Question

Sonic Inc. makes running shoes. The shoes are made out of specialized fabric, foam for cushioning, and rubber for the soles. Each pair of shoes is considered to be one unit. Sonic Inc. is currently preparing their budget for the next quarter (April, May, June). They believe they will sell 5,000 pairs of shoes over the next three months and that they will sell each pair for $ 87 each. They estimate that, on average, each pair of shoes will need 2.5 square feet (sqft) of fabric, 4 ounces of foam and .45 kilograms of rubber. Each pair of shoes should take 3.5 hours of direct manufacturing labor to make. They estimate that for the quarter, they will spend $3.20 on each sqft of fabric, $1.75 on each ounce of foam and $5.50 on each kilogram of rubber. They also estimate they will spend $148,750 on labor, $75,250 on variable manufacturing overhead, and $39,375 on fixed manufacturing overhead. On March 31st, their inventory accounts had these numbers: Fabric: $ 3,843 (1,220 sqft) Foam: $ 3,293 (1,850 ounces) Rubber: $ 1,233 (225 kilograms) Finished Goods: $ 26,532 (495 pairs of shoes) At the end of the quarter, they want these amounts in their ending inventory: Fabric: 1,300 sqft Foam: 1,800 ounces Rubber: 200 kilograms Finished Goods: 500 pairs of shoes Sonic Inc. uses the FIFO method to cost direct materials and finished goods inventory. For the purpose of this budget, the work-in-process inventories are considered to be negligible and ignored and the unit costs of direct materials purchased and finished goods are assumed to be constant for the period. With this information, please prepare these parts of the master budget for Sonic Inc. for the next quarter (April, May, June). a. The Revenues Budget (Schedule 1) b. The Production Budget (Schedule 2) c. The Direct Materials Usage Budget (Schedule 3a) d. The Direct Materials Purchases Budget (Schedule 3b) e. The Direct Manufacturing Labor Budget (Schedule 4) f. The Manufacturing Overhead Cost Budget (Schedule 5) g. The Ending Inventories Budget (Schedule 6A (units); Schedule 6B (dollars)) h. The Cost of Goods Sold Budget (Schedule 7)

Answer 1

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a. Revenue Budget
Pair of Shoes		5,000
Selling price per pair		$             87
Budgeted Revenue for quarter		$   435,000
b. Production Budget
Budgeted unit of sale		5,000
Add: Desired Ending Inventory		500
Total needs		5,500
Less: Beginning Inventory		-495
Budgeted Production in units		5,005
c. Direct Material usage budget
		Fabric	Foam	Rubber
Per unit of production need		2.50	4.00	0.45
Budgeted Production in units		5,005	5,005	5,005
Budgeted Direct material usage		12,513	20,020	2,252
d. Direct Material purchase budget
		Fabric	Foam	Rubber
Budgeted Direct material usage		12,513	20,020	2,252
Add: Desired Ending Inventory		1,300	1,800	200
Total needs		13,813	21,820	2,452
Less: Beginning Inventory		-1,220	-1,850	-225
Budgeted Purchases in units		12,593	19,970	2,227
Price per unit		3.20	1.75	5.50
Budgeted Purchases in $		$     40,296	$       34,948	$               12,250
e. Direct Manufacturing Labor Budget
Budgeted Production in units		5,005
Per unit takes Hours		3.50
Total Hours Needed		$     17,518
Per hour rate		$          8.49
Budgeted Labor Cost		$   148,750
f. Manufacturing overhead cost budget
Variable manufacturing overhead		$     75,250
Fixed Manufacturing overhead		$     39,275
Budgeted manufacturing overhead		$   114,525
Units Produced		5,005
Per unit overhead cost		$        22.88
g. Ending inventories budget
		No of Units	Per unit cost	Ending Inventory
Fabric		1,300	$            3.20	$                 4,160
Foam		1,800	$            1.75	$                 3,150
Rubber		200	$            5.50	$                 1,100
Finished Goods		500	$               70	$               35,036
h. Cost of Goods Sold Budget
		Units	Unit Cost	Per unit FG Cost
Fabric		2.50	$            3.20	$                   8.00
Foam		4.00	$            1.75	$                   7.00
Rubber		0.45	$            5.50	$                   2.48
Labor		3.50	$            8.49	$                 29.72
Manufacturing Overheads				$                 22.88
Cost of Goods Sold				$                 70.07
Units Sold				5,000
Total Cost of Goods Sold				$             350,361