Yummy-Pop makes really big lollipops in two sizes, large and giant

Yummy-Pop makes really big lollipops in two sizes, large and giant

Subject: Business / Accounting
Question
Yummy-Pop makes really big lollipops in two sizes, large and giant. Yummy-Pop sells these lollipops to convenience stores, fairs,

schools for fundraisers and in bulk on the internet. Summer is approaching and Yummy-Pop is preparing its budget for the month

of December. The lollipops are hand-made, mostly out of sugar, and attached to wooden sticks. Expected sales are based on past

experience.

Other information for the month of December follows.

Input prices

Direct materials

Sugar $0.50 per kilogram (kg)

Sticks $0.30 each

Direct manufacturing labour $8 per direct manufacturing labour-hour

Input quantities per unit of output

Large Giant

Direct materials

Sugar 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 Sticks

Beginning inventory 125 kg 350

Target ending inventory 240 kg 480

Cost of beginning inventory $64 $105

Yummy-Pop accounts for direct materials using a FIFO cost flow assumption.

Sales and inventory information, finished goods

Large Giant

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

Yummy-Pop uses a FIFO cost flow assumption for finished goods inventory.

All the lollipops are made in batches of 10. Yummy-Pop 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.

Yummy-Pop 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 administration Sales revenue 10%

Yummy-Pop 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