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 $ 180 $ 240 Sales (units) 12,000 9,000 Estimated beginning inventory (units) 450 190 Desired ending inventory (units) 300 200 Direct Materials Information RM1 RM2 RM3 Cost per pound $ 2 $ 1.50 $ 0.50 Estimated beginning inventory in pounds 2,900 2,000 700 Desired ending inventory in pounds 3,800 1,100 1,900 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 $ 10,000 Miscellaneous supplies and tools—variable 5,100 Indirect labor—variable 42,000 Supervision—fixed 160,000 Payroll taxes and fringe benefits—variable 220,000 Maintenance costs—fixed 17,000 Maintenance costs—variable 10,040 Depreciation—fixed 71,310 Heat, light, and power—fixed 43,450 Heat, light, and power—variable 9,000 Total $ 587,900 Selling and Administrative Expense Information Advertising $ 57,000 Sales salaries 220,000 Travel and entertainment 63,000 Depreciation—warehouse 4,800 Office salaries 61,000 Executive salaries 260,000 Supplies 3,700 Depreciation—office 6,000 Total $ 675,500 The effective income tax rate for the company is 30%. Required: 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

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1. Sales Budget
		C12	D57	Total
Budgeted Units		12,000.00	9,000.00
Selling Price		$                                 180	$                            240
Budgeted Sale		$                      2,160,000	$                 2,160,000	$        4,320,000
2. Production Budget
		C12	D57
Budgeted Sale Units		12,000.0	9,000.0
Add: Desired Ending Inventory		300.0	200.0
Total needs		12,300.0	9,200.0
Less: Beginning Inventory		-450.0	-190.0
Budgeted Production		11,850.0	9,010.0
3. Material Purchase Budget
		RM 1			RM 2			RM 3
		C12	D57	Total	C12	D57	Total	C12	D57	Total
Budgeted Production		11,850	9,010		11,850	9,010		11,850	9,010
Per Unit material Needed		10	8		-	4		2	1
Total Material need for Budgeted Production		118,500	72,080	190,580	-	36,040	36,040	23,700	9,010	32,710
Add: Desired Ending Inventory				3,800			1,100			$    1,900
Total needs				194,380			37,140			34,610
Less: Beginning Inventory				-2,900			-2,000			$      -700
Budgeted Purchases				191,480			35,140			33,910
Cost per Pound				$                  2.00			$                            1.50			$      0.50
Budgeted Total Purchase				$           382,960			$                        52,710			$ 16,955
4. Direct Labor Budget
		C12	D57	Total
Budgeted Production		11,850	9,010
Hours Per Unit		2.00	3.00
Total Hours needed for Budgeted Production		$                           23,700	$                      27,030	$             50,730
Per Hour Cost				$                     25
Budgeted Direct Labor Cost				$        1,268,250
5. Factory Overhead Budget
Variable Overheads:
Indirect Material-Variable		$                           10,000
Misc Supplies and Tools_Variable		$                             5,100
Indirect Labor-Variable		$                           42,000
Payroll Taxes and Fringe Benefit		$                         220,000
Maintenance		$                           10,040
Heat Power and Light		$                             9,000
Total Variable Overheads			$                    296,140
Fixed Overheads:
Supervision		$                         160,000
Maintenance		$                           17,000
Depreciation		$                           71,310
Heat Power and Light		$                           43,450
Total Fixed Overheads			$                    291,760
Total Overheads			$                    587,900
Budgeted Direct Labor Hours			50,730.00
Predetermined Overhead Rates			$                        11.59
6. Cost of Goods Sold Budget		C12				D57
		Input per unit of Output	Cost per unit of Input	Cost per Output		Input per unit of Output	Cost per unit of Input	Cost per Output
Material-RM1		10.00	$                           2.00	$               20.00		8.00	$                            2.00	$                 16.00
Material-RM2		-	$                           1.50	$                      -		4.00	$                            1.50	$                   6.00
Material-RM3		2.00	$                           0.50	$                  1.00		1.00	$                            0.50	$                   0.50
Direct Labor		2.00	$                              25	$               50.00		3.00	$                               25	$                 75.00
Overheads (11.59 per hour)		2.00	$                         11.59	$               23.18		3.00	$                          11.59	$                 34.77
Cost of Goods Sold				$               94.18				$              132.27
Units Sold				12,000				9,000
Total Cost of Goods Sold				1,130,160				1,190,430
Ending Inventory Budget:
		C12	D57	RM1	RM2	RM3
Ending Inventory Units		300.00	200.00	3,800.00	1,100.00	1,900.00
Cost per Unit		$                             94.18	$                      132.27	$                  2.00	$       1.50	$                                 0.50
Ending Inventory $		$                           28,254	$                      26,454	$               7,600	$     1,650	$                                  950
7. Selling and Administrative Budget
Selling Expenses:
Advertising		$                           57,000
Sales Salaries		$                         220,000
Depreciation-Warehouse		$                             4,800
Travel and Entertainment		$                           63,000
Total Selling Expenses			$                    344,800
Admin Expenses:
Office Salaries		$                           61,000
Executive Salaries		$                         260,000
Supplies		$                             3,700
Depreciation Office		$                             6,000
Total Admin Expenses			$                    330,700
Budgeted Selling and Admin Expenses			$                    675,500
8. Budgeted Income Statement:
Sales			$                 4,320,000
Less: Cost of Goods Sold			$                 2,320,590
Gross Margin			$                 1,999,410
Less: Operating Expense
Selling Expenses		$                         344,800
Admin Expense		$                         330,700
Total Operating Expense			$                    675,500
Income before Tax			$                 1,323,910
Less: Income Tax Assuming 40%			$                    529,564
Operating Income aftar Tax			$                    794,346