Chapter 22, Problem 22.3APR

Budgeted income statement and supporting budgets

 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:

1. a. Estimated sales for January:

Birdhouse	6.000 units at $55 per unit
Bird feeder	4,500 units at $75 per unit

1. 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

1. 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

1. 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

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

Wood $8.00 per ft.

Plastic $1.20 per lb.

1. 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.

1. g.  Estimated factory overhead costs for January:

Indirect factory wages	$80,000	Power and light	$8,000
Depreciation of plant and equipment	25,000	Insurance and property tax	2,000

1. 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

1. i. Estimated other income and expense for January:

Interest revenue	$300
Interest expense	224

1. j.  Estimated tax rate: 30%

Instructions

1. 1. Prepare a sales budget for January.
2. 2. Prepare a production budget for January.

3. Prepare a direct materials purchases budget for January.

1. 4. Prepare a direct labor cost budget for January.
2. 5. Prepare a factory overhead cost budget for January.
3. 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.
4. 7. Prepare a selling and administrative expenses budget for January.
5. 8. Prepare a budgeted income statement for January.

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 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)

To determine

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)

To determine

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.

$\begin{array}{c}\text{Direct material (wood) cost for birdhouse}\text{=}6,040\times 0.80\text{ft}\text{.}\\ =4,832\text{ft}\text{.}\end{array}$ (1)

Calculate the direct material (plastic) for birdhouse.

$\begin{array}{c}\text{Direct material (plastic) cost for birdhouse}\text{=}6,040\times 0.50\text{lbs}\\ =3,020\text{lbs}\end{array}$ (2)

Calculate the direct material (wood) for bird feeder.

$\begin{array}{c}\text{Direct material (wood) cost for bird feeder}\text{=}4,460\times 1.20\text{ft}\text{.}\\ =5,352\text{ft}\text{.}\end{array}$ (3)

Calculate the direct material (plastic) for bird feeder.

$\begin{array}{c}\text{Direct material (plastic) cost for bird feeder}\text{=}4,460\times 0.75\text{lbs}\\ =3,345\text{lbs}\end{array}$ (4)

To determine

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.

$\begin{array}{c}\text{Hours required for production}\text{=}6,040\times 0.20\text{hr}\\ =1,208\text{hrs}\end{array}$ (5)

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

$\begin{array}{c}\text{Hours required for production}\text{=}6,040\times 0.30\text{hr}\\ =1,812\text{hrs}\end{array}$ (6)

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

$\begin{array}{c}\text{Hours required for production}\text{=}4,460\times 0.40\text{hr}\\ =1,784\text{hrs}\end{array}$ (7)

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

$\begin{array}{c}\text{Hours required for production}\text{=}4,460\times 0.35\text{hr}\\ =1,561\text{hrs}\end{array}$ (8)

To determine

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)

To determine

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.

$\begin{array}{c}\text{Beginning finished goods inventory}=\left(300\times \$23\right)+\left(240\times 34\right)\\ \text{=}\text{\$6,900}\text{+}\text{\$8,160}\\ \text{=}\text{\$15,060}\end{array}$ (9)

Calculate the beginning direct material.

$\begin{array}{c}\text{Beginning}\text{direct mateial purchased}\text{=}\left(220\times \$8\right)+\left(250\times 1.20\right)\\ \text{=}\text{\$1,760}\text{+}\text{\$300}\\ \text{=}\text{\$2,060}\end{array}$ (10)

Calculate the ending direct material.

$\begin{array}{c}\text{Ending}\text{direct mateial purchased}\text{=}\left(180\times \$8\right)+\left(210\times 1.20\right)\\ \text{=}\text{\$1,440}\text{+}\text{\$252}\\ \text{=}\text{\$1,692}\end{array}$ (11)

Calculate the ending finished goods inventory.

$\begin{array}{c}\text{Ending finished goods inventory}=\left(340\times \$23\right)+\left(200\times 34\right)\\ \text{=}\text{\$7,820}\text{+}\text{\$6,800}\\ \text{=}\text{\$14,620}\end{array}$ (12)

To determine

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)

To determine

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)