Problem P1-1 Budgets in Managerial Accounting

Santiago’s Salsa is in the process of preparing a production cost budget for May. Actual costs in April were:

Santiago’s Salsa

Production Cost Budget

April 2011

Production – Jars of salsa $25,000

Ingredient cost (variable) $20,000

Labor cost (variable) $12,000

Rent (fixed) $5,000

Depreciation (fixed) $6,000

Other (fixed) $1,000

Total $44,000


Part 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 marketing campaign.

Part b.1: 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?

Part b.2: What would happen if management did not anticipate the need for additional labor in May? Narrative answer: