6-41 Compehensive budgeting problem: activity based costing operating and financial budgets.Borkenstick makes a very popular undyed cloth sandal in one style but in Regular and Deluxe. The Regular sandals have such soles and theDeluxe sandals have cloth covered wooden soles. Borkenstick is preparing its budget for June 2012 and has estimated sales based on pastexperience.OTHER INFORMATION FOR THE MONTH OF JUNE FOLLOWS:Input PricesDirect MaterialsCloth $3.50 per YardWood $5.00 per board footDirect Manufacturing labor $10 per direct manufacturing labor- hourINPUT QUANTITIES PER UNIT OF OUTPUT(PER PAIR OF SANDALS)Direct Materials REGULAR DELUXECloth 1.3 Yards 1.5 YardsWood 0 2 b.fDirect manufacturing labor-hours (DMLH) 5 hours 7 hoursSetup-hours per batch 2 hours 3 hoursInventory Information Direct Materials Cloth WoodBeginning Inventory 610 Yards 800 b.f.Target ending inventory 386 yards 295 b.fCost of beginning inventory $2 146 $4 040Borkenstick accounts for direct materials using a FIFO cost flow assumption.Sales and Inventory Information Finished Goods REGULAR DELUXEExpected sales in units (pairs of sandals) 2000 3000Selling Price $80 $130Target ending inventory in units 400 600Beginning inventory in units 250 650Beginning inventory in dollars $15 500 $61 750Borkenstick uses a FIFO cost flow assumption for finished goods inventory.All the sandals are made in bathces of 50 pairs of sandals. Borenstick incurs manufacturing overhead costs marketing and general admin and shipping costs.Besides materials and labor manufacturing costs include setup processing and inspection costs. Borkenstick ships 40 pairs of sandals per shipment. Borkenstick usesactivity-based costing and has classified al overhead costs for the month of June as shown in the following chart.COST TYPE Denominator Activity RateMaufacturingSetup Setup hours $12 per setup-hoursProcessing Direct manufacturing labor-hours $1.20 per DMLHInspection Number of pairs of sandals $0.90 per pairNonmanufacturing:Marketing and general administration Sales revenue 8%Shipping Number of shipments $10 per shipment****Instructions:2. Borkenstick’s balance sheet for May 31 follows. Use it and the following information to prepare a cash budget for Borkenstick for June. 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 debt.*All purchases of materials are on account. Borkenstick 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 June.*Borkenstick is making monthly interest payments of 0.5% (6% per year) on a $100 000 long term loan.*Borkenstick plans to pay the $7200 pf taxes pwed as pf May 31 in the month of June. Income tax expense for June is zero*30% of processing and setup costs and 10% of marketing and general administration costs are depreciationBorkenstick Balance Sheet as of May 31ASSETS Liabilities and EquityCash $6 290 Account payable $10 400Account receivable $216 000 Taxes payable 7 200Less: Allowance for bad debts 10 800 205 200 Interest payable 500Inventories Long-termdebt 100 000Direct Materials 6 186 Common Stock 200 000Finished Goods 77 250 Retained earnings 465 936Fixed Assets $580 000 Total liabilities and equity $784 036Less: Accumulated depreciation 90 890 489 110Total Assets $784 036
