**Budgeting Production, Direct Materials, and Income Statement**Lane Products manufactures a popular kitchen utensil. The company recently expanded, and the controller believes that it will need to borrow cash to continue operations. It opened negotiations with the local bank for a one-month loan of $42,000 starting March 1. The bank would charge interest at the rate of 0.5 percent per month and require the company to repay interest and principal on March 31. In considering the loan, the bank requested a projected income statement and cash budget for March.**The following information is available:**- The company budgeted sales at 13,000 units per month in February, April, and May and at 10,000 units in March. The selling price is $61 per unit.- The company offers a 2 percent discount for cash sales. The company's experience is that bad debts average 1 percent of credit sales.- The inventory of finished goods on February 1 was 2,500 units. The desired finished goods inventory at the end of each month equals 25 percent of sales anticipated for the following month. There is no work in process.- The inventory of raw materials on February 1 was 2,300 pounds. At the end of each month, the raw materials inventory equals no less than 20 percent of production requirements for the following month. The company purchases materials in quantities of 255 pounds per shipment.- Selling expenses are 6 percent of gross sales. Administrative expenses, which include depreciation of $800 per month on office furniture and fixtures, total $69,000 per month.- The manufacturing budget for the utensil, based on normal production of 12,000 units per month, follows.| **Materials (½ pound per utensil, 6,000 pounds, $30 per pound)** | **$180,000** ||----------------------------------------------------------------|--------------|| **Labor** | **$121,000** || **Variable overhead** | **$61,000** || **Fixed overhead (includes depreciation of $22,000)** | **$121,000** || **Total** | **$483,000** |**Required:**- **a-1.** Prepare schedules computing inventory budgets by months for production in units for February, March, and April.- **a-2.** Prepare schedules computing inventory budgets by months for raw materials purchases in pounds for February and

Inventory budgeting involves forecasting and planning the quantity of raw materials, work-in-progress, and finished goods needed for production. Estimates required inventory levels based on expected sales, production, and company policies. The process helps manage resources, minimize excess stock, and maintain operational efficiency.A projected income statement outlines an estimate of a company's financial performance over a specific period, typically a month or year. It forecasts revenues, costs, and expenses to calculate net income, offering insights for decision-making and financial planning.The inventory budgets by months for production in units for February, March, and April are as follows:Formula Snip:Resultant Snip:The inventory budgets by months for raw materials purchases in pounds for February and March are as follows:Formula Snip:Resultant Snip:The projected income statement for March is as follows:Formula Snip:Resultant Snip:Therefore, Requirement 1 is answered in Step 2.Requirement 2 is answered in Step 3.Requirement 3 is answered in Step 4.

Business

Accounting

Required: a-1. Prepare schedules computing inventory budgets by months for production in units for February, March, and April. a-2. Prepare schedules computing inventory budgets by months for raw materials purchases in pounds for February and March. b. Prepare a projected income statement for March. Cost of goods sold should equal the variable manufacturing cost per unit times the number of units sold plus the total fixed manufacturing cost budgeted for the period. Assume that 40 percent of sales are cash sales.

Required: a-1. Prepare schedules computing inventory budgets by months for production in units for February, March, and April. a-2. Prepare schedules computing inventory budgets by months for raw materials purchases in pounds for February and March. b. Prepare a projected income statement for March. Cost of goods sold should equal the variable manufacturing cost per unit times the number of units sold plus the total fixed manufacturing cost budgeted for the period. Assume that 40 percent of sales are cash sales.

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

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Concept explainers

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

**Budgeting Production, Direct Materials, and Income Statement**

Lane Products manufactures a popular kitchen utensil. The company recently expanded, and the controller believes that it will need to borrow cash to continue operations. It opened negotiations with the local bank for a one-month loan of $42,000 starting March 1. The bank would charge interest at the rate of 0.5 percent per month and require the company to repay interest and principal on March 31. In considering the loan, the bank requested a projected income statement and cash budget for March.

**The following information is available:**

- The company budgeted sales at 13,000 units per month in February, April, and May and at 10,000 units in March. The selling price is $61 per unit.
- The company offers a 2 percent discount for cash sales. The company's experience is that bad debts average 1 percent of credit sales.
- The inventory of finished goods on February 1 was 2,500 units. The desired finished goods inventory at the end of each month equals 25 percent of sales anticipated for the following month. There is no work in process.
- The inventory of raw materials on February 1 was 2,300 pounds. At the end of each month, the raw materials inventory equals no less than 20 percent of production requirements for the following month. The company purchases materials in quantities of 255 pounds per shipment.
- Selling expenses are 6 percent of gross sales. Administrative expenses, which include depreciation of $800 per month on office furniture and fixtures, total $69,000 per month.
- The manufacturing budget for the utensil, based on normal production of 12,000 units per month, follows.

| **Materials (½ pound per utensil, 6,000 pounds, $30 per pound)** | **$180,000** |
|----------------------------------------------------------------|--------------|
| **Labor** | **$121,000** |
| **Variable overhead** | **$61,000** |
| **Fixed overhead (includes depreciation of $22,000)** | **$121,000** |
| **Total** | **$483,000** |

**Required:**

- **a-1.** Prepare schedules computing inventory budgets by months for production in units for February, March, and April.
- **a-2.** Prepare schedules computing inventory budgets by months for raw materials purchases in pounds for February and

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