Question

Larussa Inc. is preparing its annual budgets for the year ending December 31, 2011. Accounting assistants furnish the data shown

                                         

Sales budget:                                                                                              Product 4

• Anticipated volume in units                                                                450,000

• Unit selling price                                                                                   $25

• Quarterly sale units are 20%, 25%, 30%, and 25% respectively.

Production budget:

• Desired ending finished goods units                                                     30,000

• Beginning finished goods units                                                             20,000

• Quarterly ending finished goods units and beginning finished goods units are 25% each quarters.

Direct materials budget:

• Direct materials per unit (pounds)                                                             2.5

• Desired ending direct materials pounds                                                  50000

• Beginning direct materials pounds                                                          40000

• Cost per pound                                                                                         $2

• Quarterly Desired ending direct materials and beginning desired direct materials are 25% each quarters.

Direct labor budget:

• Direct labor time per unit                                                                            0.5

• Direct labor rate per hour                                                                           $12

Budgeted income statement:

• Total unit cost                                                                                            $11

An accounting assistant has prepared the detailed manufacturing overhead budget and the selling and administrative expense budget. The latter shows selling expenses of $750,000 and administrative expenses of $ 420,000 for product 4. Income taxes are expected to be 30%.

Instructions

Prepare the following budgets for the year. Show data for each product. You need to prepare quarterly budgets.

(a) Sales.

(b) Production.

(c) Direct materials.

(d) Direct labor.

(e) Income statement.

Answer 1

(a)

Sales Budget
	Quarter 1	Quarter 2	Quarter 3	Quarter 4	Year
Budgeted Sales Units	90000	112500	135000	112500	450000
Sales Prices	$                 25	$                 25	$                  25	$                 25
Budgeted Sales	$   2,250,000	$   2,812,500	$    3,375,000	$   2,812,500	$ 11,250,000

(b)

Production Budget
	Quarter 1	Quarter 2	Quarter 3	Quarter 4	Year
Sales units	90000	112500	135000	112500	450000
Add : Desired Ending Inventory	28125	33750	28125	30000	30000
Total Goods Required	118125	146250	163125	142500	480000
Less : Beginning Inventory	20000	28125	33750	28125	20000
Production Required	98125	118125	129375	114375	460000

(c)

Direct Material Budget
	Quarter 1	Quarter 2	Quarter 3	Quarter 4	Year
Production Required	98125	118125	129375	114375	460000
Raw Material Per unit	2.5	2.5	2.5	2.5	2.5
Raw Material for Production	245312.5	295312.5	323437.5	285937.5	1150000
Add : Desired Ending Inventory	73828.125	80859.375	71484.375	50000	50000
Total Needs	319140.625	376171.875	394921.875	335937.5	1200000
Less : Beginning Inventory	40000	73828.125	80859.375	71484.375	40000
Material to be purchased	279140.625	302343.75	314062.5	264453.125	1160000
Rate per pound	$             2.00	$             2.00	$              2.00	$             2.00
Purchase Cost	$ 558,281.25	$ 604,687.50	$ 628,125.00	$ 528,906.25	$    2,320,000

(d)

Direct Labor Budget
	Quarter 1	Quarter 2	Quarter 3	Quarter 4	Year
Production Required	98125	118125	129375	114375	460000
Hours per unit	0.5	0.5	0.5	0.5	0.5
Total Hours Required	49062.5	59062.5	64687.5	57187.5	230000
Direct labor rate per hour	$           12.00	$           12.00	$            12.00	$           12.00	$           12.00
Total Direct Labor Cost	$      588,750	$       708,750	$       776,250	$      686,250	$   2,760,000

(e)

Income Statement
Sales Revenue	$ 11,250,000
Cost of Goods Sold	$   4,950,000
Gross Profit	$   6,300,000
Selling and administrative:
Selling Expenses	$       750,000
Administrative expenses	$       420,000
Net Operating Income	$   5,130,000
Income Tax Expense	$   1,539,000
Net Income	$   3,591,000