Chapter 21, Problem 21.3APR

Budgeted income statement and supporting budgets

The budget director of Feathered Friends Inc., with the assistance of thee controller, treasurer, production manager, and sales manager, has gathered the following data for use in developing the budgeted income statement for December:

A. Estimated sales for December

Bird house.......................	3,200 units at $50 per unit
Bird feeder.......................	3,000 units at $70 per unit

B. Estimated inventories at December 1:

Direct materials		Finished products:
Wood............	220 ft	Bird house........	320 units at $27 per unit
Plastic............	240 ft	Bird house........	270 units at $40 per unit

C. Desired inventories at December 31:

Direct materials		Finished products:
Wood............	220 ft	Bird house........	290 units at $27 per unit
Plastic............	200 ft	Bird house........	205 units at $41 per unit

D. Direct materials used in production:

In manufacture of Bird House:		In manufacture of Bird Feeder:
Wood............	0.80 ft. per unit of product	Wood........	1.20 ft. per unit of product
Plastic............	0.50 lb. per unit of product	Plastic.........	0.75 lb. per unit of product

E. Anticipated cost of purchases and beginning and ending inventory of direct materials:

Wood……	$7.00 per ft
Plastic	$1.00 per lb.

F. Direct labor requirements:

Bird House:
Fabrication Department......................	0.20 hr. at $16 per hr.
Assembly Department........................	0.30 hr. at $12 per hr.
Bird Feeder:
Fabrication Department......................	0.40 hr. at $16 per hr.
Assembly Department........................	0.35 hr. at $12 pr hr.

G. Estimated factory overhead costs for December:

Indirect factory wages	$75,000
Depreciation of plant and equipment	23,000
Power and light	$6,000
Insurance and property tax	5,000

H. Estimated operating expenses for December:

Sales salaries expense	$70,000
Advertising expense	18,000
Office salaries expense	21,000
Depreciation expense—office equipment	600
Telephone expense—selling	550
Telephone expense—administrative	250
Travel expense—selling	4,000
Office supplies expense	200
Miscellaneous administrative expense	400

I. Estimated other income and expense for December:

Interest revenue    $200

Interest expense    122

J. Estimated tax rate: 30%

Instructions

1. 1. Prepare a sales budget for December.
2. 2. Prepare a production budget for December.
3. 3. Prepare a direct materials purchases budget for December.
4. 4. Prepare a direct labor cost budget for December.
5. 5. Prepare a factory overhead cost budget for December.
6. 6. Prepare a cost of goods sold budget for December. Work in process at the beginning of December is estimated to be $29,000, and work in process at the end of December is estimated to be $35,400.
7. 7. Prepare a selling and administrative expenses budget for December.
8. 8. Prepare a budgeted income statement for December.

To determine

Budgeting is a process to prepare the financial statement by the manager to estimate the organization’s future actions. It is also helpful to satisfy the everyday activities.

To Prepare: The sales budget for the month ending December 31.

Explanation of Solution

The following table shows the sales budget.

Company F Sales Budget For the Month Ending December 31
Product and Area	Unit Sales Volume	Unit Selling Price ($)	Total Sales ($)
	(A)	(B)	(A) × (B)
Birdhouse	3,200	50	160,000
Bird feeder	3,000	70	210,000
Total Revenue from Sales			370,000

Table (1)

To determine

To Prepare: The production budget for the month ending December 31.

Explanation of Solution

The following table shows the production budget.

Company F Production Budget For the Month Ending December 31
Details	Units
	Birdhouse	Bird Feeder
Expected Units to be Sold	3,200	3,000
Add: Desired Inventory, December 31	290	250
Total Units Required	3,490	3,250
Less: Estimated Inventory, December 1	(320)	(270)
Total Units to be Produced	3,170	2,980

Table (2)

To determine

To Prepare: The direct materials purchase budget for the month ending December 31.

Answer to Problem 21.3APR

The following table shows the direct materials purchase budget.

Company F Direct Materials Purchase Budget For the Month Ending December 31
Details	Units
	Wood	Plastic
Required units for production:
Birdhouse	2,536 (1)	1,585 (2)
Bird Feeder	3,576 (3)	3,576 (4)
Add: Desired inventory, December 31	220	200
Total units required	6,332	4,020
Less: Estimated inventory, December 1	(200)	(240)
Total units to be purchased (A)	6,132	3,780
Unit price (B)	$7	$1
Total (A) × (B)	$42,924	$3,780
Total direct materials to be purchased	46,704

Table (3)

Explanation of Solution

Working Notes:

Calculate the direct material (wood) for birdhouse.

$\begin{array}{c}\text{Direct material (wood) cost for birdhouse}\text{=}3,170\times 0.80\text{ft}\text{.}\\ =2,536\text{ft}\text{.}\end{array}$ (1)

Calculate the direct material (plastic) for birdhouse.

$\begin{array}{c}\text{Direct material (plastic) cost for birdhouse}\text{=}3,170\times 0.50\text{lbs}\\ =1,585\text{lbs}\end{array}$ (2)

Calculate the direct material (wood) for bird feeder.

$\begin{array}{c}\text{Direct material (wood) cost for bird feeder}\text{=}2,980\times 1.20\text{ft}\text{.}\\ =3,576\text{ft}\text{.}\end{array}$ (3)

Calculate the direct material (plastic) for bird feeder.

$\begin{array}{c}\text{Direct material (plastic) cost for bird feeder}\text{=}2,980\times 0.75\text{lbs}\\ =2,235\text{lbs}\end{array}$ (4)

To determine

To Prepare: The direct labor cost budget of Company F.

Answer to Problem 21.3APR

The following table shows the direct labor cost budget for fabrication and assembly department.

Company F
Direct Labor Cost Budget
For the Month Ending December 31
Particulars	Fabrication Department	Assembly Department
Hours Required for Production:
Birdhouse	634 (5)	951 (6)
Bird feeder	1,192 (7)	1,043 (8)
Total Hours Required (A)	1,826	1,994
Hourly Rate (B)	$16	$12
Total Cost (A) × (B)	$29,216	$23,928
Total Direct Labor Cost	$53,144

Table (4)

Explanation of Solution

Working Notes:

Calculate the hours required for the production of birdhouse in fabrication department.

$\begin{array}{c}\text{Hours required for production}\text{=}3,170\times 0.20\text{hr}\\ =634\text{hrs}\end{array}$ (5)

Calculate the hours required for the production of birdhouse in assembly department.

$\begin{array}{c}\text{Hours required for production}\text{=}3,170\times 0.30\text{hr}\\ =951\text{hrs}\end{array}$ (6)

Calculate the hours required for the production of bird feeder in fabrication department.

$\begin{array}{c}\text{Hours required for production}\text{=}2,980\times 0.40\text{hr}\\ =1,192\text{hrs}\end{array}$ (7)

Calculate the hours required for the production of bird feeder in assembly department.

$\begin{array}{c}\text{Hours required for production}\text{=}2,980\times 0.35\text{hr}\\ =1,043\text{hrs}\end{array}$ (8)

To determine

To Prepare: The factory overhead cost budget of Company F.

Explanation of Solution

The following table shows the factory overhead cost budget.

Company F
Factory Overhead Cost Budget
For the Month Ending December 31
Particulars	Amount ($)
Indirect factory wages	75,000
Depreciation of plant and equipment	23,000
Power and light	6,000
Insurance and property tax	5,000
Total	109,000

Table (5)

To determine

To Prepare: The cost of goods sold budget of Company F.

Answer to Problem 21.3APR

The following table shows the cost of goods sold budget.

F Company
Cost of Goods Sold Budget
For the month ending December 31
Particulars	Amount ($)	Amount ($)	Amount ($)
Finished goods inventory, December 1			19,440 (9)
Work-in-process inventory, December 1		29,000
Direct material:
Direct materials inventory, December 1	1,640 (10)
Direct materials purchases	46,704
Cost of direct materials available for use	48,344
Less: Direct materials inventory, December 31	(1,740) (11)
Cost of direct materials placed in production	46,604
Direct labor	53,144
Factory overhead	109,000
Total manufacturing cost		208,748
Total work-in-process during the period		237,748
Less: Work-in-process inventory, December 30		(35,400)
Cost of goods manufactures			202,348
Cost of finished goods available for sale			221,788
Less: Finished goods inventory, December 30			(18,080) (12)
Cost of Goods Sold			203,708

Table (6)

Explanation of Solution

Working Notes:

Calculate the beginning finished goods inventory.

$\begin{array}{c}\text{Beginning finished goods inventory}=\left(320\times \$27\right)+\left(270\times 40\right)\\ \text{=}\text{\$8,640}\text{+}\text{\$10,800}\\ \text{=}\text{\$19,440}\end{array}$ (9)

Calculate the beginning direct material.

$\begin{array}{c}\text{Beginning}\text{direct mateial purchased}\text{=}\left(200\times \$7\right)+\left(240\times 1.00\right)\\ \text{=}\text{\$1,400}\text{+}\text{\$240}\\ \text{=}\text{\$1,640}\end{array}$ (10)

Calculate the ending direct material.

$\begin{array}{c}\text{Ending}\text{direct mateial purchased}\text{=}\left(220\times \$7\right)+\left(200\times 1.00\right)\\ \text{=}\text{\$1,540}\text{+}\text{\$200}\\ \text{=}\text{\$1,740}\end{array}$ (11)

Calculate the ending finished goods inventory.

$\begin{array}{c}\text{Ending finished goods inventory}=\left(290\times \$27\right)+\left(250\times 41\right)\\ \text{=}\text{\$7,830}\text{+}\text{\$10,250}\\ \text{=}\text{\$18,080}\end{array}$ (12)

To determine

To Prepare: The selling and administrative expenses budget of Company F.

Explanation of Solution

The following table shows the selling and administrative expenses budget.

Company F
Selling and Administrative Budget
For the Month Ending December 31
Particulars	Amount ($)	Amount ($)
Selling expense:
Sales salaries expense	70,000
Advertising expense	18,000
Telephone expense	550
Travel expense	4,000
Total selling expense		92,550
Administrative expense:
Office salaries expense	21,000
Depreciation expense – office equipment	600
Telephone expense – Administrative	250
Office supplies expense	200
Miscellaneous administrative expense	400
Total administrative expenses		22,450
Total Operating Expenses	115,000

Table (7)

To determine

To Prepare: The budgeted income statement of Company F.

Explanation of Solution

Prepare the budgeted income statement of Company F.

Company F
Budgeted Income Statement
For the Month Ending December 31
Particulars	Amount ($)	Amount ($)
Revenue from sales		370,000
Less: Cost of goods sold		(203,708)
Gross profit		166,292
Operating expenses:
Selling expenses	92,550
Administrative expenses	22,450
Total operating expenses		(115,000)
Income from operations		51,292
Other revenue and expenses:
Interest revenue	200
Interest expense	(122)	78
Income before income tax		51,370
Income tax expense (30%)		(15,411)
Net Income	35,959

Table (8)