So what is the BUDGETED MANUFACTURING COST FOR ONE UNIT: Direct Materials Variable Costs per unit: Ingredient Cost Small Large Whole milk $15 for 640 oz. 0.02344 per oz. 0.05 0.07 Cream $20 for 128 oz. 0.15625 per oz. 0.31 0.47 Sugar $10 for 30 cups 0.33333 per cup 0.17 0.25 Premium Vanilla Ice Cream $24 for 600 oz. 0.04000 per oz. 0.24 0.36 Flavorings 0.25 0.40 Flavored Specialty Straws 0.75 0.75 Cups-8 ounces $200 for 500 cups 0.40000 per cup 0.40 Cups-12 ounces $250 for 500 cups 0.50000 per cup 0.50 TOTAL DIRECT MATERIAL COST PER UNIT $2.17 $2.80 LARGE MILK SHAKES – per the PRODUCTION budget we expect to produce 1,580,000 in the first Year: (125,000+125,000+150,000+125,000+125,000+150,000+160,000+150,000+110,000+110,000 +110,000+140,000). Direct materials cost per milk shake: = 80 Manufacturing overhead: Fixed ($2,234.00 *12months * 60% per quarter)/ 1,580,000 = milk shakes = 0.01 Cost of manufacturing each large milk shake = $2.81 SMALL MILK SHAKES – per the PRODUCTION budget we expect to produce 165,000 in the first quarter. Direct materials cost per milk shake: = 17 Manufacturing overhead: Fixed ($2,234.00 * 12 months * 40% per quarter)/ 1,580,000 = milk shakes = 0.01 Cost of manufacturing each small milk shake = $2.18 PROJECTED INCOME STATEMENT - MONTH OF JANAURY Large (60%) Small (40%) Total Number of milk shakes expected to be sold 75,000 50,000 125,000 Sales price per milk shake (less resort fee) $9.00 $6.30 15.30 Cost of goods sold per milk shake $2.81 $2.18 4.99 Sales 675,000 315,000 990,000 Less: cost of goods sold 210,750 109,000 319,750 Gross Profit 464,250 206,000 670,250 Less: Operating expenses Operating Income Income tax expense (income tax rate = 35%) Net Income FLEXIBLE BUDGETING CASE – ACTIVITY VERSUS SPENDING VARIANCES Due to global warming, demand for milk shares was much larger than expected. The amount of large milk shakes actually sold in January were 85,000 (10,000 over budget) while the amount of small milk shakes actually sold in January were 45,000 (5,000 under budget). The budgets prepared above were planned prior to the beginning of the year and are valid for the planned level of sales activity. If the actual level of sales activity differs from the planned level, comparing our budgets above with actual results may lead to incorrect conclusions about performance. Therefore we must prepare a FLEXBLE budget that adjusts revenues and expenses given the actual level of sales activity that occurred. Please (1) Fill in the Flexible budget based on actual sales for both size milk shakes. (2) Fill in the activity variance and the spending variance amounts as well as indicate whether they are favorable or unfavorable for both size milk shakes. Large Milk Shakes - Flexible Budget Performance Report for the Month ended January 31 Planned Budget based on budgeted sales of 75,000 milk shakes Activity Variances Flexible budget based on actual sales of 85,000 milk shakes Spending Variances Actual results based on actual sales of 85,000 milk shakes Revenue ($9.00q) $675,000 90,000 765,000 $765,000 Less: Cost of goods sold ($2.81q) $210,750 28,100 238,850 18,850 $220,000 Gross Profit $464,250 61,900 526,150 18,850 $545,000 Less: Operating expenses 8,764 10,317 Operating Income $455,486 $534,683 Income tax expense (tax rate = 35%) $159,420 $187,139 Net Income $296,066 $347,544 Remember in the flexible budget column multiply actual sales by the budget/stardard cost of which I gave you in one number Cost of goods sold. Operating expenses remain the same between the static and flexible budget as they do not change with changes in volume (sales level). Small Milk Shakes - Flexible Budget Performance Report for the Month ended January 31 Planned Budget based on budgeted sales of 50,000 milk shakes Activity Variances Flexible budget based on actual sales of 45,000 milk shakes Spending Variances Actual results based on actual sales of 45,000 milk shakes Revenue ($6.30q) $315,000 283,500 $283,500 Less: Cost of goods sold ($2.18q) $109,000 98,100 $100,500 Gross Profit $206,000 185,400 $183,000 Less: Operating expenses 5,843 5,928 Operating Income $200,157 $177,072 Income tax expense (tax rate = 35%) $70,055 $61,975 Net Income $130,102 $115,097
So what is the BUDGETED
Direct Materials Variable Costs per unit:
|
Ingredient |
Cost |
|
|
Small |
Large |
|
Whole milk |
$15 for 640 oz. |
0.02344 |
per oz. |
0.05 |
0.07 |
|
Cream |
$20 for 128 oz. |
0.15625 |
per oz. |
0.31 |
0.47 |
|
Sugar |
$10 for 30 cups |
0.33333 |
per cup |
0.17 |
0.25 |
|
Premium Vanilla Ice Cream |
$24 for 600 oz. |
0.04000 |
per oz. |
0.24 |
0.36 |
|
Flavorings |
|
|
|
0.25 |
0.40 |
|
Flavored Specialty Straws |
|
|
|
0.75 |
0.75 |
|
Cups-8 ounces |
$200 for 500 cups |
0.40000 |
per cup |
0.40 |
|
|
Cups-12 ounces |
$250 for 500 cups |
0.50000 |
per cup |
|
0.50 |
|
TOTAL DIRECT MATERIAL COST PER UNIT |
|
|
$2.17 |
$2.80 |
LARGE MILK SHAKES – per the PRODUCTION budget we expect to produce 1,580,000 in the first Year: (125,000+125,000+150,000+125,000+125,000+150,000+160,000+150,000+110,000+110,000
+110,000+140,000).
- Direct materials cost per milk shake: = 80
- Manufacturing
overhead :
Fixed ($2,234.00 *12months * 60% per quarter)/ 1,580,000 =
milk shakes = 0.01
Cost of manufacturing each large milk shake = $2.81
SMALL MILK SHAKES – per the PRODUCTION budget we expect to produce 165,000 in the first quarter.
- Direct materials cost per milk shake: = 17
- Manufacturing overhead:
Fixed ($2,234.00 * 12 months * 40% per quarter)/ 1,580,000 =
milk shakes = 0.01
Cost of manufacturing each small milk shake = $2.18
|
|
Large (60%) |
Small (40%) |
Total |
|
Number of milk shakes expected to be sold |
75,000 |
50,000 |
125,000 |
|
Sales price per milk shake (less resort fee) |
$9.00 |
$6.30 |
15.30 |
|
Cost of goods sold per milk shake |
$2.81 |
$2.18 |
4.99 |
|
|
|
|
|
|
Sales |
675,000 |
315,000 |
990,000 |
|
Less: cost of goods sold |
210,750 |
109,000 |
319,750 |
|
Gross Profit |
464,250 |
206,000 |
670,250 |
|
Less: Operating expenses |
|
|
|
|
Operating Income |
|
|
|
|
Income tax expense (income tax rate = 35%) |
|
|
|
|
Net Income |
|
|
|
FLEXIBLE BUDGETING CASE – ACTIVITY VERSUS SPENDING VARIANCES
Due to global warming, demand for milk shares was much larger than expected. The amount of large milk shakes actually sold in January were 85,000 (10,000 over budget) while the amount of small milk shakes actually sold in January were 45,000 (5,000 under budget). The budgets prepared above were planned prior to the beginning of the year and are valid for the planned level of sales activity. If the actual level of sales activity differs from the planned level, comparing our budgets above with actual results may lead to incorrect conclusions about performance. Therefore we must prepare a FLEXBLE budget that adjusts revenues and expenses given the actual level of sales activity that occurred.
Please (1) Fill in the Flexible budget based on actual sales for both size milk shakes.
(2) Fill in the activity variance and the spending variance amounts as well as indicate whether they are favorable or unfavorable for both size milk shakes.
|
Large Milk Shakes - Flexible Budget Performance Report for the Month ended January 31 |
|||||
|
|
Planned Budget based on budgeted sales of 75,000 milk shakes |
Activity Variances |
Flexible budget based on actual sales of 85,000 milk shakes |
Spending Variances |
Actual results based on actual sales of 85,000 milk shakes |
|
Revenue ($9.00q) |
$675,000 |
90,000 |
765,000 |
|
$765,000 |
|
Less: Cost of goods sold ($2.81q) |
$210,750 |
28,100
|
238,850 |
18,850 |
$220,000 |
|
Gross Profit |
$464,250 |
61,900 |
526,150 |
18,850
|
$545,000 |
|
Less: Operating expenses |
8,764 |
|
|
|
10,317 |
|
Operating Income |
$455,486 |
|
|
|
$534,683 |
|
Income tax expense (tax rate = 35%) |
$159,420 |
|
|
|
$187,139 |
|
Net Income |
$296,066 |
|
|
|
$347,544 |
- Remember in the flexible budget column multiply actual sales by the budget/stardard cost of which I gave you in one number Cost of goods sold.
- Operating expenses remain the same between the static and flexible budget as they do not change with changes in volume (sales level).
|
Small Milk Shakes - Flexible Budget Performance Report for the Month ended January 31 |
|||||
|
|
Planned Budget based on budgeted sales of 50,000 milk shakes |
Activity Variances |
Flexible budget based on actual sales of 45,000 milk shakes |
Spending Variances |
Actual results based on actual sales of 45,000 milk shakes |
|
Revenue ($6.30q) |
$315,000 |
|
283,500 |
|
$283,500 |
|
Less: Cost of goods sold ($2.18q) |
$109,000 |
|
98,100 |
|
$100,500 |
|
Gross Profit |
$206,000 |
|
185,400 |
|
$183,000 |
|
Less: Operating expenses |
5,843 |
|
|
|
5,928 |
|
Operating Income |
$200,157 |
|
|
|
$177,072 |
|
Income tax expense (tax rate = 35%) |
$70,055 |
|
|
|
$61,975 |
|
Net Income |
$130,102 |
|
|
|
$115,097 |
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