Question

Spring Manufacturing Company makes two components identified as C12 and D57. Selected budgetary data for 2019 follow:

	Finished Components
	C12				D57
Requirements for each finished component:
RM 1		10	pounds			8	pounds
RM 2		0				4	pounds
RM 3		2	pounds			1	pound
Direct labor		2	hours			3	hours
Product information:
Sales price	$	200			$	220
Sales (units)		12,000				9,000
Estimated beginning inventory (units)		430				160
Desired ending inventory (units)		300				200

	Direct Materials Information
	RM1				RM2				RM3
Cost per pound	$	4			$	3.50			$	0.50
Estimated beginning inventory in pounds		2,500				1,000				500
Desired ending inventory in pounds		4,500				1,500				2,000

The firm expects the average wage rate to be $25 per hour in 2019. Spring Manufacturing uses direct labor hours to apply overhead. Each year the firm determines the overhead application rate for the year based on budgeted direct labor hours for the year. The firm maintains negligible Work-in-Process Inventory and expects the cost per unit for both beginning and ending inventories of finished products to be identical.

	Factory Overhead Information
Indirect materials—variable	$	11,000
Miscellaneous supplies and tools—variable		4,900
Indirect labor—variable		45,000
Supervision—fixed		160,000
Payroll taxes and fringe benefits—variable		200,000
Maintenance costs—fixed		24,000
Maintenance costs—variable		10,090
Depreciation—fixed		71,320
Heat, light, and power—fixed		43,400
Heat, light, and power—variable		12,000
Total	$	581,710

	Selling and Administrative Expense Information
Advertising	$	56,000
Sales salaries		180,000
Travel and entertainment		64,000
Depreciation—warehouse		5,400
Office salaries		64,000
Executive salaries		230,000
Supplies		4,100
Depreciation—office		6,300
Total	$	609,800

The effective income tax rate for the company is 30%.

Required:

1. Prepare the Sales budget for 2019.

2. Prepare the Production budget for 2019.

3. Prepare the Direct materials purchases budget (units and dollars) for 2019.

4. Prepare the Direct labor budget for 2019.

5. Prepare the Factory overhead budget for 2019.

6. Prepare the Cost of goods sold and ending finished goods inventory budgets for 2019.

7. Prepare the Selling and administrative expense budget, broken down into two components: Selling Expenses, and Administrative Expenses for 2019.

8. Prepare the Budgeted income statement, the last item of which is labeled After-tax Operating Income for 2019.

Answer 1

Sales budget
	C12	D57	Year End
Sales in units	12000	9000	21000
Selling Price per unit	150	220
Gross Sales	1800000	1980000	3780000
Production Budget
	C12	D57	Year End
Budgeted Sales (Units)	12000	9000	21000
Add: Desired ending inventory of finished units	300	200	200
Total units needed	12300	9200	21200
Less: Beginning inventory of finished units	400	150	400
Budgeted production units	11900	9050	20800
Direct material purchase budget (Units and Dollars)
Production requirement	C12	D57	Year End
Budgeted Production	11900	9050	20950
Pounds of RM per Unit
RM1	10	8	18
RM2	0	4	4
RM3	2	1	3
RM1	119000	72400	191400
RM2	0	36200	36200
RM3	23800	9050	32850
Total pounds of RM needed	142800	117650	260450
RM 1	C12	D57	Total
Budgeted Production	11900	9050	20950
Pounds per unit	10	8
	119000	72400	191400
Add:Desired ending inventory			4000
Total RM 1 needed			195400
Less:Beginning Inventory			3000
Required Purhases or RM 1			192400
Cost per pound			2
Budgeted purchases RM1			384800
RM 2	C12	D57	Total
Budgeted Production	11900	9050	20950
Pounds per unit	0	4
Total RM 2 needed	0	36200	36200
Add:Desired ending inventory			1000
Total RM 2 needed			37200
Less:Beginning Inventory			1500
Required Purhases or RM 2			35700
Cost per pound			2.5
Budgeted purchases RM2			89250
RM3	C12	D57	Total
Budgeted Production	11900	9050	20950
Pounds per unit	2	1
Total RM 3 needed	23800	9050	32850
Add:Desired ending inventory			1500
Total RM 3 needed			34350
Less:Beginning Inventory			1000
Required Purhases or RM 3			33350
Cost per pound			0.5
Budgeted purchases RM2			16675
Direct labor budget
Bariable Over head
Indirect Materials	10000
Misc Supplies and tools	5000
Indirect Labor	40000
payrol taxes fringe benefits	250000
maintenance costs	10080
Heat light and power	11000	326080
Fixed over head
Supervision	120000
maintenance costs	20000
Heat llight and power	43420
Total Cash Fixed Factory	183420
Depriciation	71330	254750
Total Budget Factory Over head		580830
Cost of goods sold and ending inventory budget
	C12	D57	Total
Sales Volume	12000	9000	21000
Cost per unit	94	136
Cost of Goods sold	1125600	1221300	2346900
Finished goods ending inventory	300	200
Cost per unit	94	136
Budgeted ending Inventories	28140	27140	55280
Cost per unit C12
Costs	Unit input cost	Quantity	Cost per unit
RM1	2	10	20
RM2	2.5	0	0
RM3	0.5	2	1
Direct Labor	25	2	50
Factory OH	6.4	2	12.8
Fixed OH	5	2	10
Manufacturing Cost per unit			93.8
Cost per unit D57
Costs	Unit input cost	Quantity	Cost per unit
RM1	2	8	16
RM2	2.5	4	10
RM3	0.5	1	0.5
Direct Labor	25	3	75
Factory OH	6.4	3	19.2
Fixed OH	5	3	15
Manufacturing Cost per unit			135.7
Selling and administrative expense budget
Selling expense
Advertising	60000
Sales salaries	200000
travel and equipment	60000
depriciation	5000	325000
Administrative expenses
Office salaries	60000
execuitve salaries	250000
supplies	4000
depriciation	6000	320000
total selling/ admin expense		645000
Budgeted Income statement
Sales		3780000
COGS		2346900
Gross profit		1433100
Selling and administrative expense		645000
Pre-tax operaing Income		788100
Income Taxes @ 40%		315240
Net Income		472860