PART 1
Carlton Ltd operates at capacity and makes glass-topped dining tables and wooden chairs which are then typically sold as sets of four chairs with one table. However, some customers purchase replacement or extra chairs and others buy some chairs or a table only, so the sales mix is not exactly 4:1. The company is planning its annual budget for the financial year 2015. The following information has been compiled for the budgetary process:
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Input prices
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Direct materials
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Wood
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$6.40 per board metre
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Glass
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$12 per sheet
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Direct manufacturing labour
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$15 per direct manufacturing labour-hour
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Input quantities per unit of output
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Chairs
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Tables
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Direct materials
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|
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Wood
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1.25 board metres
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1.75 board metres
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Glass
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-
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2 sheets
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Direct manufacturing labour
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4 hours
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8 hours
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Machine-hours (MH)
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3 MH
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5MH
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Inventory information, direct materials
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Wood
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Glass
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Beginning inventory
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27,300 board metres
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8,750 sheets
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Target ending inventory
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29,375 board metres
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9,000 sheets
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Cost of beginning inventory
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$170,352
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$109,375
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Sales and inventory information, finished goods
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Chairs
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Tables
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Expected sales in units
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172,000
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45,000
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Selling price
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$80
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$900
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Target ending inventory in units
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8,500
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2,250
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Beginning inventory in units
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8,000
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2,100
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Beginning inventory in dollars
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$760,000
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$477,000
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- Carlton Ltd accounts for direct materials using a FIFO cost flow. It also uses a FIFO cost flow assumption for finished goods inventory.
- Chairs are manufactured in batches of 500, and tables are manufactured in batches of 50.
- It takes three hours to set up for a batch of chairs, and two hours to set up for a batch of tables.
The company uses activity-based costing and has classified all overhead costs as shown in the table below:
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Cost type
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Budgeted variable
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Budgeted fixed
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Cost driver/allocation base
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Manufacturing:
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Materials handling
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$342,840
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$600,000
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Number of board metres used
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Set-up
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97,000
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300,740
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Set-up hours
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Processing
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789,250
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5,900,000
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Machine hours
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Non-manufacturing:
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|
|
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Marketing
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2,011,200
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4,500,000
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Sales revenue
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Distribution
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54,000
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380,000
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Number of deliveries
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Delivery trucks transport units sold in delivery sizes of 500 chairs or 500 tables.
Required:
For the year 2015:
a. Prepare the sales budget.
b. Prepare the production budget in units.
c. Prepare the direct material usage budget and the direct material purchases budget.
d. Prepare the direct manufacturing labour cost budget.
e. Prepare the manufacturing overhead cost budget.
f. Prepare the budgeted unit cost of ending finished goods inventory and ending inventories budget.
g. Prepare the non-manufacturing overhead costs budget.
h. Prepare a budgeted income statement (ignore income taxes).
i. Compare the budgeted unit cost of a chair to its budgeted selling price. Why might the company continue to sell the chairs for only $80?
PART 2
Please access the 6-papers on budgeting posted on your site.
Required:
Write a critical review essay based on the above papers.