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    Marietta Veluz Problem 1-1 Budgets in Managerial Accounting

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    The document provides a budget for Santiago's Salsa production costs for April 2017. It shows the costs for variable expenses like ingredients and labor as well as fixed expenses like rent and depreciation. It then asks the reader to prepare a budget for May production assuming it will increase to 30,000 jars of salsa. The new budget predicts higher variable costs for ingredients and labor due to increased production. It also notes this budget suggests additional labor hours will be needed in May and explains what could happen if management does not anticipate and plan for this need. Finally, it calculates the actual cost per unit in April was $1.76 compared to a budgeted cost per unit of $1.68 for May, explaining that fixed costs are

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    Marietta Veluz Problem 1-1 Budgets in Managerial Accounting

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    mariettaveluz
    2 views4 pages
    The document provides a budget for Santiago's Salsa production costs for April 2017. It shows the costs for variable expenses like ingredients and labor as well as fixed expenses like rent and depreciation. It then asks the reader to prepare a budget for May production assuming it will increase to 30,000 jars of salsa. The new budget predicts higher variable costs for ingredients and labor due to increased production. It also notes this budget suggests additional labor hours will be needed in May and explains what could happen if management does not anticipate and plan for this need. Finally, it calculates the actual cost per unit in April was $1.76 compared to a budgeted cost per unit of $1.68 for May, explaining that fixed costs are

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    The document provides a budget for Santiago's Salsa production costs for April 2017. It shows the costs for variable expenses like ingredients and labor as well as fixed expenses like rent and depreciation. It then asks the reader to prepare a budget for May production assuming it will increase to 30,000 jars of salsa. The new budget predicts higher variable costs for ingredients and labor due to increased production. It also notes this budget suggests additional labor hours will be needed in May and explains what could happen if management does not anticipate and plan for this need. Finally, it calculates the actual cost per unit in April was $1.76 compared to a budgeted cost per unit of $1.68 for May, explaining that fixed costs are

    Copyright:

    © All Rights Reserved
    Download as XLSX, PDF, TXT or read online from Scribd
    Flag for inappropriate content
    Download as xlsx, pdf, or txt
    2 views4 pages

    Marietta Veluz Problem 1-1 Budgets in Managerial Accounting

    Uploaded by

    mariettaveluz
    The document provides a budget for Santiago's Salsa production costs for April 2017. It shows the costs for variable expenses like ingredients and labor as well as fixed expenses like rent and depreciation. It then asks the reader to prepare a budget for May production assuming it will increase to 30,000 jars of salsa. The new budget predicts higher variable costs for ingredients and labor due to increased production. It also notes this budget suggests additional labor hours will be needed in May and explains what could happen if management does not anticipate and plan for this need. Finally, it calculates the actual cost per unit in April was $1.76 compared to a budgeted cost per unit of $1.68 for May, explaining that fixed costs are

    Copyright:

    © All Rights Reserved
    Download as XLSX, PDF, TXT or read online from Scribd
    Flag for inappropriate content
    Download as xlsx, pdf, or txt
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    Solution: Problem 1-1 Budgets in Managerial Accounting

    Problem data are:


    Santiago's Salsa Production Costs
    April 2017
    Production- Jars of Salsa $25,000
    Ingredient cost (Variable) $20,000.00
    Labor Cost (Variable) $12,000.00
    Rent (Fixed) $5,000.00
    Depreciation (Fixed) $6,000.00
    Other (Fixed) $1,000.00
    Total $44,000.00

    Required:
    a. Using this information, prepare a budget for May. Assume that production will increase to 30,000 jars of salsa, reflecting an

    Ingredient cost per unit $20,000/$25,000 = $0.80

    Ingredient cost per unit $12,000/$25,000 = $0.48

    Santiago's Salsa Production Costs


    April 2017
    Production- Jars of Salsa $30,000
    Ingredient cost (Variable) $24,000.00
    Labor Cost (Variable) $14,400.00
    Rent (Fixed) $5,000.00
    Depreciation (Fixed) $6,000.00
    Other (Fixed) $1,000.00
    Total $50,400.00

    b. Does the budget suggest that additional workers are needed? Suppose the wage rate is $20 per hour. How many additional
    What would happen if management did not anticipate the need for additional labor in May?
    Ans:
    b1. Yes, the budget suggest that additional workers are needed
    b2.
    Labor hours used in April 600
    Labor hours to be used in May 720
    Additonal Labor hours needed 120
    b3. Without anticipating additional labor needs in May, management might face production shortfalls and reduced profits.
    Additionally, existing employees could be forced to work overtime, leading to increased labor costs.

    c. Calculate the actual cost per unit in April and the budgeted cost per unit in May. Explain why the cost per unit is expected to
    c1
    Actual cost per Budgeted cost per
    unit in April unit in May

    Total cost $44,000.00 $50,400.00


    Jars of Salsa $25,000.00 $30,000.00
    Cost per Jar of Salsa $1.76 $1.68
    c2. When production increases, the total fixed cost (rent, equipment, etc.) stays the same, but it's divided amongst a larger nu
    This effectively lowers the fixed cost per unit. Consequently, the total cost per unit, which includes both fixed and variable cos
    ars of salsa, reflecting an anticipated sales increase related to a new marketing campaign

    our. How many additional labor hours are needed in May?

    s and reduced profits.

    ost per unit is expected to decrease.


    ided amongst a larger number of units produced.
    oth fixed and variable costs, decreases by $0.08.

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