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G Surrey Bikes, Inc. manufactures double bench bikes for resorts and other vacation properties. Management now wants the accountants to complete an analysis to compare the budgeted costs to standard costs for 2021. During the year 2021, the company completed 680 bikes. Let's discuss changes from budget and standard that occurred during 2021. Overall, the company was able to increase several efficiencies. However, the company also experienced some increased costs. Use this information to complete the CH24 Budet Variances tab; the green section. Electrical Parts Direct Materials The purchase price, net of discounts increase by $2.50 per set. There was also an increase in freight of by $0.25 per set. Wheel Sets Direct Materials: The company was able to secure the same wheel sets from a new supplier at a cost of $37/set. However, freight cost increased by $0.50 per wheel set. Metal Parts Direct Materials: The company was also able to reduce the amount of material used for each bike by 3 pounds. The acual cost of the metal parts was $0.52 per pound. Canvas Fabric Direct Materials: The company was also able to reduce the amount of material used for each bike by one-half a yard. The acual cost of the canvas fabric was $4.95 per yard. Direct labor Employees were tasked with increasing equipment assembly and decreasing labor hours. They were successful in 2021 and brought hours down by 5/hours/unit! The company provided a $1/hour raise! This also lead to an increase of $0.25/hour in payroll taxes. Manufacturing overhead: There were no changes in manufacturing overhead, no variance needs to be computed Using this information, computer the budget variances incurred during 2021. B M H Surrey Bikes, Inc. manufactures double bench bikes for resorts and other vacation properties. Management is preparing the budget 2021 and has asked for the accountants help. Sales in 2020 were 500 units. They are bringing on a new customer and management is expecting a 20% increase in 2021. They will increase the selling price to $3,300 this year to account for anticipated rising costs. Surrey Bikes, Inc. Sales Budget For the Year Ended December 31, 2021 Expected sales units 1.20'500)4500- Unit selling price given in problem 3,300 Total sales 3,300*600- 1,980,000 600 $ 3 + At the end of 2020, there were no bikes left in inventory to sell in 2021. Management would like to start 2022 with inventory on hand. They would like to budget to end 2021 with 30 completed and finished bikes. 8 Surrey Bikes, Inc. Production Budget For the Year Ended December 31, 2021 1 Expected sales units (.20"500)4500- 600 2 Add: Desired ending finished goods units (ending balance 2021) given 30 3 Total required units Less: Beginning finished goods units (ending balance 2020) s Required production units 6 7 Management expects to end 2020 with some direct materials. They want to make sure that at the end of 2021, they have enough direct materials on hand to start production right away in 2022. Expected Per Unit Ending Ending 9 2021 Cost Balance 2020 Balance 2021 Electrical sets direct materials: 1 set $ 100.00 50 150 1 Wheels direct materials - set of 4 1 set $ 40.00 25 150 2 Metal parts direct materials: 200 pounds $ 0.50 1,000 5,000 3 Canvas fabric direct materials: 3 yards $ 10.00 20 200 29 1,000 Management expects to end 2020 with some direct materials. They want to make sure that at the end of 2021, they have enough direct 28 materials on hand to start production right away in 2022. Expected Per Unit Ending Ending 2021 Cost Balance 2020 Balance 2021 30 Electrical sets direct materials: 1 set $ 100.00 50 150 31 Wheels direct materials - set of 4 1 set $ 40.00 25 150 32 Metal parts direct materials: 200 pounds $ 0.50 5,000 33 Canvas fabric direct materials: 3 yards $ 10.00 20 200 34 35 Surrey Bikes, Inc. 36 Direct Materials Budget 37 For the Year Ended December 31, 2021 38 39 Required production units 20 Electrical sets per unit produced: 41 Total needed for production 42 Add: Desired ending direct materials (ending balance 2021) 13 Total materials required Less: Beginning direct materials (ending balance 2020) As Direct materials purchases 16 Cost per set 47 Total cost of electrical sets direct materials purchases 48 49 Required production units so Wheelsets per unit produced: material sets per unit produced: 51 Total wheel sets needed for production 52 Add: Desired ending direct materials (ending balance 2021) 53 Total materials required 54 Less: Beginning direct materials (ending balance 2020) 55 Direct materials purchases in sets 56 Cost per set 57 Total cost of wheelsets direct materials purchases 59 Required production units 60 Metal parts direct materials pounds per unit produced: 61 Total pounds needed for production Add: Desired ending direct materials in pounds (ending balance 2021) Total materials required 64 Less: Beginning direct materials in pounds (ending balance 2020) Sa 3 68 9 Required production units - Metal parts direct materials pounds per unit produced: 1 Total pounds needed for production 52 Add: Desired ending direct materials in pounds (ending balance 2021) 53 Total materials required 54 Less: Beginning direct materials in pounds (ending balance 2020) 165 Direct materials purchases 66 Cost per pound 67 Total cost of metal parts direct materials purchases 69 Required production units 70 Canvas direct material yards per unit produced: 71 Total yards needed for production 22 Add: Desired ending direct materials in yards (ending balance 2021) 73 Total materials required 74 Less: Beginning direct materials in pounds (ending balance 2020) 75 Direct materials purchases 76 Cost per yard 77 Total cost of canvas direct materials purchases 79 Total cost of ALL direct materials purchases 80 81 Management expects that it will take 50 hours of direct labor to manufacture each bike. Direct labor is billed at $20/hour. 82 33 34 Surrey Bikes, Inc. 35 Direct Labor Budget 86 For the Year Ended December 31, 2021 87 sa Units to be produced 89 Direct labor time (hours) per unit 90 Total required direct labor hours 91 Direct labor cost per hour 92 Total direct labor cost 93 78 Overhead for the company only exists of machine usage. It will take 100 machine hours per bike and the cost is $8/hour. 24 95 96 Surrey Bikes, Inc. 97 Manufacturing Overhead Budget 98 For the Year Ended December 31, 2021 99 100 Units to be produced 101 Machine hours per unit 102 Total required machine hours 103 Machine cost per hour 104 Total manufacturing overhead 105 106 Management also anticipates the following fixed costs, some anticipated changes from last year: 107 108 Building and Equipment Depreciation $45,000 109 Company Insurance $23,000 110 Company Advertising $117,000 1 Selling and Administrative Salaries and Benefits $300,000 112 111 114 Surrey Bikes, Inc. 115 Selling and Administrative Expense Budget 116 For the Year Ended December 31, 2021 137 116 Fixed expenses 115 Building and Equipment Depreciation 120 Company Insurance 121 Company Advertising 122 Selling and administrative salaries and benefits 123 Total selling and administrative expenses 124 13 Management had to borrow some money from the bank to start the business five years ago. As a result, they still have some interest 126 expense. It is $10,000 per year. Management anticipates a 20% tax rate for 2021. 127 128 Surrey Bikes, Inc. 129 Budget Income Statement 130 For the Year Ended December 31, 2021 131 132 Sales 1 Cost of goods sold 134 Gross profit 135 Selling and administrative expenses 136 Income from operations 137 Interest expense 138 Income before income taxes 19 Income tax expense 140 Net Income 141 142 "Supplemental Schedule - COGS Cost Budget per Unit 14 Cost Element Quantity Unit Cost Total 144 Electrical sets direct materials: set 145 Wheels - set of 4 direct materials set 106 Metal parts direct materials: pounds 147 Canvas direct materials: yards 143 Direct labor hour - Manufacturing overhead - machine hours hour 150 Total COGS Budget per Unit 151 152

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