#487 Mike's Bikes makes and sells high-quality replacement

Mike's Bikes makes and sells high-quality replacement - Accounting

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Mike's Bikes makes and sells high-quality replacement gears for mountain bikes. Mike Speedway, controller, is responsible for preparing the master budget and has assembled the following data for 2021.

The direct labour rate includes wages and all employee-related benefits and the employer's share of Canada Pension Plan (CPP) and Employment Insurance (El). Labour- saving machinery will be fully operational by February. Also, as of March 1, the company's union contract calls for an increase in direct labour wages that is included in the direct labour rate. Mike's Bikes expects to have 100 gear units in inventory at December 31, 2020, and has a policy of carrying 5% of the following month's projected sales in inventory during the first quarter of the year.

Required

A. Prepare the following budgets for Mike's Bikes for the first quarter of 2021. Be sure to show supporting calculations: (1) sales budget, (2) production budget in units, (3) direct materials budget in units and cost, and (4) direct labour budget in hours.

B. Calculate the total budgeted contribution margin for Mike's Bikes for the first quarter of 2021. Be sure to show supporting calculations.

C. Assume that due to decreasing gas prices, more people are expected to drive (not bike) during the first quarter of 2021. The revised estimated sales for replacement gear units is 20% lower, Prepare new budgets based on this revised estimate. D. Assume that actual sales in January are 580 gears. What, if anything, should the company do with regards to their budget moving forward and why?

E. Discuss at least three behavioural considerations in the profit-planning and budgeting process.

Please check the General Rubric as well as the Solve a Problem Morking Key for more information about how your group will be assessed.

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Working:

Ending inventory in Jan, Feb and March are 5% of sales in Feb, Mar and Apr ie. 5% of 1000, 2000 and 2400 units.

Begininning inventory in Jan, Feb, Mar would be100, 50 and 100 units ie, ending balance in Dec, Jan and Feb