Question

Thomas Inc. has gathered the following budgeting information for next year and has asked you to prepare their master budget. a. Sales for the final quarter of the prior year total 900 units. Expected sales in units) for the current year are: 810 (Quarter 1), 540 (Quarter 2), 720 (Quarter 3), and 720 (Quarter 4). Sales for the first quarter of the following year total 1,080 units. The selling price is $670 per unit in the first three quarters of the year, and $700 per unit in the final quarter. Company policy calls for a given quarter's ending finished goods inventory to equal 90% of the next quarter's expected unit sales. The finished goods inventory at the end of the prior year is 729 units, which complies with the policy. The product's manufacturing cost is $129 per unit, including per unit costs of $60 for materials (4 lbs. at $15 per lb.), $44 for direct $22 direct labor rate per hour). $17 for variable overhead, and $8 for fixed overhead. Annual fixed overhead consists, incurred evenly throughout the year, consist of depreciation on production equipment, $9,700; factory utilities, $12,100, and other factory overhead of $2,464. Company policy also calls for a given quarter's ending raw materials inventory to equal 50% of next quarter's expected materials needed for production. The prior year-end inventory is 1,134 lbs of materials, which complies with the policy. The company expects to have 2,160 lbs. of materials in inventory at year-end. The company has no work in process inventory at the end of any quarter. Sales representatives' commissions are 18% of sales and are paid in the quarter of the sales. The sales manager's quarterly salary will be $67,000 in the first three quarters of the year, and $71,000 in the final quarter. e. Quarterly general and administrative expenses include $28,000 administrative salaries, rent expense of $17,000 per quarter, insurance expense of $14,000 per quarter, straight- line depreciation of $14,000 per quarter, and 1% monthly interest on the $100,000 long-term note payable (12% annually). f. Income taxes will be assessed at 35%, and are paid in the quarter incurred.

Answer 1

Cost of goods sold budget
	First Quarter	Second	Third	Fourth	Total
Budgeted Sales (Units)	810	540	720	720	2790
Total Manufacturing Cost per unit	$            129.00	$              129.00	$                129.00	$          129.00	$                  129.00
Cost of goods sold	$    104,490.00	$        69,660.00	$          92,880.00	$    92,880.00	$          359,910.00

Budgeted Income Statement
Sales	$ 1,869,300.00
Cost of goods sold	$    359,910.00
Gross Profit	$ 1,509,390.00
Operating Expense:
Selling Expense	$    608,474.00
Administrative Expense	$    292,000.00
Interest Expense	$      12,000.00
Total Operating Expenses	$    912,474.00
Income before taxes	$    596,916.00
Income tax	$    208,920.60
Net Income	$    387,995.40

Working:

Budgeted Income Statement
	First Quarter	Second	Third	Fourth	Total
Sales	$    542,700.00	$      361,800.00	$        482,400.00	$ 482,400.00	$       1,869,300.00
Cost of goods sold	$    104,490.00	$        69,660.00	$          92,880.00	$    92,880.00	$          359,910.00
Gross Profit	$    438,210.00	$      292,140.00	$        389,520.00	$ 389,520.00	$       1,509,390.00
Operating Expense:
Selling Expense	$    164,686.00	$      132,124.00	$        153,832.00	$ 157,832.00	$          608,474.00
Administrative Expense	$      73,000.00	$        73,000.00	$          73,000.00	$    73,000.00	$          292,000.00
Interest Expense	$         3,000.00	$           3,000.00	$             3,000.00	$       3,000.00	$            12,000.00
Total Operating Expenses	$    240,686.00	$      208,124.00	$        229,832.00	$ 233,832.00	$          912,474.00
Income before taxes	$    197,524.00	$        84,016.00	$        159,688.00	$ 155,688.00	$          596,916.00
Income tax	$      69,133.40	$        29,405.60	$          55,890.80	$    54,490.80	$          208,920.60
Net Income	$    128,390.60	$        54,610.40	$        103,797.20	$ 101,197.20	$          387,995.40

If your answer for General administrative budget is incorrect then you can use the following budget, If it is correct then you can ignore it. I am providing this budget since in your answer you have not included interest expense. However it is mentioned that general administrative expenses include interest expense also.  

General and Administrative Budget
	First Quarter	Second	Third	Fourth	Total
Administrative Salaries	$      28,000.00	$        28,000.00	$          28,000.00	$    28,000.00	$          112,000.00
Rent Expenses	$      17,000.00	$        17,000.00	$          17,000.00	$    17,000.00	$            68,000.00
Insurance Expenses	$      14,000.00	$        14,000.00	$          14,000.00	$    14,000.00	$            56,000.00
Depreciation	$      14,000.00	$        14,000.00	$          14,000.00	$    14,000.00	$            56,000.00
Interest Expense	$         3,000.00	$           3,000.00	$             3,000.00	$       3,000.00	$            12,000.00
Total Budgeted general and administrative expenses	$      76,000.00	$        76,000.00	$          76,000.00	$    76,000.00	$          304,000.00