Question

Babylon Corporation manufactures and sells a special tea called Black-Ceylon Tea (BCTea) which includes special teas coming from Turkey and Sri Lanka. The following data are available for preparing budgets for 2021.

- Sales: 420,000 packages of BCTea. Selling price is $30 per package.
- Direct materials: Each package of BCTea requires 2 pounds of Black Tea at a cost of $2 per pound and 3 pounds of Ceylon at $2.50 per pound.
- Desired inventory levels:
Type of Inventory                   January 1                     December 31
BCTea (packages)                  80,000                         120,000          
Black Tea (pounds)                90,000                         100,000          
Ceylon Tea (pounds)              130,000                       120,000          
- Direct labor: Direct labor time is 20 minutes per package at an hourly rate of $12 per hour.
- Selling and administrative expenses are expected to be 15% of sales revenue plus $250,000
- Income taxes are expected to be 30% of income from operations.

- The manufacturing overhead budget which is prepared by another managerial accountant shows that expected MOH costs will be 150% of direct labor cost.

a.) Prepare the Sales Budget of Babylon Corporation for 2021.

b.) Prepare the Production Budget of Babylon Corporation for 2021.

c.) Prepare the budgeted income statement for 2021. (Unit cost is the same for 2020 and 2021).

d.) Prepare a Flexible Selling and Administrative Expenses Budget for 2021 with the increments of 5,000 sales units for the expected range of 415,000 and 425,000 units.

e.) Prepare a Flexible Selling and Administrative Expenses Budget Report for 2021.

Actual sales amount is 430,000 units, actual selling price is $32 and actual information of S&A Expenses:

Variable: 15% of Actual Sales           Fixed: $260,000

Answer 1