Question

Sales Budget

XYZ Company 2018 sales forecast is as follows:

Quarter 1: 7,000 Product Ace units. Quarter 2: 9,000 Product Ace units. Quarter 3: 10,000 Product Ace units. Quarter 4: 12,000 Product Ace units

Each unit sells for $60

Production Budget

The January 1, 2018 beginning inventory of Product Ace is 4,000 units. Management desires an ending inventory each quarter equal to 30% of the next Quarter's sales. Sales in the first and second quarter of 2019 are expected to be 10% higher than sales in the same quarter in 2018.

Direct Materials Budget

Each unit requires 3 pounds of raw materials costing $1 per pound. On December 31, 2017 the ending raw materials inventory was 1,000 pounds. Management wants to have raw materials inventory at the end of each quarter equal to 15% of the next quarter's production requirements.

Direct Labor Budget

Each unit requires 2.5 hours of direct labor. Wage rates are expected to be $10 per hour for the year.

Manufacturing overhead budget

Relevant data consists of the following:

Variable overhead costs per direct labor hour: indirect materials: $0.90; indirect labor: $1.40; and maintenance: $0.60.

Fixed overhead costs per quarter: supervisory salaries: $30,000; depreciation: $10,000 and property taxes on factory: $15,000.

Round the predetermined overhead rate to two decimal places.

Selling and administrative expense budget

Variable costs per dollar of sales: sales commission 4%; delivery expense 1%; advertising 55; fixed costs per quarter: sales salaries $11,000; depreciation $3,000; insurance $1,500

Prepare each budget listed above by quarter and then prepare a budgeted income statement for the year 2018. Round the cost per unit to two decimal places. Round cost of goods sold to the nearest dollar assume interest expense to be $210,000. Assume the income tax rate to be 25%.

Answer 1

Sales Budget
Particulars	Quarter 1	Quarter 2	Quarter 3	Quarter 4	Total
Number of units	7000	9000	10000	12000	38000
Selling price per unit ($)	60	60	60	60
Sales ($)	420000	540000	600000	720000	2280000
Production Budget
Particulars	Quarter 1	Quarter 2	Quarter 3	Quarter 4	Total	Quarter 5
Opening stock (units)	4000	2100	2700	3000	11800	2310
Sales	7000	9000	10000	12000	38000	7700
Next quarter sales	7000	9000	10000	7700		9900
Closing stock (30% of next quarter sales)	2100	2700	3000	2310	10110	2970
Production (units) = Sales -opening+closing	5100	9600	10300	11310	36310	8360
Direct Materials Budget
Particulars	Quarter 1	Quarter 2	Quarter 3	Quarter 4	Total
Consumption (3 pounds per unit)	15300	28800	30900	33930	108930
Opening stock	1000	1440	1545	1696.5	5681.5
Closing stock	1440	1545	1696.5	1254	5935.5
Purchases = Consumption -Opening+closing (units)	15740	28905	31051.5	33487.5	109184
Purchases ($)	15740	28905	31051.5	33487.5	109184
Direct labour Budget
Particulars	Quarter 1	Quarter 2	Quarter 3	Quarter 4	Total
Number of labour hours (2.5 per unit)	12750	24000	25750	28275	90775
Wages ($10 per hour)	127500	240000	257500	282750	907750
Manufacturing overhead Budget
Particulars	Quarter 1	Quarter 2	Quarter 3	Quarter 4	Total
Variable overheads:
Labour hours	12750	24000	25750	28275
Indirect materials ($ 0.9 per labour hour)	11475	21600	23175	25447.5	81697.5
Indirect labour ($ 1.4 per labour hour)	17850	33600	36050	39585	127085
Maintenance ($ 0.6 per labour hour)	7650	14400	15450	16965	54465
Fixed overhead costs:
Supervisory salaries ($)	30000	30000	30000	30000	120000
Depreciation ($)	10000	10000	10000	10000	40000
Property taxes on factory	15000	15000	15000	15000	60000
Total overheads	91975	124600	129675	136997.5
Predetermined overhead rate (Overheads/Units)	18.03	12.98	12.59	12.11	483247.5
Selling and administrative expense budget
Particulars	Quarter 1	Quarter 2	Quarter 3	Quarter 4	Total
Variable costs:
Sales commission (4%)	16800	21600	24000	28800	91200
Delivery expense (1%)	4200	5400	6000	7200	22800
Advertising (55 per dollar)	231000	297000	330000	396000	1254000
Fixed costs:
Sales salaries ($)	11000	11000	11000	11000	44000
Depreciation ($)	3000	3000	3000	3000	12000
Insurance ($)	1500	1500	1500	1500	6000
					1430000
Budgeted income statement for the year 2018
Particulars	Amount ($)	Amount ($)
Sales		2280000.00
Less: Cost of goods sold:
Material cost	109184.00
Labour cost	907750.00	1016934.00
Stock adjustment: Closing stock - Opening stock = 5935-5681		-254.00
Manufacturing overheads
Variable overheads	263247.50
Fixed overheads	220000.00	483247.50
Selling and administrative overheads
Variable overheads	1368000.00
Fixed overheads	62000.00	1430000.00
Profit / -Loss		-649927.50