Concept explainers
The budget director of Birds of a Feather Inc., 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 January:
- a. Estimated sales for January:
Birdhouse | 6.000 units at $55 per unit |
Bird feeder | 4,500 units at $75 per unit |
- b. Estimated inventories at January 1:
Direct materials: | Finished products: | ||
Wood | 220 ft. | Birdhouse | 300 units at $23 per unit |
Plastic | 250 lb. | Bird feeder | 240 units at $34 per unit |
- c. Desired inventories at January 31:
Direct materials: | Finished products: | ||
Wood | 180 ft. | Birdhouse | 340 units at $23 per unit |
Plastic | 210 lb. | Bird feeder | 200 units at $34 per unit |
- d. Direct materials used in production:
In manufacture of Birdhouse: | In manufacture | of Bird Feeder: | |
Wood | ... 0.80 ft. per unit of product | Wood | 1.20 ft. per unitof 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 $8.00 per ft. | Plastic $1.20 per lb. |
- f. f. Direct labor requirements:
Birdhouse: | |
Fabrication Department | 0.20 hr. at$15 per hr. |
Assembly Department | 0.30 hr. at $12 per hr. |
Bird Feeder: | |
Fabrication Department | 0.40 hr. at$15 per hr. |
Assembly Department | 0.35 hr. at $12 per hr. |
- g. Estimated factory
overhead costs for January:
Indirect factory wages | $80,000 | Power and light | $8,000 |
25,000 | Insurance and property tax | 2,000 |
- h. Estimated operating expenses for January:
Sales salaries expense | $90,000 |
Advertising expense | 20,000 |
Office salaries expense | 18,000 |
Depredation expense—office equipment | 800 |
Telephone expense—selling | 500 |
Telephone expense—administrative | 200 |
Travel expense—selling | 5,000 |
Office supplies expense | 250 |
Miscellaneous administrative expense | 450 |
- i. Estimated other income and expense for January:
Interest revenue | $300 |
Interest expense | 224 |
- j. Estimated tax rate: 30%
Instructions
- 1. Prepare a sales budget for January.
- 2. Prepare a production budget for January.
3. Prepare a direct materials purchases budget for January.
- 4. Prepare a direct labor cost budget for January.
- 5. Prepare a
factory overhead cost budget for January. - 6. Prepare a cost of goods sold budget for January. Work in process at the beginning of January is estimated to be $29,000, and work in process at the end of January is estimated to be $35,400.
- 7. Prepare a selling and administrative expenses budget for January.
- 8. Prepare a budgeted income statement for January.
1.
Budgeting is a process to prepare the financial statement by the manager to estimate the organization’s future actions. It is also helpful to satisfy the everyday activities.
To Prepare: The sales budget for the month ending January 31.
Explanation of Solution
The following table shows the sales budget.
Company B Sales Budget For the Month Ending January 31 | |||
Product and Area | Unit Sales Volume | Unit Selling Price ($) | Total Sales ($) |
(A) | (B) | (A) × (B) | |
Birdhouse | 6,000 | 55 | 330,000 |
Bird feeder | 4,500 | 75 | 337,500 |
Total Revenue from Sales | 667,500 |
Table (1)
2.
To Prepare: The production budget for the month ending January 31.
Explanation of Solution
The following table shows the production budget.
Company B Production Budget For the Month Ending January 31 | ||
Details | Units | |
Birdhouse | Bird Feeder | |
Expected Units to be Sold | 6,000 | 4,500 |
Add: Desired Inventory, January 31 | 340 | 200 |
Total Units Required | 6,340 | 4,700 |
Less: Estimated Inventory, January 1 | (300) | (240) |
Total Units to be Produced | 6,040 | 4,460 |
Table (2)
3.
To Prepare: The direct materials purchase budget for the month ending January 31.
Explanation of Solution
The following table shows the direct materials purchase budget.
Company B Direct Materials Purchase Budget For the Month Ending January 31 | ||
Details | Units | |
Wood | Plastic | |
Required units for production: | ||
Birdhouse | 4,832 (1) | 3,020 (2) |
Bird Feeder | 5,352 (3) | 3,345 (4) |
Add: Desired inventory, January 31 | 180 | 210 |
Total units required | 10,364 | 6,575 |
Less: Estimated inventory, January 1 | (220) | (250) |
Total units to be purchased (A) | 10,144 | 6,325 |
Unit price (B) | $8 | $1.20 |
Total (A) × (B) | $81,152 | $7,590 |
Total direct materials to be purchased | 88,742 |
Table (3)
Working Notes:
Calculate the direct material (wood) for birdhouse.
Calculate the direct material (plastic) for birdhouse.
Calculate the direct material (wood) for bird feeder.
Calculate the direct material (plastic) for bird feeder.
4.
To Prepare: The direct labor cost budget of Company B.
Explanation of Solution
The following table shows the direct labor cost budget for fabrication and assembly department.
Company B | ||
Direct Labor Cost Budget | ||
For the Month Ending January 31 | ||
Particulars |
Fabrication Department |
Assembly Department |
Hours Required for Production: | ||
Birdhouse | 1,208 (5) | 1,812 (6) |
Bird feeder | 1,784 (7) | 1,561 (8) |
Total Hours Required (A) | 2,992 | 3,373 |
Hourly Rate (B) | $15 | $12 |
Total Cost (A) × (B) | $44,880 | $40,476 |
Total Direct Labor Cost | 85,356 |
Table (4)
Working Notes:
Calculate the hours required for the production of birdhouse in fabrication department.
Calculate the hours required for the production of birdhouse in assembly department.
Calculate the hours required for the production of bird feeder in fabrication department.
Calculate the hours required for the production of bird feeder in assembly department.
5.
To Prepare: The factory overhead cost budget of Company B.
Explanation of Solution
The following table shows the factory overhead cost budget.
Company B | |
Factory Overhead Cost Budget | |
For the Month Ending January 31 | |
Particulars | Amount ($) |
Indirect factory wages | 80,000 |
Depreciation of plant and equipment | 25,000 |
Power and light | 8,000 |
Insurance and property tax | 2,000 |
Total | 115,000 |
Table (5)
6.
To Prepare: The cost of goods sold budget of Company B.
Explanation of Solution
The following table shows the cost of goods sold budget.
B Company | |||
Cost of Goods Sold Budget | |||
For the month ending January 31 | |||
Particulars | Amount ($) | Amount ($) | Amount ($) |
Finished goods inventory, January 1 | 15,060 (9) | ||
Work-in-process inventory, January 1 | 29,000 | ||
Direct material: | |||
Direct materials inventory, January 1 | 2,060(10) | ||
Direct materials purchases | 88,742 | ||
Cost of direct materials available for use | 90,802 | ||
Less: Direct materials inventory, January 31 |
(1,692) (11) | ||
Cost of direct materials placed in production | 89,110 | ||
Direct labor | 85,356 | ||
Factory overhead | 115,000 | ||
Total manufacturing cost | 289,466 | ||
Total work-in-process during the period | 318,466 | ||
Less: Work-in-process inventory, January 30 | (35,400) | ||
Cost of goods manufactures | 283,066 | ||
Cost of finished goods available for sale | 298,126 | ||
Less: Finished goods inventory, January 30 |
(14,620) (12) | ||
Cost of Goods Sold | 283,506 |
Table (6)
Working Notes:
Calculate the beginning finished goods inventory.
Calculate the beginning direct material.
Calculate the ending direct material.
Calculate the ending finished goods inventory.
7.
To Prepare: The selling and administrative expenses budget of Company B.
Explanation of Solution
The following table shows the selling and administrative expenses budget.
Company B | ||
Selling and Administrative Budget | ||
For the Month Ending January 31 | ||
Particulars | Amount ($) | Amount ($) |
Selling expense: | ||
Sales salaries expense | 90,000 | |
Advertising expense | 20,000 | |
Telephone expense | 500 | |
Travel expense | 5,000 | |
Total selling expense | 115,000 | |
Administrative expense: | ||
Office salaries expense | 18,000 | |
Depreciation expense – office equipment | 800 | |
Telephone expense – Administrative | 200 | |
Office supplies expense | 250 | |
Miscellaneous administrative expense | 450 | |
Total administrative expenses | 19,700 | |
Total Operating Expenses | 135,200 |
Table (7)
8.
To Prepare: The budgeted income statement of Company B.
Explanation of Solution
Prepare the budgeted income statement of Company B.
Company B | ||
Budgeted Income Statement | ||
For the Month Ending January 31 | ||
Particulars | Amount ($) | Amount ($) |
Revenue from sales | 667,500 | |
Less: Cost of goods sold | (283,506) | |
Gross profit | 383,994 | |
Operating expenses: | ||
Selling expenses | 115,500 | |
Administrative expenses | 19,700 | |
Total operating expenses | (135,200) | |
Income from operations | 248,794 | |
Other revenue and expenses: | ||
Interest revenue | 300 | |
Interest expense | (224) | 76 |
Income before income tax | 248,870 | |
Income tax expense (30%) | (74,661) | |
Net Income | 174,209 |
Table (7)
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Chapter 22 Solutions
Working Papers, Chapters 1-17 for Warren/Reeve/Duchac’s Accounting, 27th and Financial Accounting, 15th
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