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			$	210
Sales (units)		12,000				12,000
Estimated beginning inventory (units)		420				110
Desired ending inventory (units)		300				200

	Direct Materials Information
	RM1				RM2				RM3
Cost per pound	$	6			$	3.50			$	0.50
Estimated beginning inventory in pounds		3,200				1,200				1,300
Desired ending inventory in pounds		3,600				1,300				1,200

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	$	12,000
Miscellaneous supplies and tools—variable		4,500
Indirect labor—variable		45,000
Supervision—fixed		120,000
Payroll taxes and fringe benefits—variable		210,000
Maintenance costs—fixed		16,000
Maintenance costs—variable		10,090
Depreciation—fixed		71,350
Heat, light, and power—fixed		43,390
Heat, light, and power—variable		15,000
Total	$	547,330

	Selling and Administrative Expense Information
Advertising	$	57,000
Sales salaries		210,000
Travel and entertainment		63,000
Depreciation—warehouse		5,000
Office salaries		59,000
Executive salaries		280,000
Supplies		4,500
Depreciation—office		6,300
Total	$	684,800

The effective income tax rate for the company is 50%.

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