Mike's Bikes makes and sells high-quality replacement gears for mountain bikes. Mike Speedway, controller, is responsible for preparing the master budget and has assembled the following data for 2021. The direct labour rate includes wages and all employee-related benefits and the employer's share of Canada Pension Plan (CPP) and Employment Insurance (EI). Labour- saving machinery will be fully operational by February. Also, as of March 1, the company's union contract calls for an increase in direct labour wages that is included in the direct labour rate. Mike's Bikes expects to have 100 gear units in inventory at December 31, 2020, and has a policy of carrying 5% of the following month's projected sales in inventory during the first quarter of the year. 2021 JanuaryFebruaryMarch April Estimated unit sales 800 1,000 2,000 2,400 Sales price per unit $30 $30 $25 $25 Direct labour hours per unit 0.75 0.5 0.5 0.5 Direct labour hourly rate $16 $16 $18 $18 Direct materials cost per unit $5 $5 $5 $5 Required A. Prepare the following budgets for Mike's Bikes for the first quarter of 2021. Be sure to show supporting calculations: (1) sales budget, (2) production budget in units, (3) direct materials budget in units and cost, and (4) direct labour budget in hours. B. Calculate the total budgeted contribution margin for Mike's Bikes for the first quarter of 2021. Be sure to show supporting calculations. C. Assume that due to decreasing gas prices, more people are expected to drive (not bike) during the first quarter of 2021. The revised estimated sales for replacement gear units is 20% lower. Prepare new budgets based on this revised estimate. D. Assume that actual sales in January are 580 gears. What, if anything, should the company do with regards to their budget moving forward and why? E. Discuss at least three behavioural considerations in the profit-planning and budgeting process.
Mike's Bikes makes and sells high-quality replacement gears for mountain bikes. Mike Speedway, controller, is responsible for preparing the master budget and has assembled the following data for 2021. The direct labour rate includes wages and all employee-related benefits and the employer's share of Canada Pension Plan (CPP) and Employment Insurance (EI). Labour- saving machinery will be fully operational by February. Also, as of March 1, the company's union contract calls for an increase in direct labour wages that is included in the direct labour rate. Mike's Bikes expects to have 100 gear units in inventory at December 31, 2020, and has a policy of carrying 5% of the following month's projected sales in inventory during the first quarter of the year. 2021 JanuaryFebruaryMarch April Estimated unit sales 800 1,000 2,000 2,400 Sales price per unit $30 $30 $25 $25 Direct labour hours per unit 0.75 0.5 0.5 0.5 Direct labour hourly rate $16 $16 $18 $18 Direct materials cost per unit $5 $5 $5 $5 Required A. Prepare the following budgets for Mike's Bikes for the first quarter of 2021. Be sure to show supporting calculations: (1) sales budget, (2) production budget in units, (3) direct materials budget in units and cost, and (4) direct labour budget in hours. B. Calculate the total budgeted contribution margin for Mike's Bikes for the first quarter of 2021. Be sure to show supporting calculations. C. Assume that due to decreasing gas prices, more people are expected to drive (not bike) during the first quarter of 2021. The revised estimated sales for replacement gear units is 20% lower. Prepare new budgets based on this revised estimate. D. Assume that actual sales in January are 580 gears. What, if anything, should the company do with regards to their budget moving forward and why? E. Discuss at least three behavioural considerations in the profit-planning and budgeting process.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
Related questions
Concept explainers
Master Budget
A master budget can be defined as an estimation of the revenue earned or expenses incurred over a specified period of time in the future and it is generally prepared on a periodic basis which can be either monthly, quarterly, half-yearly, or annually. It helps a business, an organization, or even an individual to manage the money effectively. A budget also helps in monitoring the performance of the people in the organization and helps in better decision-making.
Sales Budget and Selling
A budget is a financial plan designed by an undertaking for a definite period in future which acts as a major contributor towards enhancing the financial success of the business undertaking. The budget generally takes into account both current and future income and expenses.
Question
Transcribed Image Text:Solve a Problem
Mike's Bikes makes and sells high-quality replacement gears for mountain bikes. Mike
Speedway, controller, is responsible for preparing the master budget and has assembled
the following data for 2021.
The direct labour rate includes wages and all employee-related benefits and the
employer's share of Canada Pension Plan (CPP) and Employment Insurance (El). Labour-
mach
will be fully
ational by February. Also, as of March 1, the
company's union contract calls for an increase in direct labour wages that is included in
the direct labour rate.
Mike's Bikes expects to have 100 gear units in inventory at December 31, 2020, and has
a policy of carrying 5% of the following month's projected sales in inventory during the
first quarter of the year.
2021
JanuaryFebruaryMarch April
Estimated unit sales
800
1,000 2,000 2,400
Sales price per unit
$30
$30
$25 $25
Direct labour hours per unit
0.75
0.5
0.5
0.5
Direct labour hourly rate
$16
$16
$18 $18
Direct materials cost per unit $5
$5
$5
$5
Required
A. Prepare the following budgets for Mike's Bikes for the first quarter of 2021. Be sure
to show supporting calculations: (1) sales budget, (2) production budget in units, (3)
direct materials budget in units and cost, and (4) direct labour budget in hours.
B. Calculate the total budgeted contribution margin for Mike's Bikes for the first quarter
of 2021. Be sure to show supporting calculations.
C. Assume that due to decreasing gas prices, more people are expected to drive (not
bike) during the first quarter of 2021. The revised estimated sales for replacement gear
units is 20% lower. Prepare new budgets based on this revised estimate.
D. Assume that actual sales in January are 580 gears. What, if anything, should the
company do with regards to their budget moving forward and why?
E. Discuss at least three behavioural considerations in the profit-planning and budgeting
process.
Please check the General Rubric as well as the Solve a Problem Marking Key for more
information about how your group will be assessed.
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