Chapter 22, Problem 3PB

Budgeted income statement and supporting budgets

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:

Estimated sales for March:

Estimated inventories at March 1:

Desired inventories at March 31:

Direct materials used in production:

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

Direct labor requirements:

Estimated factory overhead costs for March:

Estimated operating expenses for March:

Estimated other revenue and expense for March:

 Estimated tax rate: 30%

Instructions

Prepare a sales budget for March.

Prepare a production budget for March.

Prepare a direct materials purchases budget for March.

Prepare a direct labor cost budget for March.

Prepare a factory overhead cost budget for March.

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.

Prepare a selling and administrative expenses budget for March.

Prepare a budgeted income statement for March.

To determine

Prepare the sales budget for the month ending March 31.

Explanation of Solution

Budgeting:

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.

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)

To determine

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)

To determine

Prepare the direct materials purchase budget for the month ending March 31.

Explanation of Solution

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)

Working note (1):

Calculate the direct material (plastic) for batting helmet.

$\begin{array}{c}\text{Direct material (plastic) cost for batting helmet}\text{=}1,210\times 1.20\text{lb}\text{.}\\ =1,452\text{lb}\text{.}\end{array}$

Working note (2):

Calculate the direct material (foam lining) for batting helmet.

$\begin{array}{c}\text{Direct material (foam lining) cost for batting helmet}\text{=}1,210\times 0.50\text{lb}\text{.}\\ =605\text{lb}\text{.}\end{array}$

Working note (3):

Calculate the direct material (plastic) for football helmet.

$\begin{array}{c}\text{Direct material (plastic) cost for football helmet}\text{=}6,480\times 3.50\text{lb}\text{.}\\ =22,680\text{lb}\text{.}\end{array}$

Working note (4):

Calculate the direct material (foam lining) for football helmet.

$\begin{array}{c}\text{Direct material (foam lining) cost for football helmet}\text{=}6,480\times 1.50\text{lb}\text{.}\\ =9,720\text{lb}\text{.}\end{array}$

To determine

Prepare the direct labor cost budget of Company B.

Explanation of Solution

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)

Working note (5):

Calculate the hours required for the production of batting helmet in molding department.

$\begin{array}{c}\text{Hours required for production}\text{=}1,210\times 0.20\text{hr}\\ =242\text{hrs}\end{array}$

Working note (6):

Calculate the hours required for the production of batting helmet in assembly department.

$\begin{array}{c}\text{Hours required for production}\text{=}1,210\times 0.50\text{hr}\\ =605\text{hrs}\end{array}$

Working note (7):

Calculate the hours required for the production of football helmet in molding department.

$\begin{array}{c}\text{Hours required for production}\text{=}6,480\times 0.50\text{hr}\\ =3,240\text{hrs}\end{array}$

Working note (8):

Calculate the hours required for the production of football helmet in assembly department.

$\begin{array}{c}\text{Hours required for production}\text{=}6,480\times 1.80\text{hr}\\ =11,664\text{hrs}\end{array}$

To determine

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)

To determine

Prepare the cost of goods sold budget of Company G.

Explanation of Solution

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)

Working note (9):

Calculate the beginning finished goods inventory.

$\begin{array}{c}\text{Beginning finished goods inventory}=\left(40\times \$25\right)+\left(240\times \$77\right)\\ \text{=}\text{\$1,000}\text{+}\text{\$18,480}\\ \text{=}\text{\$19,480}\end{array}$

Working note (10):

Calculate the beginning direct material.

$\begin{array}{c}\text{Beginning}\text{direct mateial purchased}\text{=}\left(90\times \$6\right)+\left(80\times \$4\right)\\ \text{=}\text{\$540}\text{+}\text{\$320}\\ \text{=}\text{\$860}\end{array}$

Working note (11):

Calculate the ending direct material.

$\begin{array}{c}\text{Ending}\text{direct mateial purchased}\text{=}\left(50\times \$6\right)+\left(65\times \$4\right)\\ \text{=}\text{\$300}\text{+}\text{\$260}\\ \text{=}\text{\$560}\end{array}$

Working note (12):

Calculate the ending finished goods inventory.

$\begin{array}{c}\text{Ending finished goods inventory}=\left(50\times \$25\right)+\left(220\times \$78\right)\\ \text{=}\text{\$1,250}\text{+}\text{\$17,160}\\ \text{=}\text{\$18,410}\end{array}$

To determine

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)

To determine

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 $\left(\text{30\%}\times \text{228,900}\right)$		(68,670)
Net Income	160,230

Table (8)