numerical calculations
PART 1:
Archie Ltd manufactures a product called Gizmo. It uses the following direct inputs:
| Price | Quantity | Cost per unitofoutput | |
| Direct materials | $4pergram | 10gramsperunit | $40perunit |
| Direct manufacturing labour-hours (DMLH) | $15perDMLH | 2DMLHperunit | $30perunit |
Archie Ltd has no direct materials inventory. All manufacturing overhead costs are variable costs.
The manufacturing overhead cost is comprised of two activities: set-up and operations. The cost driver for set-up is set-up hours and the cost driver for operations is direct manufacturing labour-hours. Archie Ltd allocates set-up cost at a rate of $80 per set-up hour and each set-up takes two hours.
The company makesGizmos in batches of 100 units. Operations costs are allocated at a rate of $1.60 per direct manufacturing labour-hour.
Required:
- Archie Ltd plans to make and sell 20 000Gizmos in the first quarter of next year. The selling price for the product is $120.Prepare the revenue budget for the first quarter.
- Prepare the direct material usage budget for the first quarter of next year.
- Prepare the direct manufacturing labour usage budget for the first quarter of next year.
- Prepare the manufacturing overhead cost budget for each activity for the first quarter of next year.
- Compute the budgeted unit cost of a gizmo for the first quarter of next year.
- Prepare the cost of goods sold budget for the first quarter of next year. Assume Archie Ltd budgets 1000 units of beginning finished goods inventory at a cost of $72 per unit. The company uses the FIFO cost flow assumption for finished goods inventory. It expects to sell all 20 000 Gizmos made in the first quarter.
- Calculate the budgeted gross margin for the first quarter of next year.
- The company’s managers want to implement Kaizen Costing. They budget a 1% decrease in materials quantity and direct manufacturing labour-hours and a 3% decrease in set-up time per unit for each subsequent quarter. Calculate the budgeted unit cost and gross margin for quarters two and three. Assume no change in the budgeted output.
- Refer to the above requirement. How could the reduction in materials and time be accomplished? Are there any problems with this plan?
