Santiago's Salsa is in the process of preparing a production cost budget for May. Actual cost in April were:
Production Jars of Salsa
Ingredients cost (variable) $20,000
Labor cost (variable) 12,000
Rent (fixed) 5,000
Depreciation (fixed) 6,000
Other (fixed) 1,000
a. Using this information, prepare a budget for May. Assume that production will increase to 30,000 jars of salsa, reflecting an anticipated sales increase related to a new market campaign.
b. Does the budget suggest that additional workers are needed?
Suppose the wage rate is $20 per hour. How many additional labor hours are needed in May? What would happen if management did not anticipate the need for additional labor in May?
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 decrease.
The solution is provided in a separate excel file attached. It contains a classified production budget for May and supporting explanatory notes covering all answers to your questions as follows.
1 Variable cost:
Variable cost increases or decreases in direct proportion with the volume of production or the level of activity.
Ingredient cost is in the ...
The budgets in managerial accounting for Santiago's Salsa is examined.