6-41 Compehensive budgeting problem: activity based costing, operating and financial budgets. Borkenstick makes a very popular undyed cloth sandal in one style, but in Regular and Deluxe. The Regular sandals have such soles and the Deluxe sandals have cloth covered wooden soles. Borkenstick is preparing its budget for June 2012 , and has estimated sales based on past experience.

OTHER INFORMATION FOR THE MONTH OF JUNE FOLLOWS:

Input Prices Direct Materials Cloth $3.50 per Yard Wood $5.00 per board foot Direct Manufacturing labor $10 per direct manufacturing labor- hour

INPUT QUANTITIES PER UNIT OF OUTPUT(PER PAIR OF SANDALS) Direct Materials REGULAR DELUXE 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 $2,146 $4,040 Borkenstick 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) 2000 3000 Selling Price $80 $130 Target ending inventory in units 400 600 Beginning inventory in units 250 650 Beginning inventory in dollars $15,500 $61,750

Borkenstick uses a FIFO cost flow assumption for finished goods inventory. All the sandals are made in bathces of 50 pairs of sandals. Borenstick incurs manufacturing overhead costs, marketing and general admin, and shipping costs. Besides materials and labor, manufacturing costs include setup, processing, and inspection costs. Borkenstick ships 40 pairs of sandals per shipment. Borkenstick uses activity-based costing and has classified al overhead costs for the month of June as shown in the following chart.

COST TYPE Denominator Activity Rate Maufacturing Setup Setup hours $12 per setup-hours Processing Direct manufacturing labor-hours $1.20 per DMLH Inspection Number of pairs of sandals $0.90 per pair

Nonmanufacturing: Marketing and general administration Sales revenue 8% Shipping Number of shipments $10 per shipment

****Instructions: 1. Prepare each of the following for June: a. Revenues budget b. Production budget in units c. Direct material usage budget and direct material purchases budget in both units and dollars; round to dollars. d. Direct manufacturing labor cost budget e.Manufacturing overhead cost budgets for processing and setup activities f. Budgeted unit cost of ending finished goods inventory and ending inventories budget g. Cost of goods sold budget h. Marketing and general administration cost budget

2. Borkenstick