PART 1:
George Ltd manufactures two types of coils used in electric motors. The two types are: C20 and D40. They both require plastic and metal. Information for the two products for the month of April is given in the following tables:
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Input prices
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Direct materials
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Plastic
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$4 per kilogram
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Metal
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$3 per kilogram
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Direct manufacturing labour
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$10 per direct manufacturing labour hour
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Input quantities per unit of output
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C20
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D40
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Direct materials
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Plastic
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4 kilograms
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6 kilograms
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Metal
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0.5 kilograms
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1 kilogram
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Direct manufacturing labour-hours (DMLH)
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3 hours
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5 hours
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Machine-hours (MH)
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10 MH
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18MH
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Inventory information, direct materials
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Plastic
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Metal
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Beginning inventory
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250 kilograms
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60 kilograms
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Target ending inventory
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380 kilograms
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55 kilograms
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Cost of beginning inventory
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$950
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$180
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The company accounts for direct materials using a FIFO cost flow assumption.
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Sales and inventory information, finished goods
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C20
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D40
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Expected sales in units
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500
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300
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Selling price
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$160
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$250
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Target ending inventory in units
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35
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15
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Beginning inventory in units
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15
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30
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Beginning inventory in dollars
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$1500
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$5580
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The company uses:
- a FIFO cost flow assumption for finished goods inventory.
- an activity-based costing system and classifies overhead into three activity pools: Set-up, Processing and Inspection. Activity rates for these activities are $100 per set-up hour. $5 per machine-hour and $16 per inspection-hour, respectively.
Other information is as follows:
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Cost driver information
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C20
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D40
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Number of units per batch
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20
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15
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Set-up time per batch
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1.5 hours
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1.75 hours
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Inspection time per batch
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0.5 hour
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0.6 hour
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Non-manufacturing fixed costs for March equal $36,000 of which half are salaries. Salaries are expected to increase by 5% in April. The only variable non-manufacturing cost is sales commission equal to 1% of sales revenue.
Required:
Prepare the following for April:
a. Sales budget
b. Production budget in units
c. Direct material usage budget and direct material purchases budget
d. Manufacturing overhead cost budgets for each of the three activities
e. Budgeted income statement (ignore income taxes)
PART 2
Go to: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=321520
http://www.bbrt.org/beyond-budgeting/bb-problem.html
Critically review the above. Do you agree, partly agree or disagree with the issues raised in the above? Discuss your reason (s) for doing so. You need to support your viewpoint with carefully chosen and authoritative evidence.