Question

Cool-Ice makes popsicles in two flavors, chocolate, and strawberry. Cool-Ice sells these popsicles to various outlets including convenience stores, fairs and schools for fund-raisers and in bulk on the internet. Towards the year end Cool-Ice is preparing its budget for the month of December. These popsicles are hand-made with highest quality, mostly out of sugar and flavors and attached to wooden sticks. Expected sales are based on their historical selling trend.
 
      Other information for the month of December follows.
 
 
Input prices
Direct materials
 
Sugar & flavors
$0.50 per kilogram (kg)
Sticks
$0.30 each
Direct manufacturing labour
$8 per direct manufacturing labour-hour
 
Input quantities per unit of output
 
 
Chocolate
Strawberry
Direct materials
 
 
Sugar & flavors
0.25 kg
0.5 kg
Sticks
1
1
Direct manufacturing labour-hours (DMLH)
0.2 hour
0.25 hour
Set-up hours per batch
0.08 hour
0.09 hour
Inventory information, direct materials
 
Sugar& flavors
Sticks
Beginning inventory
125 kg
350
Target ending inventory
240 kg
480
Cost of beginning inventory
$64
$105
 
Cool-Ice accounts for direct materials using a FIFO cost flow assumption.
 
Sales and inventory information, finished goods
 
 
Chocolate
Strawberry
Expected sales in units
3000
1800
Selling price
$3
$4
Target ending inventory in units
300
180
Beginning inventory in units
200
150
Beginning inventory in dollars
$500
$474
 
Cool-Ice uses a FIFO cost flow assumption for finished goods inventory.
All the popsicles are made in batches of 10. Cool-Ice 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 small. Cool-Ice uses activity-based costing and has classified all overhead costs for the month of December as shown in the following chart: 
 
Cost type
Denominator activity
Rate
Manufacturing:
 
 
Set-up
Set-up hours
$20 per set-up hr
Processing
Direct manufacturing labour-hours (DMLH)
$1.70 per DMLH
Non-manufacturing:
 
 
Marketing and general
Sales revenue
10%
administration
 
 
 
REQUIRED
 
PART A
1.    Prepare each of the following budget for December:
a.    revenues budget
b.    production budget in units
c.    direct materials usage budget and direct materials purchases budget
d.    direct manufacturing labour cost budget
e.    manufacturing overhead cost budgets for processing and set-up 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 costs budget.
 
2.    Cool-Ice’s balance sheet for 30 November follows. Use it and the following information to prepare a cash budget for Cool-Ice for December.
·        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 are written off as bad debts.
·        All purchases of materials are on account. Cool-Ice pays for 70% of purchases in the month of purchase and 30% in the following month.
·        All other costs are paid in the month incurred.
·        Cool-Ice is making monthly interest payments of 1% (12% per year) on a    $20 000 long-term loan.
·        Cool-Ice plans to pay the $500 of taxes owed as of 30 November in the month of December. Income tax expense for December is zero.
·        40% of processing and set-up costs, and 30% of marketing and general administration costs, are depreciation.
 
 
 
 
 
 
 
 
 
 
 
 
Cool-Ice
 
Balance sheet as of 30 November
 
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
 
Ordinary shares
 
 
 
10 000
 
Retained earnings
 
 
 
109 279
 
Total liabilities and equity
 
 
 
$140 675
 
 
 
 
 
 
 
 
3.     Prepare a budgeted income statement for December and a budgeted balance sheet for Cool-Ice as of 31 December.