Fundamentals of Cost Accounting 3rd Edition by William N. Lanen, Shannon W. Anderson, Michael Maher

Exercise 20

Cost Data for Managerial Purposes—Budgeting

Refer to Exhibit 1.5, which shows budgeted versus actual costs. Assume that Carmen’s Cookies is preparing a budget for the month ending June 30. Management prepares the budget by starting with the actual results for April 30 that appear in Exhibit 1.5. Next, management considers what the differences in costs will be between April and June.

Management expects the number of cookies sold to be 15 percent greater in June than in April, and it expects all food costs (e.g., flour, eggs) to be 15 percent higher in June than in April. Management expects “other” labor costs to be 20 percent higher in June than in April, partly because more labor will be required in June and partly because employees will get a pay raise. The manager will get a pay raise that will increase the salary from $3,000 in April to $3,750 in June. Rent and utilities are not expected to change.

Required

Prepare a budget for Carmen’s Cookies for June.

Step 1 of 7

Prepare the budget for the month ending June 30, based on the actual costs incurred in the month of April.

First prepare the actual cost statement showing the actual cost incurred for the month ending April, as below:

CS Cookies Retail Responsibility Center Actual costs Statement For the month ending April 30
Particulars	Amount
Food
Flour	$2,100
Eggs	$5,200
Chocolate	$2,000
Nuts	$2,000
Other	$2,200
Total Food	$13,500
Labor
Manager	$3,000
Other	$1,500
Total Labor	$4,500
Utilities	$1,800
Rent	$5,000
Total Cookie costs	$24,800
Number of cookies sold	32,000