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ACCT6111_Fall 2013_Assignment 2_Case 1_Budgeting_Muscat Sandals Company (MSC)




Question;ACCT6111 Fall 2013 Assignment 2;Case 1: Budgeting;Muscat Sandals Company (MSC) makes a very popular;cloth sandal in one style, but in Regular and Deluxe. The Regular sandals have;cloth soles and the Deluxe sandals have cloth covered wooden soles. MSC is;preparing its budget for January 2013, and has estimated sales based on past;experience.;Other information for the month of January follows;Input Prices;Direct materials;Cloth $3.50;per yard;Wood $5.00;per board foot;Direct manufacturing labor $10 per direct manufacturing labor-hour;Input Quantities per Unit of Output (per pair of;sandals);Regular Deluxe;Direct materials;Cloth 1.3;yards 1.5 yards;Wood 0 2 board feet;Direct manufacturing labor-hours (DMLH) 5 Hours 7 Hours;Setup-hours per batch 2;Hours 3 Hours;Inventory Information, Direct Materials;Cloth Wood;Beginning inventory 610;yards 800 b.f.;Target ending inventory 386 yards 295 b.f.;Cost of beginning inventory $2,146 $4,040;MSC accounts for direct materials using a FIFO cost;flow assumption.;Sales and Inventory Information, Finished Goods;Regular Deluxe;Expected sales in units (pairs of sandals) 2,000 3,000;Selling price $80;$130;Target ending inventory in units 400;600;Beginning inventory in units 250;650;Beginning inventory in dollars;$15,500 $61,750;MSC uses a FIFO cost flow assumption for finished;goods inventory.;All the sandals are made in batches of 50 pairs of;sandals. MSC incurs manufacturing overhead costs, marketing and general;administration, and shipping costs. Besides materials and labor, manufacturing;costs include setup, processing, and inspection costs. MSC ships 40 pairs of;sandals per shipment. MSC uses activity-based costing and has classified all;overhead costs for the month of January as shown in the following chart;Cost type Denominator;Activity Rate;Manufacturing;Setup Setup-hours $12;per setup-hour;Processing;Direct;manufacturing labor-hours $1.20;per DMLH;Inspection;Number;of pairs of sandals $0.90;per pair;Nonmanufacturing;Marketing and general administration Sales revenue 8%;Shipping Number;of shipments $10;per shipment;Required;1. Prepare;each of the following for January;a. Revenues;budget;b. Production;budget in units;c. Direct;material usage budget and direct material purchases budget in both units and;dollars, round to dollars;d. Direct;manufacturing labor cost budget;e.;Manufacturing overhead cost budgets for processing and setup activities;f. Budgeted;unit cost of ending finished goods inventory and ending inventories budget;g. Cost of;goods sold budget;h. Marketing;and general administration costs budget;2. MSC's balance;sheet for December 31 follows. Use it and the following information to prepare;a cash budget for MSC for January. Round to dollars.;?;All sales are on account, 60% are collected in the month of the sale;38% are collected the following month, and 2% are never collected and written;off as bad debts.;?;All purchases of materials are on account. MSC pays for 80% of purchases;in the month of purchase and 20% in the following month.;?;All other costs are paid in the month incurred, including the declaration;and payment of a $10,000 cash dividend in January.;?;MSC is making monthly interest payments of 0.5% (6% per year) on a;$100,000 long term loan.;?;MSC plans to pay the $7,200 of taxes owed as of December 31 in the month;of January. Income tax expense for January is zero.;?;30% of processing and setup costs, and 10% of marketing and general;administration costs are depreciation.;Balance Sheet as of December 31;Assets;Cash;$;6,290;Accounts receivable;$216,000;Less: Allowance for bad debts;10,800;205,200;Inventories;Direct materials;6,186;Finished goods;77,250;Fixed assets;$580,000;Less: Accumulated depreciation;90,890;489,110;Total assets;$784,036;Liabilities and Equity;Accounts payable;$ 10,400;Taxes payable;7,200;Interest payable;500;Long-term debt;100,000;Common stock;200,000;Retained earnings;465,936;Total liabilities and equity;$784,036;Prepare a;budgeted income statement for January and a budgeted balance sheet for MSC as;of January 31.


Paper#38291 | Written in 18-Jul-2015

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