Prepare the selling and administrative expense budget.
Master Budget
A master budget can be defined as an estimation of the revenue earned or expenses incurred over a specified period of time in the future and it is generally prepared on a periodic basis which can be either monthly, quarterly, half-yearly, or annually. It helps a business, an organization, or even an individual to manage the money effectively. A budget also helps in monitoring the performance of the people in the organization and helps in better decision-making.
Sales Budget and Selling
A budget is a financial plan designed by an undertaking for a definite period in future which acts as a major contributor towards enhancing the financial success of the business undertaking. The budget generally takes into account both current and future income and expenses.
Question 9
| 1. | Sales: quarter 1, 28,300 bags; quarter 2, 43,800 bags. Selling price is $61 per bag. | |
| 2. | Direct materials: each bag of Snare requires 4 pounds of Gumm at a cost of $3.80 per pound and 6 pounds of Tarr at $1.50 per pound. | |
| 3. | Desired inventory levels: |
|
Type of Inventory
|
January 1
|
April 1
|
July 1
|
|||
| Snare (bags) | 8,500 | 12,100 | 18,100 | |||
| Gumm (pounds) | 9,300 | 10,500 | 13,100 | |||
| Tarr (pounds) | 14,200 | 20,100 | 25,100 |
| 4. | Direct labor: direct labor time is 15 minutes per bag at an hourly rate of $16 per hour. | |
| 5. | Selling and administrative expenses are expected to be 15% of sales plus $177,000 per quarter. | |
| 6. | Interest expense is $100,000. | |
| 7. | Income taxes are expected to be 30% of income before income taxes. |
Your assistant has prepared two budgets: (1) the manufacturing
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