Required:
1. Prepare the revenues budget.
2. Use the revenues budget to:
a. Find the budgeted allocation rate(abc) 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 and 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.
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(ABC) for
materials-handling costs.
7. Prepare the direct manufacturing labor cost budget.
8. Prepare the manufacturing overhead cost budget for materials handling, setup, processing,
and inspection costs.
9. Prepare the budgeted unit cost of ending finished-goods inventory and ending inventories
budget.
10. Prepare the cost of goods sold budget.
11. Prepare the nonmanufacturing overhead costs budget for marketing and distribution.
12. Prepare a budgeted income statement (ignore income taxes).
13. How does preparing the budget help Hazlett’s management team better manage the
company?
SOLUTION
Comprehensive problem; ABC manufacturing, two products.
Revenues budget 0
Units Sales price Sales value
Swings 980 1000 980000
Play forts 1480 1200 1776000
2756000
Marketing allocation rate
Budgeted variable marketing cost 82680
Budgeted fixed marketing cost 192920
Total budgeted marketing cost 275600
Allocation rate (% of sales) 0.1
Distribution allocation rate
Budgeted variable distribution cost 0
Budgeted fixed distribution cost 295500
Total budgeted distribution cost 295500
Number of deliveries 394
Allocation rate (per delivery) 750
Swings per delivery 10
Play forts per delivery 5
Production budget
Swings Play forts
Needed for sales 980 1480
+ Closing inventory 100 120
Total needed 1080 1600
- Opening inventory -80 -100
Production 1000 1500
Total 2500
4a. Setup costs allocation rate
Swings Play forts Total
Batch size 20 10
Number of batches 50 150
Setup hours per batch 2 1
Total setup hours 100 150 250
Budgeted variable setup cost 2600
Budgeted fixed setup cost 4900
Total budgeted setup cost 7500
Number of setup hours 250
Allocation rate (per setup hour) 30
4b. Processing costs allocation rate
Swings Play forts Total
Machine hours per unit 2hrs 5hrs
Production units 1000 1500
Total machine hours 2000 7500 9500
Budgeted variable processing cost 180000
Budgeted fixed processing cost 200000
Total budgeted processing cost 380000
Number of machine hours 9500
Allocation rate (per machine hour) 40
4c. Inspection costs allocation rate
Swings Play forts Total
Production units 1000 1500 2500
Budgeted variable inspection cost 10000
Budgeted fixed inspection cost 5000
Total budgeted inspection cost 15000
Production units 2500
Allocation rate (per unit) 6
5. Material usage budget
Wood Chain
DM required for:
Swings(1000x120bf;40ft) 120 000 40 000
Forts(1500x200bf;0) 300000 -
Total quantity of DM to be used 420 000 40 000
Cost budget:
Opening inventory 38500 9000
Mat to be used from purchases 800000 190000
DM to be used 838500 199000
Total 1037500
Direct material purchases budget
Wood Chain
Needed for production 420000 40000
Swings 120000 40000
Play forts 300000 0
+ Closing inventory 18000 1800
Total needed 438000 41800
- Opening inventory -20000 -2000
Purchases (units) 418000 39800
Price per measuring unit 2 5
Cost of Purchases 836000 199000
Total 1035000
6. Materials handling allocation rate
Budgeted variable materials handling cost 13600 0
Budgeted fixed materials handling cost 20000
Total budgeted materials handling cost 33600
Number of bf 420000
Allocation rate (per bf) 0.08
7. Direct labour budget
Hrs: Swings 12
Hrs: Play forts 15
Hours Rate per Total cost
hour
Swings(1000X12) 12000 20 240000
Play forts(1500X15) 22500 20 450000
690000
8. Manufacturing overheads budget
Variable Fixed Total
Materials handling 13600 20000 33600
Setup 2600 4900 7500
Processing 180000 200000 380000
Inspection 10000 5000 15000
Total 206200 229900 436100
9. Unit Costs of Ending Finished
Goods Inventory
Cost per Swings Totals Play forts Totals
unit input input
Direct material 440 400
Wood 2 120bf 240 200bf 400
Chain 5 40ft 200 0 0
Direct labour 20 12hrs 240 15hrs 300
Manufacturing overheads 98.60 225
Materials handling 0.08 120bf 9.60 200bf 16
Setup 30 0.1hrs 3 0.1hrs 3
Processing 40 2MH 80 5MH 200
Inspection 6 1 unit 6 I unit 6
Totals 778.60 925
Ending inventories budget Quantity Cost P/U Totals
DM:Wood 18 000bf R2 36 000
DM:Chain 1800ft R5 9 000
Finished goods
Swings 100 units 778.60 77 860
Play forts 120 units 925 111 000
233 860
10 Cost of goods sold budget
Opening inventory FG(61 000+90 151000
0000)
Cost of goods manufactured 2163600
DM used 1037500
DL 690000
MOH 436100
Cost of goods available for sale 2314600
- Closing inventory -188860
FG(77860+111000)
Cost of goods sold 2125740
11. Non-manufacturing overheads budget
Variable Fixed Total
Marketing 82680 192920 275600
Distribution 0 295500 295500
Total 82680 488420 571100
12 Budgeted income statement
Sales 2756000
- Cost of goods sold -2125740
Gross profit 630260
- Non-manufacturing cost -571100
Operating income 59160
