Question

The budget director for Bird House Unlimited, Inc., has gathered the following data for use in developing the budgeted income statement for January 2 Estimated sales for January Bird House 34,000 units at $42 per unit Bird Feeder 25,000 units at $70 per unit Direct materials Estimated inventories at January 1(beginning) Wood 2600 feet Plastic 3200 pounds Estimated inventories at January 31st(ending) Wood 3500 feet Plastic 2800 pounds Direct materials used in production: In the manufacture of a Bird House: Wood Plastic 0.80 feet per unit of product 0.50 pounds per unit of product 1.20 feet per unit of product 0.75 pounds per unit of product In the manufacture of a Bird Feeder: Wood Plastic Estimated cost of direct materials Wood Plastic S6.50 per feet $0.90 per pound Work in process-given in total of the 2 products Estimated Inventories at January 1(beginning) Estimated Inventories at January 31st(ending) $27,000 $32,400 Finished Goods Estimated inventories at January 1(beginning) Bird House Bird Feeder 4900 units 2,500 units at at $25 per unit $35 per unit Estimated inventories at January 31st(ending) Bird House Bird Feeder 5300 units 2,100 units at at $24 per unit $36 per unit Direct Labor Requirements: Bird House Fabrication Department Assembly Department 0.25 hour 0.3 hour at at $14 per hour $10 per hour Bird Feeder at Fabrication Department Assembly Department 0.45 hour 0.35 hour $14 per hour $10 per hour

Answer 1

6. budgeted cost of goods sold

	bird house (1)	bird feeder (2)	(1) + (2)
direct materials	176,800	195000	371,800
	15,300	16875	32,175	32,175
direct labor	119,000	157500	276,500
	102,000	87500	189,500	466,000
manufacturing overhead
indirect factory wages				550,000
depreciation of plant and equipment				165,000
power and light				42,000
insurance and property tax				15,400
add: beginning work in progress inventory				27,000
less: ending work in progress inventoy				(32,400)
cost of good manufactured				1,265,175
office salaries expenses				214,800
depreciation - office equipment				4,900
telephone expense - administrative				1,700
office supplies expense				3,500
miscellaneous administrative expenses				5,000
add: opening finished goods inventory	122,500	87500		210,000
less: closing finished goods inventory	(127,200)	-75600		(202,800)
cost of production of goods sold				1,502,275
sales salaries expense				600,000
advertising expense				148,600
telephone expense- selling				5,200
travel expense - selling				39,200
cost of goods sold				2,295,275

7.

budgeted selling and administrative expenses budget
expected sales in unit	34,000	25000
variable selling and administrative expenses	nil
budgeted variable expenses	nil
fixed selling expenses
sales salaries expenses	600,000
advertising expenses	148,600
telephone expense - selling	5,200
travel expense - selling	39,200
total selling expenses	793,000
fixed administrative expenses
office salaries expense	214,800
depreciation expense - office equipment	4,900
telephone expense -administrative	1,700
office supplies expense	3,500
miscellaneous administrative expenses	5,000
total administrative expenses	229,900
total selling and administrative expenses	1,022,900

8. budgeted income statement

revenue	3,178,000
less: cost of goods manufactured	1,265,175
gross profit	4,443,175
less: operating expenses
sales salaries expenses	600,000
advertising expenses	148,600
telephone expense - selling	5,200
travel expense - selling	39,200
office salaries expense	214,800
depreciation expense - office equipment	4,900
telephone expense -administrative	1,700
office supplies expense	3,500
miscellaneous administrative expenses	5,000
operating income	3,420,275
less: non operating expenses
interest expense	11,000
add: non operating income
interest revenue	14,000
net income before taxes	3,423,275
less: tax expenses @ 32%	1,095,448
net income after taxes	2,327,827

9. When the advertising expenses increases to $180,000 and the estimated sales changes to 36,000 for bird house and 29,000 for bird feeder, the following are the new amounts obtained,

cost of goods sold = $ 2,382,475

total selling and administrative expenses = $ 1,054,300

budgeted net income = $ 2,344,419

All three budgets change by making these changes. The new income will increase by $16,592. The advertising strategy can be adopted since it increases the estimated sales and increases the net income. Hence, yes, I will recommend this advertising strategy.