reviewing the​ budget? Should the CEO set stretch​ targets? Explain briefly.
13.	How does preparing the budget help SkisSkis​'s management team better manage the​ company?

Answer 1

Ques 1 Selling Price Units Amount 3,910 $1,320 $5,161,200 Pipex Ques 2 Pipex Budgeted unit sales Desired FGI 3,910 900 Total units needed 4,810 Less Beginning FGI Required units of production 700 4,110 Oues 3 Pipex Input Units Input Cost Per Total Mfg Current Needed/Pipex Units Units Input Unit Cost Purchases Wood 4.110 17 69.870 From BI $38,00 $79,800 2,100 From current purchases Needed for sales Needed for EI Purchases $40.00 $2,710,800 67,770 2,710,800 1,600 $40.00 64,000 69,370 $40,00 $2.774.800 Total mfg. costs $2,790,600 Fiberglass 4,110 15 61,650 $15,400 From BI 1.100 $14.00 From current purchases Needed for sales $908,250 908,250 $15.00 $15.00 60.550 Needed for El 2.100 31,500 Purchases 62.650 $15.00 939.750 Total mfg, costs $923,650 Total Costs $3,714,250 $3,714,550 Ques 4 Total Mfg Pipex Input Units Input Cost Per Direct manufacturing labor Needed/Pipex Units Units Input Unit Cost 4,110 $35.00 $1,006,950 7 28.770 Total Mfg Pipex DML Hours DML Hours Cost Per Units Needed/Pipex Required DML Hour Cost $20.00 $575,400 Variable MOH 4,110 28.770 Fixed MOH 4,110 28 770 28,770 total $21.00 $604,170

Ques 6-budgeted mnaufacturing overhead rate Ques 7-budgeted manuafacturing overhead cost per output unit $21.00 147.00 Ques 8 Input Units Total Mfg. Cost Per Needed/Pipex Input Unit Cost/Pipex Wood (board feet) Fiberglass (yards) Direct labor (hours) умон FMOH $40.00 $15.00 $35.00 $20.00 1.00 $680.00 17 $903.71 $245.00 $140.00 $7.00 15 $225.00 $245.00 $140.00 $7.00 7 Total budgeted cost per unit $1,297.00 $1,295.71 Budgeted W/A Oues 9 Cost Per Budgeted El Dollars Units in Input Unit FI Wood Fiberglass $40.00 $64,000.00 $31,500.00 1,600 15 2,100 $1,297.00 $1,167,300.00 900 Pipex $1,262,800.00 Total Budgeted El Valuation Ques 10 Beginning FG $161,000 $230.00 700 Cost of Goods Mfg. 4,110 DM used DL incurred $3,714,250 1,006,950 |мОН applied 604.170 5,325,370 $5,486,370 COGA Ending FGI 900 1,167,300 COGS 4,319,070 3,910 Ques 11 Sales Cost of Goods Sold $5,161,200 4,319,070 Gross Profit 842,130 Operating Expenses Variable marketing costs 15400 41000 Fixed nonmanufacturing costs 56400 $ Operating Income 785,730