6-42 Comprehensive budgeting problem; activity-based costing, operating and financial budgets. Grant Shew is the product manager at Yummi-Lik. Yummi-Lik sells really big lollipops in two sizes, large and giant lollipops to convenience stores, at fairs, and to schools for fundraisers, as well as a bulk channel on the internet. The lollipops are handmade, mostly out of sugar, and attached to wooden sticks Grant is preparing the sales budget for the summer, knowing a successful sales season will have a big impact on his performance review. Expected sales are based on past experience.LO 1, 2, 3, 5

3. Budgeted net income, $998

Other information for the month of June follows:

Input prices Direct materials Sugar $0.50 per kilogram (lb) Sticks $0.30 each Direct manufacturing labour 0.008 per direct manufacturing labour-hour

Input quantities per unit of output Large Giant Direct materials Sugar 0.25 lb 0.50 lb Sticks 1 1 Direct manufacturing labour-hours (DMLH) 0.20 hours 0.25 hours Setup-hours per batch 0.08 hours 0.09 hours

Inventory information, direct materials Sugar Sticks Beginning inventory 125 lb 350 Target ending inventory 240 lb 480 Cost of beginning inventory $64 $105

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

Sales and inventory information, finished goods Large Giant Expected sales in units 3,000 1,800 Selling price $3 $4 Target ending inventory in units 300 180 Beginning inventory in units 200 150 Beginning inventory in dollars $500 $474

Yummi-Lik uses a

FIFO cost flow assumption for finished goods inventory.

All the lollipops are made in

1. batches of 10. Yummi-Lik incurs manufacturing overhead costs, and marketing and general administration costs, but customers pay for shipping. Other than manufacturing labour costs, monthly processing costs are very low. Yummy-Lik uses ABC and has classified all overhead costs for the month of June as shown in the following chart:
2. Cost Type Denominator Activity Rate Manufacturing: Setup Setup-hours $20 per setup-hour Processing Direct manufacturing labour-hours (DMLH) $1.70 per DMLH Non-manufacturing: Marketing and general administration Sales revenue 10%

Required

1. Grant needs to make full set of budgets for June:
2. Revenue budget.
3. Production budget in units.
4. Direct material usage budget and direct material purchases budget.
5. Direct manufacturing labour cost budget.
6. Manufacturing overhead cost budgets for processing and setup activities.
7. Budgeted unit cost of ending finished goods inventory and ending inventories budget.
8. Cost of goods sold budget.
9. Marketing and general administration costs budget.

Grant knows that 80% of sales are on account, of which half are collected in the month of the sale, 49% are collected the following month, and 1% are never collected and written off as bad debts, which has an impact on net revenues. In addition to this, all purchases of materials are on account. Yummi-Lik pays for 70% of purchases in the month of purchase and 30% in the following month. However, all other costs are paid in the month incurred. Knowing this, Grant has to create

1. A cash budget for Yummi-Lik for June.
2. A budgeted income statement for June and a budgeted balance sheet for Yummi-Lik as of June 30.

The following information is necessary:

1. Yummi-Lik's balance sheet for May 31 follows. Use it and the following information to prepare a cash budget for Yummi-Lik for June.
2. Yummi-Lik is making monthly interest payments of 1% (12% per year) on a $20,000 long-term loan.
3. Yummi-Lik plans to pay the $500 of taxes owed as of May 31 in the month of June. Income tax expense for June is zero.
4. 40% of processing and setup costs, and 30% of marketing and general administration costs, are depreciation.

Yummi-Lik Balance Sheet May 31 Assets Cash $587 Accounts receivable $ 4,800 Less: Allowance for bad debts 96 4,704 Inventories: Direct materials 169 Finished goods 974 Fixed assets 190,000 Less: Accumulated depreciation 55,759 134,241 Total assets $140,675

Liabilities and Equity Accounts payable $696 Taxes payable 500 Interest payable 200 Long-term debt 20,000 Common shares 10,000 Retained earnings 109,279 Total liabilities and equity $140,675