accounting
Sample Solution
Sure, I can help you with that. Here's an Excel worksheet with the solutions to the requirements:
Direct Materials Usage Budget:
| Parameter | Units | Cost per Unit | Total Cost |
|---|---|---|---|
| Wool (skeins) | 36 x 200,000 | $2 | $14,400,000 |
| Dye (gallons) | 0.8 x 200,000 | $6 | $960,000 |
| Total Direct Materials Cost | $15,360,000 |
Overhead Allocation Rates:
| Cost Pool | Total Budgeted Cost | Allocation Base | Allocation Rate |
|---|---|---|---|
| Weaving | $31,620,000 | 12,400,000 DMLH | $2.55 per DMLH |
| Dyeing | $17,280,000 | 1,440,000 MH | $12 per MH |
Budgeted Unit Cost of a Blue Rug:
| Cost Category | Cost per Unit |
|---|---|
| Direct Materials | $15,360,000 / 200,000 |
| Direct Manufacturing Labor (62 DMLH x $13/DMLH) | $806 |
| Machine Time (36 skeins x 0.2 MH/skein x $12/MH) | $8.64 |
| Weaving Overhead (62 DMLH x $2.55/DMLH) | $158.30 |
| Dyeing Overhead (36 skeins x 0.2 MH/skein x $12/MH) | $8.64 |
| Total Unit Cost |
Revenue Budget:
| Sales Level | Units Sold | Selling Price per Unit | Total Revenue |
|---|---|---|---|
| (a) 200,000 | 200,000 | $2,000 | $400,000,000 |
| (b) 185,000 | 185,000 | $2,000 | $370,000,000 |
Budgeted Cost of Goods Sold:
| Sales Level | Units Sold | Unit Cost | Total Cost |
|---|---|---|---|
| (a) 200,000 | 200,000 | $1,032.38 | $206,476,000 |
| (b) 185,000 | 185,000 | $1,032.38 | $190,802,300 |
Budgeted Gross Margin:
| Sales Level | Revenue | Cost of Goods Sold | Gross Margin | Gross Margin % |
|---|---|---|---|---|
| (a) 200,000 | $400,000,000 | $206,476,000 | $193,524,000 | 48.4% |
| (b) 185,000 | $370,000,000 | $190,802,300 | $179,197,700 | 48.7% |
Full Answer Section
Actions to Improve Profitability at 185,000 Sales:
- Cost Reduction: Negotiate lower prices with suppliers, reduce overhead costs, and improve efficiency in production processes.
- Price Increase: Consider a slight price increase if the market allows.
- Increase Sales Volume: Implement marketing and sales initiatives to increase demand.
- Product Mix: Offer variations of the blue rug with higher margins.
Top Management Uses of the Budget:
- Planning and Control: Set production targets, monitor performance, and identify areas for improvement.
- Decision-Making: Evaluate the impact of pricing strategies, production levels, and cost changes.
- Motivation and Performance Evaluation: Set performance goals for departments and managers.
Note: This is a simplified example and may not reflect all the complexities of real-world budgeting. It is recommended to consult with a professional for more specific guidance.
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