Chapter 6, Problem 6.48P

Comprehensive budgeting problem; activity-based costing, operating and financial budgets. Tyva makes a very popular undyed cloth sandal in one style, but in Regular and Deluxe. The Regular sandals have cloth soles and the Deluxe sandals have cloth-covered wooden soles. Tyva is preparing its budget for June 2018 and has estimated sales based on past experience.

Other information for the month of June follows:

Input Prices

Direct materials
Cloth	$5.25 per yard
Wood	$7.50 per board foot
Direct manufacturing labor	$15 per direct manufacturing labor-hour

Input Quantities per Unit of Output (per pair of sandals)

	Regular	Deluxe
Direct materials
Cloth	1.3 yards	1.5 yards
Wood	0	2 b.f.
Direct manufacturing labor-hours (DMLH)	5 hours	7 hours
Setup-hours per batch	2 hours	3 hours

Inventory Information, Direct Materials

	Cloth	Wood
Beginning inventory	610 yards	800 b.f.
Target ending inventory	386 yards	295 b.f.
Cost of beginning inventory	$3,219	$6,060

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

Sales and Inventory Information, Finished Goods

	Regular	Deluxe
Expected sales in units (pairs of sandals)	2,000	3,000
Selling price	$ 120	$ 195
Target ending inventory in units	400	600
Beginning inventory in units	250	650
Beginning inventory in dollars	$23,250	$92,625

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

All the sandals are made in batches of 50 pairs of sandals. Tyva incurs manufacturing overhead costs, marketing and general administration, and shipping costs. Besides materials and labor, manufacturing costs include setup, processing, and inspection costs. Tyva ships 40 pairs of sandals per shipment. Tyva uses activity-based costing and has classified all overhead costs for the month of June as shown in the following chart:

Cost Type	Denominator Activity	Rate
Manufacturing
Setup	Setup-hours	$ 18 per setup-hour
Processing	Direct manufacturing labor-hours (DMLH)	$1.80 per DMLH
Inspection	Number of pairs of sandals	$1.35 per pair
Nonmanufacturing
Marketing and general administration	Sales revenue	8%
Shipping	Number of shipments	$ 15 per shipment

1. 1. Prepare each of the following for June:
   1. a. Revenues budget
   2. b. Production budget in units
   3. c. Direct material usage budget and direct material purchases budget in both units and dollars; round to dollars
   4. d. Direct manufacturing labor cost budget
   5. e. Manufacturing overhead cost budgets for setup, processing, and inspection activities
   6. f. Budgeted unit cost of ending finished-goods inventory and ending inventories budget
   7. g. Cost of goods sold budget
   8. h. Marketing and general administration and shipping costs budget
2. 2. Tyva’s balance sheet for May 31 follows.

Tyva Balance Sheet as of May 31

Assets
Cash		$ 9,435
Accounts receivable	$324,000
Less: Allowance for bad debts	16,200	307,800
Inventories
Direct materials		9,279
Finished goods		115,875
Fixed assets	$870,000
Less: Accumulated depreciation	136,335	733,665
Total assets		$1,176,054

Liabilities and Equity
Accounts payable	$ 15,600
Taxes payable	10,800
Interest payable	750
Long-term debt	150,000
Common stock	300,000
Retained earnings	698,904
Total liabilities and equity	$1,176,054

Use the balance sheet and the following Information to prepare a cash budget for Tyva for June. Round to dollars.

• All sales are on account; 60% are collected in the month of the sale, 38% are collected the following month, and 2% are never collected and written off as bad debts.
• All purchases of materials are on account. Tyva pays for 80% of purchases in the month of purchase and 20% in the following month.
• All other costs are paid in the month incurred, including the declaration and payment of a $15,000 cash dividend in June.
• Tyva is making monthly interest payments of 0.5% (6% per year) on a $150,000 long-term loan.
• Tyva plans to pay the $10,800 of taxes owed as of May 31 in the month of June. Income tax expense for June is zero
• 30% of processing, setup, and inspection costs and 10% of marketing and general administration and shipping costs are depreciation.

1. 3. Prepare a budgeted income statement for June and a budgeted balance sheet for Tyva as of June 30, 2018.