91Ó°ÊÓ

Comprehensive operating budget. Skulas, Inc., manufactures and sells snowboards. Skulas manufactures a single model, the Pipex. In late 2017 , Skulas's management accountant gathered the following data to prepare budgets for January 2018 : Skulas's CEO expects to sell 2,900 snowboards during January 2018 at an estimated retail price of \(650\) per board. Further, the CEO expects 2018 beginning inventory of 500 snowboards and would like to end January 2018 with 200 snowboards in stock. Variable manufacturing overhead is \( 7\) per direct manufacturing labor-hour. There are also \( 81,000\) in fixed manufacturing overhead costs budgeted for January \(2018 .\) Skulas 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 \( 250\) per sales visit. The marketing plan calls for 38 sales visits during January 2018\. Finally, there are \( 35,000\) in fixed nonmanufacturing costs budgeted for January 2018 Other data include: The inventoriable unit cost for ending finished-goods inventory on December \(31,2017,\) is \( 374.80 .\) Assume Skulas uses a FIF0 inventory method for both direct materials and finished goods. Ignore work in process in your calculations. 1\. Prepare the January 2018 revenues budget (in dollars). 2\. Prepare the January 2018 production budget (in units). 3\. Prepare the direct material usage and purchases budgets for January 2018 4\. Prepare a direct manufacturing labor costs budget for January 2018 5\. Prepare a manufacturing overhead costs budget for January 2018 6\. What is the budgeted manufacturing overhead rate for January \(2018 ?\) 7\. What is the budgeted manufacturing overhead cost per output unit in January \(2018 ?\) 8\. Calculate the cost of a snowboard manufactured in January 2018 . 9\. Prepare an ending inventory budget for both direct materials and finished goods for January 2018. 10\. Prepare a cost of goods sold budget for January 2018 11\. Prepare the budgeted income statement for Skulas, Inc., for January 2018 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 Skulas's management team better manage the company?

Step by step solution

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1. Revenues Budget

To calculate the revenues budget, we need to multiply the number of snowboards expected to be sold (2,900) by the estimated retail price of each board ($650). Revenues Budget for January 2018 = \(2,900 \times 650 = 1,885,000\)

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2. Production Budget

For production budget, we need to calculate the number of snowboards needed during January 2018. Total snowboards needed = Snowboards needed to be sold + Desired ending inventory - Beginning inventory Total snowboards needed = \(2,900 + 200 - 500 = 2,600\)

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3. Direct Material Usage and Purchases Budgets

As no information is provided regarding the cost or quantity of direct materials, we cannot prepare the direct material usage and purchases budgets for January 2018.

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4. Direct Manufacturing Labor Costs Budget

As no information is provided regarding the labor hours required to produce a snowboard or labor rates, we cannot prepare the direct manufacturing labor costs budget for January 2018.

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5.Manufacturing Overhead Costs Budget

Variable Manufacturing Overhead = Variable Manufacturing Overhead Rate x Direct Manufacturing Labor Hours Variable Manufacturing Overhead = ($7 x Direct Manufacturing Labor Hours) Fixed Manufacturing Overhead = $81,000 Total Manufacturing Overhead = Variable + Fixed Total Manufacturing Overhead = (\(7 x Direct Manufacturing Labor Hours) + \)81,000

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6. Budgeted Manufacturing Overhead Rate

Since the information about Direct Manufacturing Labor Hours is not given, we cannot calculate the budgeted manufacturing overhead rate for January 2018.

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7. Budgeted Manufacturing Overhead Cost per Output Unit

As the budgeted manufacturing overhead rate is not available, we cannot determine the budgeted manufacturing overhead cost per output unit in January 2018.

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8. Cost of a Snowboard Manufactured in January 2018

Since no information is available on direct material cost, direct manufacturing labor cost, and manufacturing overhead cost per output unit, we cannot calculate the cost of a snowboard manufactured in January 2018.

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9. Ending Inventory Budget for Direct Materials and Finished Goods

As the required information to calculate the cost of a snowboard manufactured in January 2018 and direct material usage is missing, we cannot prepare the ending inventory budget for direct materials and finished goods for January 2018.

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10. Cost of Goods Sold Budget

Since no information is available on the cost of a snowboard manufactured in January 2018 or the direct material cost, we cannot prepare a cost of goods sold budget for January 2018.

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11. Budgeted Income Statement for January 2018

As the cost of goods sold is not calculated, we cannot prepare a budgeted income statement for Skulas, Inc., for January 2018.

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12. CEO's Questions and Stretch Targets

Some questions the CEO might ask include: 1. Are the sales targets realistic and achievable? 2. Are the costs being controlled efficiently? 3. Are there any potential bottlenecks or constraints that can affect production? The CEO could set stretch targets to motivate the team to push their limits and achieve better performance. However, it's important to ensure that these targets are still within the realm of possibility, otherwise, it may lead to burnout and decreased morale among the employees.

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13. Benefits of Preparing the Budget for Management

Preparing the budget has several benefits for Skulas's management: 1. It helps in setting achievable targets and monitoring the performance of the company. 2. It aids in making informed decisions regarding resource allocation and cost management. 3. It provides a clear picture of the company's financial position and helps in identifying areas where improvements can be made. 4. It fosters better communication between the different departments and promotes a sense of accountability and responsibility among the employees.

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Key Concepts

These are the key concepts you need to understand to accurately answer the question.

Manufacturing Overhead

Manufacturing overhead includes all the indirect costs associated with the production process. In the context of Skulas, Inc., manufacturing overhead is a combination of variable and fixed costs. Variable manufacturing overhead depends on the number of labor hours worked. For example, $7 is allocated per direct manufacturing labor-hour. These costs change with production activity, unlike fixed overhead, which remains constant no matter the production volume. For Skulas, the fixed manufacturing overhead for January 2018 is budgeted at $81,000. Understanding these overhead costs is crucial as they directly affect the budgeted manufacturing overhead rate and ultimately the cost of goods sold. Accurately estimating manufacturing overhead helps in setting realistic sales prices and achieving company profitability.

Cost Accounting

Cost accounting is the process of tracking, recording, and analyzing costs associated with a company's products or services. In Skulas’s case, cost accounting aids in planning and controlling the costs associated with manufacturing snowboards. It involves calculating direct material, direct labor, and manufacturing overhead costs. Accurate cost accounting ensures that each snowboard is assigned the correct cost, which is critical for pricing, budgeting, and profitability analysis. Despite lacking some information, the process highlights the importance of having comprehensive data for precise cost estimation. By understanding cost accounting, Skulas can make informed decisions regarding price strategies and cost reduction techniques.

Budget Preparation

Budget preparation is a fundamental task for management. It involves outlining the company's financial resources and expenses over a set period, such as January 2018. For Skulas, this involves preparing several types of budgets including revenue, production, and overhead costs. The process begins with estimating anticipated sales, in this case, 2,900 snowboards, which determines revenue expectations. Subsequent budgets are formulated based on this sales estimate, aligning production schedules and cost management accordingly. Budget preparation enables Skulas to allocate resources effectively, forecast financial outcomes, and set objectives. A well-prepared budget acts as a roadmap for achieving company goals and maintaining financial stability.

Inventory Management

Inventory management is the practice of overseeing and controlling the ordering, storage, and use of a company's inventory. For Skulas, effective inventory management is crucial. At the beginning of January 2018, they had 500 snowboards in stock and planned to end the month with 200. This required precise planning to ensure a correct balance between meeting customer demands and minimizing excess inventory. Using a method like FIFO (First In, First Out), Skulas can manage its inventory efficiently, affecting the cost of goods sold and overall profitability. Good inventory management reduces holding costs and minimizes waste, aligning inventory levels with production and sales needs.