Chapter 7, Problem 4P

1.

To determine

Prepare the sales budget for the year ended December 31, 2016.

Explanation of Solution

Prepare the sales budget for the year ended December 31, 2016.

SS Incorporation
Sales budget
For the year ended December 31, 2016
Product	Sales volume (Unit)	Selling price (Unit)	Total sales
Tables	30,000	$175	$5,250,000
Chairs	120,000	$75	$9,000,000
Total	150,000		$14,250,000

Table (1)

2.

To determine

Prepare the production budget for the year ended December 31, 2016.

Explanation of Solution

Prepare the production budget for the year ended December 31, 2016.

SS Incorporation
Production budget
For the year ended December 31, 2016
Particulars	Units
	Tables	Chairs
Sales (From sales budget)	30,000	120,000
Add: desired ending inventory, December 31	1,500	6,000
Total	31,500	126,000
Less: Estimated beginning inventory, January 1	1,000	4,000
Total production	30,500	122,000

Table (2)

3.

To determine

Prepare the direct material budget for the year ended December 31, 2016.

Explanation of Solution

Prepare the direct material budget for the year ended December 31, 2016.

SS Incorporation
Direct materials budget
For the year ended December 31, 2016
Particulars	Direct materials		Total
	Rattan (Yd.)	Binding cane (Yd.)
Quantities required for production:
Tables:
$\left(30,500\times 10\text{yd}\text{.}\right)$	305,000
$\left(30,500\times 6\text{yd}\text{.}\right)$		183,000
Chairs
$\left(122,000\times 6\text{yd}\text{.}\right)$	732,000
$\left(122,000\times 3\text{yd}\text{.}\right)$		366,000
Add: Desired ending inventory, December 31	51,000	25,500
Total	1,088,000	574,500
Less: Estimated beginning inventory, January 1	34,000	17,000
Total quantity to be purchased (A)	1,054,000	557,500
Unit price (B)	$5	$3
Total direct materials purchases $\left(\text{A}\times \text{B}\right)$	$5,270,000	$1,672,500	$6,942,500

Table (3)

4.

To determine

Prepare the direct labor budget for the year ended December 31, 2016.

Explanation of Solution

Prepare the direct labor budget for the year ended December 31, 2016.

SS Incorporation
Direct labor budget
For the year ended December 31, 2016
Particulars	Department		Total
	Molding	Finishing
Hours required for production:
Tables:
$\left(30,500\times 0.5\right)$	15,250
$\left(30,500\times 0.25\right)$		7,625
Truck tires:
$\left(122,000\times 0.25\right)$	30,500
$\left(122,000\times 0.10\right)$		12,200
Total (A)	45,750	19,825
Hourly rate (B)	$15	$13
Total direct labor cost $\left(\text{A}\times \text{B}\right)$	$688,250	$257,725	$943,975

Table (4)

5.

To determine

Prepare the factory overhead budget for the year ended December 31, 2016.

Explanation of Solution

Prepare the factory overhead budget for the year ended December 31, 2016.

SS Incorporation
Factory overhead budget
For the year ended December 31, 2016
Particulars	Amount ($)	Amount ($)
Indirect materials	98,500
Indirect labor	132,200
Depreciation of building and equipment	57,500
Power and light	92,200
Total factory overhead cost		$380,400

Table (5)

6.

To determine

Prepare the cost of goods sold budget for the year ended December 31, 2016.

Explanation of Solution

Prepare the cost of goods sold budget for the year ended December 31, 2016.

SS Incorporation
Cost of goods sold budget
For the year ended December 31, 2016
Particulars	Amount ($)	Amount ($)
Finished goods inventory, January 1		240,000
Direct materials inventory, January 1 (1)	221,000
Direct materials purchases	6,942,500
Total direct materials available	7,163,500
Less: Direct materials inventory, December 31 (2)	331,500
Cost of direct materials used	6,832,000
Direct labor	943,975
Factory overhead	380,400
Cost of goods manufactured		8,156,375
Cost of goods available for sale		8396,375
Less: Finished goods inventory, December 31		360,000
Cost of goods sold		8,036,375

Table (6)

Working note (1):

Calculate the amount of direct materials inventory as on January 1:

Particulars	Calculation	Amount ($)
Rattan	$\left(34,000\text{ lbs}\text{.}\times \$5\right)$	170,000
Binding care	$\left(17,000\text{ lbs}\text{.}\times \$3\right)$	51,000
Total		171,000

Table (7)

Working note (2):

Calculate the amount of direct materials inventory as on December 31:

Particulars	Calculation	Amount ($)
Rattan	$\left(51,000\text{ lbs}\text{.}\times \$5\right)$	120,000
Binding care	$\left(25,500\text{ lbs}\text{.}\times \$3\right)$	18,000
Total		171,000

Table (8)