BUDGET DATA:

Akin Manufacturing Ltd. (AML) produces and sells 2 products: A+33 and AA34. A+33 currently sells for $150 and they believe they will be able to sell 2,600 units in October. AA34 currently sells for $205 and it is estimated there will be 3,000 units sold in October.

On October 1, there were 300 units of A+33 with a cost of $20,400. They plan to have 500 units of A+33 in stock on October 31.On October 1, there were 650 units of AA34 in stock with a cost of $65,260. The October 31 estimate of finished goods required for AA34 is 750 units.

AML uses FIFO cost-flow assumption for finished goods inventory.

Each product uses 2 direct materials: Mercury and Plastic. The Mercury cost $6.50 per litre and the plastic costs $8.60 per metre. Additional information relating to the materials is below.

Input quantities per Unit of Output
	A+33	AA34
Direct materials:
Mercury (litres per unit)	0.8 litres	1.4 litres
Plastic (metres per unit)	1 metre	2 metres

Inventory information: Direct Materials
	Mercury	Plastic
Beginning inventory	640 litres	810 metres
Beginning inventory cost	$3,936	$6,156
Target ending inventory	370 litres	285 metres

AML uses FIFO cost-flow assumption for materials inventory.

The workers are paid $16 per direct manufacturing labour hour. It takes 3 hours to manufacture a unit of A+33 and 4 hours for each unit of AA34.

As well as the costs mentioned above, they also have manufacturing overhead costs, and selling, general and administrative costs. As AML has to change the setup in the facility to switch between A+33 and AA34 products, they create 50 units in each batch. It takes 2 hours to setup the factory for a batch of A+33 and it takes 3 hours to setup the factory for a batch of AA34.

AML uses activity-based costing and has classified all manufacturing overhead costs for the month of October as follows:

Manufacturing Overhead Categories	Annual Costs	Annual Denominator Activity
Setup	$68,160	3,408	Setup hours
Processing	$570,240	237,600	DMLH
Inspection	$47,040	67,200	Units

AML has selling, general and administrative costs that are 8% of the sales revenue. Shipping costs are $20 per shipment. The products are sold in quantities of 40 units per shipment.

Part 1

Calculate each of the following schedules for the operating budget for October:

1. Revenues budget
2. Production budget in units
3. Direct materials usage budget and direct materials purchases budget in both units and dollars. Round to 2 decimals.
4. Direct manufacturing labour cost budget
5. Manufacturing overhead cost budgets for setup, processing and inspection activities.
6. Budgeted unit cost of ending finished goods inventory
7. Budgeted total costs of ending finished goods inventory and ending direct materials inventories budget
8. Cost of goods sold budget
9. Selling, general and administration and shipping costs budget

Part 2

From the operating budget schedule of Part 1, calculate cash budget for AML using the additional information provided below for October:

• All sales are on account; 65% are collected in the month of the sale, 32% are collected the following month and 3% are never collected and are written off as bad debts.
• All other costs are paid in the month incurred.
• 30% of setup, processing and inspection costs are depreciated. 15% of selling, general and administration and shipping costs are depreciated.
• Dividends worth $25,000 will be declared and paid in the month of October.
• AML accrued all expenses monthly. AML plans to pay the income taxes of $95,000 accrued in September on October 15.
• All purchases of materials are on account. AML pays 60% of purchases in the month of the purchase, and the balance is paid the following month. AML owed $28,175 to the suppliers at the end of the previous month.
• AML is making monthly interest payments based on their long-term loan with a 9% interest rate on the 1st of the following month. (September interest was accrued and will be paid on October 1). The value of the long-term debt is $ 220,000.
• AML would like to repay the long-term loan if they have up to $500,000 at the end of the month. Will you recommend AML to pay back the loan or not, and why?
• Ending cash balance in September is $221,387
• AML received a $2,000 royalty and issued 1000 common shares at $5 per share.

Part 3.

1. Make a budgeted income statement for AML for the month-ended October 31.