Cost Accounting (14th Edition)

224 CHAPTER 6 MASTER BUDGET AND RESPONSIBILITY ACCOUNTING
Required
1. Which manager’s style do you think is most effective? Why?
2. How do you think the stylists will react to the managers of salons I and II? What can they do to indicate
their displeasure, assuming they are displeased?
3. In Hair Suite III, if the stylists did not want to share their stations with another party, how else could
they find a way to increase revenues?
4. Refer again to the action that the manager of Hair Suite I has chosen. How does this relate to the concept
of stretch targets?
Collaborative Learning Problem
6-41 Comprehensive 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 cloth 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
Wood
Direct manufacturing labor
$3.50 per yard
$5.00 per board foot
$10 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 $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) 2,000 3,000
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 batches of 50 pairs of sandals. Borkenstick incurs manufacturing overhead
costs, marketing and general administration, 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 all overhead costs for the month of June
as shown in the following chart:
Cost type Denominator Activity Rate
Manufacturing:
Setup Setup-hours $12 per setup-hour
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