Question

Chapter 8-Budgetary Planning: Iguana, Inc., manufactures bamboo picture frames that sell for $25 each. Each frame requires 4 linear feet of bamboo, which costs $2.00 per foot. Each frame approximately 30 minutes to build, and the labor rate averages $12.00 per hour. Iguana has the following inventory policies 1-3 Ending finished goods inventory should be 40 percent of next month's sales. Ending raw materials inventory should be 30 percent of next month's production. . Expected unit sales (frames) for the upcoming months follow: 275 March 250 April May June July August 300 400 375 425 Variable manufacturing overhead is incurred at a rate of $0.30 per unit produced. Annual fixed manufacturing overhead is estimated to be $7,200 ($600 per month) for expected production of 4,000 units for the year. Selling and administrative expenses are estimated at $650 per month plus $0.60 per unit sold. Iguana, Inc., had $10,800 cash on hand on April 1. Of its sales, 80 percent is in cash. Of the credit sales, 50 percent is collected during the month of the sale, and 50 percent is collected during the month following the sale. Of raw materials purchases, 80 percent is paid for during the month purchased and 20 percent is paid in the following month. Raw materials purchases for March 1 totaled $2,000. All other operating costs are paid during the month incurred. Monthly fixed manufacturing overhead includes $150 in depreciation. During April, Iguana plans to pay $3,000 for a piece of equipment. Assume the company can borrow in increments of $1,000.00 to maintain a $10,000.00 minimum cash balance.

Answer 1

Requirement a: Prepare sales budget for the second quarter (April-June) as shown below: Sales Budget I Inc. Particulars April May June 2nd Quarter Total 950 $25 Sales units Selling price per unit 250 $25 300 $25 400 $25 Budgeted Sales Revenue $6,250 $7,500 $10,000 $23,750 Requirement b: Prepare Production budget for the second quarter (April-June) as shown below: Production Budget -I Inc. Particulars April May June 250 300 400 2nd Quarter Total 950 Sales units Add: Desired Ending Inventory (40% of next month sales) Less: Opening Inventory 120 100 160 120 150 160 430 380 Budgeted production in units 270 340 390 1,000

Requirement c: Prepare Raw Materials purchases budget for the second quarter (April-June) Raw Material Purchase Cost Budget - I Inc. Particulars April May June 2nd Quarter Total 1.000 Unit to Produce 270 340 390 Material needed per unit (In foot) Material needed for unit to produce 1,080 1,360 1.560 4.000 Add: Desired units of material in ending inventory (30% of next month production) Less: units of material in beginning inventory 408 474 324 408 468 324 Units of material to purchase Cost per feet 1164 $2.00 1420 $2.00 1566 $2.00 4150 $2.00 Budgeted cost of raw material purchases $2,328.00 $2,840.00 $3,132.00 $8,300.00

Requirement d: Prepare Direct Labor budget for the second quarter (April-June) as shown below: Budgeted direct labor cost-I Inc. Particulars April May June Unit to Produce Direct labor required per unit (in hrs) Required direct labor hours Labor rate 270 0.5 135 $12.00 340 0.5 170 S12.00 390 0.5 195 $12.00 2nd Quarter Total 1000 0.5 500 $12.00 Budgeted direct labor cost $1,620.00 $2,040.00 $2,340.00 $6,000.00 Requiremente: Prepare Manufacturing Overhead budget for the second quarter (April-June) as shown below: Budgeted manufacturing Overhead cost-I Inc. Particulars April May June Unit to Produce Variable Overhead rate Variable Manufacturing Overhead Fixed Overhead 270 340 390 $0.30 $0.30 $0.30 $81.00 $102.00 $117.00 $600.00 $600.00 $600.00 2nd Quarter Total 1000 $0.30 $300.00 $1,800.00 Budgeted manufacturing overhead $681.00 $702.00 $717.00 $2,100.00

Requirement f: Prepare Cost of Goods Sold budget for the second quarter (April-June) as shown below: Budgeted Cost of Goods Sold-I Inc. Particulars May June Unit sales (a) Unit Product cost (b) Budgeted Cost of Goods Sold (c=axb) April 250 $16.10 $4,025.00 300 $16.10 $4,830.00 400 $16.10 $6,440.00 2nd Quarter Total 950 $16.10 $15,295.00 Supporting calculation: Calculate Product Cost per unit as follows: Calculate Unit Product Cost - I Inc. Particulars Direct Material (4 feet $2) Direct labor (0.5 hrs. * $12 per hour) Variable manufacturing overhead Fixed manufacturing overhead ($7,200+ 4,000) Product Cost per unit Per Unit Cost $8.00 $6.00 $0.30 $1.80 $16.10

Requirement g: Prepare Selling and Administrative Expense budget for the second quarter (April June) as shown below: Budgeted Selling and Admin. Expense-I Inc. Particulars April Unit sales (a) 250 Variable Selling and admin. Rate (b) $0.60 Variable Selling and admin. Expenses (craxb) | $150.00 Add: Fixed Selling and admin. Expenses $650.00 Total Selling and admin. Expense $800.00 May June 300 400 $0.60 $0.60 $180.00 $240.00 $650.00 $650.00 $830.00 $890.00 2nd Quarter Total 950 $0.60 $570.00 $1,950.00 $2,520.00