Lucky Charms
Information:
Lucky Charms, Inc. (“LC”) manufactures a line of hand-crafted decorative silver amulets featuring a variety of designs. The amulets are mainly sold to retailers who then sell the amulets to consumers in their shops or at outdoor, street and weekend markets. LC’s business is somewhat seasonal in that most sales occur in the spring (in anticipation of the summer outdoor market season) with significantly fewer sales in the fall and winter. For the past couple of years LC has experienced cash flow problems that have resulted in LC having to limit production in several months which has hurt sales and profitability. You have been hired by LC as a consultant with the task of developing a master budget. LC plans to use this master budget to approach its bank for a line of credit that will help LC better manage its historic cash flow problem.
The owner of LC has provided you with the following data regarding LC’s business and operations.
• One amulet equals one unit of production.
• The selling price of the amulets is $40.
• Although the amulets have many different designs, they all contain about the same amount (0.1 ounces) of silver.
• The cost of silver (the only direct material) is $25 per ounce.
• The amulets each require 1.5 hours of skilled craftsman (direct) labor to produce. Assume that direct labor is a completely variable cost.
• LC pays its skilled craftsmen $16 per hour.
• Since the amulets are fairly easy to produce, LC only maintains a finished goods inventory equal to only 10% of the next months projected sales.
• However, in order to not be caught without the ability to produce, LC maintains a raw materials (silver) inventory equal to 70% of the next months production needs.
• LC sells to its customers on 60 day terms; meaning that sales in January will be collected in March.
• LC has 30 day payment terms with its raw materials supplier and for all of its manufacturing overhead (“MO”) and selling,
Lucky Charms, Inc. (“LC”) manufactures a line of hand-crafted decorative silver amulets featuring a variety of designs. The amulets are mainly sold to retailers who then sell the amulets to consumers in their shops or at outdoor, street and weekend markets. LC’s business is somewhat seasonal in that most sales occur in the spring (in anticipation of the summer outdoor market season) with significantly fewer sales in the fall and winter. For the past couple of years LC has experienced cash flow problems that have resulted in LC having to limit production in several months which has hurt sales and profitability. You have been hired by LC as a consultant with the task of developing a master budget. LC plans to use this master budget to approach its bank for a line of credit that will help LC better manage its historic cash flow problem.
The owner of LC has provided you with the following data regarding LC’s business and operations.
• One amulet equals one unit of production.
• The selling price of the amulets is $40.
• Although the amulets have many different designs, they all contain about the same amount (0.1 ounces) of silver.
• The cost of silver (the only direct material) is $25 per ounce.
• The amulets each require 1.5 hours of skilled craftsman (direct) labor to produce. Assume that direct labor is a completely variable cost.
• LC pays its skilled craftsmen $16 per hour.
• Since the amulets are fairly easy to produce, LC only maintains a finished goods inventory equal to only 10% of the next months projected sales.
• However, in order to not be caught without the ability to produce, LC maintains a raw materials (silver) inventory equal to 70% of the next months production needs.
• LC sells to its customers on 60 day terms; meaning that sales in January will be collected in March.
• LC has 30 day payment terms with its raw materials supplier and for all of its manufacturing overhead (“MO”) and selling,