
Concept explainers
The budget director of Gold Medal Athletic Co., with the assistance of the controller, treasurer, production manager, and sales manager, has gathered the following data for use in developing the budgeted income statement for March:
A. Estimated sales for March:
Batting helmet.................. | 1,200 units at $40 per unit |
Football helmet................. | 6,500 units at $ 160 per unit |
B. Estimated inventories at March 1:
Direct materials: | Finished products: | ||
Plastic............ | 90 lbs. | Batting helmet....... | 40 units at $25 per unit |
Foam lining....... | 80 lbs. | Football helmet...... | 240 units at $77 per unit |
C. Desired inventories at March 31:
Direct materials: | Finished products: | ||
Plastic............ | 50 lbs. | Batting helmet....... | 50 units at $25 per unit |
Foam lining....... | 65 lbs. | Football helmet...... | 220 units at $78 per unit |
D. Direct materials used in production:
In manufacture of batting helmet: | |
Plastic............................... | 1.2lbs. per unit of product |
Foam lining......................... | 0.5 lb. per unit of product |
In manufacture of football helmet: | |
Plastic............................... | 3.5lbs. per unit of product |
Foam lining.......................... | 1.5 lbs. per unit of product |
E. Anticipated cost of purchases and beginning and ending inventory of direct materials:
Plastic........................ | $6 per lb. |
Foam lining................... | $4 per lb. |
F. Direct labor requirements
Batting helmet: | |
Molding Department............. | 0.2 hr. at $20 per unit |
Assembly Department............ | 0.5 hr. at $14 per hr. |
Football helmet: | |
Molding Department............. | 0.5 hr. at $20 per hr. |
Assembly Department............ | 1.8 hrs. at $14 per hr. |
G. Estimated factory
Indirect factory wages | $86,000 |
12,000 | |
Power and light | $4,000 |
Insurance and property tax | 2,300 |
H. Estimated operating expenses for March:
Sales salaries expense | $184,300 |
Advertising expense | 87,300 |
Office salaries expense | 32,400 |
Depreciation expense—office equipment | 3,800 |
Telephone expense—selling | 5,800 |
Telephone expense—administrative | 1,200 |
Travel expense—selling | 9,000 |
Office supplies expense | 1,100 |
Miscellaneous administrative expense | 1,000 |
I. Estimated other income and expense for March:
Interest revenue | $940 |
Interest expense | 872 |
J. Estimated tax rate: 30%
Instructions
- 1. Prepare a sales budget for March.
- 2. Prepare a production budget for March.
- 3. Prepare a direct materials purchases budget for March.
- 4. Prepare a direct labor cost budget for March.
- 5. Prepare a factory’ overhead cost budget for March.
- 6. Prepare a cost of goods sold budget for March. Work in process at the beginning of March is estimated to be $15,300, and work in process at the end of March is desired to be $14,800.
- 7. Prepare a selling and administrative expenses budget for March.
- 8. Prepare a budgeted income statement for March.
1.

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 March 31.
Explanation of Solution
The following table shows the sales budget.
Company G Sales Budget For the Month Ending March 31 | |||
Product and Area | Unit Sales Volume | Unit Selling Price ($) | Total Sales ($) |
(A) | (B) | (A) × (B) | |
Birdhouse | 1,200 | 40 | 48,000 |
Bird feeder | 6,500 | 160 | 1,040,000 |
Total Revenue from Sales | 1,088,000 |
Table (1)
2.

To Prepare: The production budget for the month ending March 31.
Explanation of Solution
The following table shows the production budget.
Company G Production Budget For the Month Ending March 31 | ||
Details | Units | |
Batting Helmet | Football Helmet | |
Expected Units to be Sold | 1,200 | 6,500 |
Add: Desired Inventory, March 31 | 50 | 220 |
Total Units Required | 1,250 | 6,720 |
Less: Estimated Inventory, March 1 | (40) | (240) |
Total Units to be Produced | 1,210 | 6,480 |
Table (2)
3.

To Prepare: The direct materials purchase budget for the month ending March 31.
Answer to Problem 21.3BPR
The following table shows the direct materials purchase budget.
Company G Direct Materials Purchase Budget For the Month Ending March 31 | ||
Details | Units | |
Plastic | Foam Lining | |
Required units for production: | ||
Batting Helmet | 1,452 (1) | 605 (2) |
Football Helmet | 22,680 (3) | 9,720 (4) |
Add: Desired inventory, March 31 | 50 | 65 |
Total units required | 24,182 | 10,390 |
Less: Estimated inventory, March 1 | (90) | (80) |
Total units to be purchased (A) | 24,092 | 10,310 |
Unit price (B) | $6 | $4 |
Total (A) × (B) | $144,552 | $41,240 |
Total direct materials to be purchased | 185,792 |
Table (3)
Explanation of Solution
Working Notes:
Calculate the direct material (plastic) for batting helmet.
Calculate the direct material (foam lining) for batting helmet.
Calculate the direct material (plastic) for football helmet.
Calculate the direct material (foam lining) for football helmet.
4.

To Prepare: The direct labor cost budget of Company B.
Answer to Problem 21.3BPR
The following table shows the direct labor cost budget for molding and assembly department.
Company B | ||
Direct Labor Cost Budget | ||
For the Month Ending March 31 | ||
Particulars | Molding Department |
Assembly Department |
Hours Required for Production: | ||
Batting helmet | 242 (5) | 605 (6) |
Football helmet | 3,240 (7) | 11,664 (8) |
Total Hours Required (A) | 3,482 | 12,269 |
Hourly Rate (B) | $20 | $14 |
Total Cost (A) × (B) | $69,640 | $171,766 |
Total Direct Labor Cost | 241,406 |
Table (4)
Explanation of Solution
Working Notes:
Calculate the hours required for the production of batting helmet in molding department.
Calculate the hours required for the production of batting helmet in assembly department.
Calculate the hours required for the production of football helmet in molding department.
Calculate the hours required for the production of football helmet in assembly department.
5.

To Prepare: The factory overhead cost budget of Company G.
Explanation of Solution
The following table shows the factory overhead cost budget.
Company G | |
Factory Overhead Cost Budget | |
For the Month Ending March 31 | |
Particulars | Amount ($) |
Indirect factory wages | 86,000 |
Depreciation of plant and equipment | 12,000 |
Power and light | 4,000 |
Insurance and property tax | 2,300 |
Total | 104,300 |
Table (5)
6.

To Prepare: The cost of goods sold budget of Company G.
Answer to Problem 21.3BPR
The following table shows the cost of goods sold budget.
G Company | |||
Cost of Goods Sold Budget | |||
For the month ending March 31 | |||
Particulars | Amount ($) | Amount ($) | Amount ($) |
Finished goods inventory, March 1 | 19,480 (9) | ||
Work-in-process inventory, March 1 | 15,300 | ||
Direct material: | |||
Direct materials inventory, March 1 | 860 (10) | ||
Direct materials purchases | 185,792 | ||
Cost of direct materials available for use | 186,652 | ||
Less: Direct materials inventory, March 31 | (560) (11) |
||
Cost of direct materials placed in production | 186,092 | ||
Direct labor | 241,406 | ||
Factory overhead | 104,300 | ||
Total manufacturing cost | 531,798 | ||
Total work-in-process during the period | 547,098 | ||
Less: Work-in-process inventory, March 31 | (14,800) | ||
Cost of goods manufactures | 532,298 | ||
Cost of finished goods available for sale | 551,778 | ||
Less: Finished goods inventory, March 31 | (18,410) (12) | ||
Cost of Goods Sold | 533,368 |
Table (6)
Explanation of Solution
Working Notes:
Calculate the beginning finished goods inventory.
Calculate the beginning direct material.
Calculate the ending direct material.
Calculate the ending finished goods inventory.
7.

To Prepare: The selling and administrative expenses budget of Company G.
Explanation of Solution
The following table shows the selling and administrative expenses budget.
Company G | ||
Selling and Administrative Budget | ||
For the Month Ending March 31 | ||
Particulars | Amount ($) | Amount ($) |
Selling expense: | ||
Sales salaries expense | 184,300 | |
Advertising expense | 87,200 | |
Telephone expense | 5,800 | |
Travel expense | 9,000 | |
Total selling expense | 286,300 | |
Administrative expense: | ||
Office salaries expense | 32,400 | |
Depreciation expense – office equipment | 3,800 | |
Telephone expense – Administrative | 1,200 | |
Office supplies expense | 1,100 | |
Miscellaneous administrative expense | 1,000 | |
Total administrative expenses | 39,500 | |
Total Operating Expenses | 325,800 |
Table (7)
8.

To Prepare: The budgeted income statement of Company G.
Explanation of Solution
Prepare the budgeted income statement of Company G.
Company G | ||
Budgeted Income Statement | ||
For the Month Ending March 31 | ||
Particulars | Amount ($) | Amount ($) |
Revenue from sales | 1,088,000 | |
Less: Cost of goods sold | (533,368) | |
Gross profit | 554,632 | |
Operating expenses: | ||
Selling expenses | 286,300 | |
Administrative expenses | 39,500 | |
Total operating expenses | (325,800) | |
Income from operations | 228,832 | |
Other revenue and expenses: | ||
Interest revenue | 940 | |
Interest expense | (872) | 68 |
Income before income tax | 228,900 | |
Income tax expense (30%) | (68,670) | |
Net Income | 160,230 |
Table (8)
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