Chapter 6, Problem 6.40P

Comprehensive problem with ABC costing. Animal Gear Company makes two pet carriers, the Cat-allac and the Dog-eriffic. They are both made of plastic with metal doors, but the Cat-allac is smaller. Information for the two products for the month of April is given in the following tables:

Input Prices

Direct materials
Plastic	$5 per pound
Metal	$4 per pound
Direct manufacturing labor	$10 per direct manufacturing labor-hour

Input Quantities per Unit of Output

	Cat-allac	Dog-eriffic
Direct materials
Plastic	4 pounds	6 pounds
Metal	0.5 pounds	1 pound
Direct manufacturing labor-hours	3 hours	5 hours
Machine-hours (MH)	11 MH	19 MH

Animal Gear accounts for direct materials using a FIFO cost-flow assumption.

Sales and Inventory Information, Finished Goods

	Cat-allac	Dog-eriffic
Expected sales in units	530	225
Selling price	$ 205	$ 310
Target ending inventory in units	30	10
Beginning inventory in units	10	19
Beginning inventory in dollars	$1,000	$4,650

Animal Gear uses a FIFO cost-flow assumption for finished-goods inventory.

Animal Gear uses an activity-based costing system and classifies overhead into three activity pools: Setup, Processing, and Inspection. Activity rates for these activities are $105 per setup-hour, $10 per machine-hour, and $15 per inspection-hour, respectively. Other information follows:

Cost-Driver Information

	Cat-allac	Dog-eriffic
Number of units per batch	25	9
Setup time per batch	1.50 hours	1.75 hours
inspection time per batch	0.5 hour	0.7 hour

If necessary, round up to calculate number of batches.

Nonmanufacturing fixed costs for March equal $32.000, half of which are salaries. Salaries are expected to increase 5% in April. Other nonmanufacturing fixed costs will remain the same. The only variable nonmanufacturing cost is sales commission, equal to 1% of sales revenue.

Prepare the following for April:

1. 1. Revenues budget
2. 2. Production budget in units
3. 3. Direct material usage budget and direct material purchases budget
4. 4. Direct manufacturing labor cost budget
5. 5. Manufacturing overhead cost budgets for each of the three activities
6. 6. Budgeted unit cost of ending finished-goods inventory and ending inventories budget
7. 7. Cost of goods sold budget
8. 8. Nonmanufacturing costs budget
9. 9. Budgeted income statement (ignore income taxes)
10. 10. How does preparing the budget help Animal Gear’s management team better manage the company?