Dubai Clothing Co. (DCC) 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. Dubai Clothing Co. 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 $3.50 per yard Wood $5.00 per board foot (b.f.) Direct manufacturing labor $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 Dubai Clothing Co. 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
Dubai Clothing Co. uses a FIFO cost flow assumption for finished goods inventory.
All the sandals are made in batches of 50 pairs of sandals. Dubai Clothing Co. incurs manufacturing overhead costs, marketing and general administration, and shipping costs. Besides materials and labor, manufacturing costs include setup, processing, and inspection costs. Dubai Clothing Co. ships 40 pairs of sandals per shipment.
Dubai Clothing Co. 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 adm. Sales revenue 8% Shipping Number of shipments $10 per shipment
Dubai Clothing Co. Balance Sheet as of May 31 Assets Cash $ 6,290 Accounts receivable $216,000 Less: Allowance for bad debts 10,800 205,200 Inventories Direct materials 6,186 Finished goods 77,250 Fixed assets $580,000 Less: Accumulated depreciation 90,890 489,110 Total assets $784,036 Liabilities and Equity Accounts payable $ 10,400 Taxes payable 7,200 Interest payable 500 Long-term debt 100,000 Common stock 200,000 Retained earnings 465,936 Total liabilities and equity $784,036
3. Prepare a budgeted income statement for June and a budgeted balance sheet for Dubai Clothing Co. as of June 30.