Question

FreshPak Corporation manufactures two types of cardboard boxes used in shipping canned food, fruit, and vegetables. The canned food box (type C) and the perishable food box (type P) have the following material and labor requirements.

		Type of Box
	C				P
Direct material required per 100 boxes:
Paperboard ($0.28 per pound)		50	pounds			90	pounds
Corrugating medium ($0.14 per pound)		40	pounds			50	pounds
Direct labor required per 100 boxes ($14.00 per hour)		0.20	hour			0.40	hour

The following production-overhead costs are anticipated for the next year. The predetermined overhead rate is based on a production volume of 465,000 units for each type of box. Production overhead is applied on the basis of direct-labor hours.

Indirect material	$	14,100
Indirect labor		66,470
Utilities		45,000
Property taxes		30,000
Insurance		23,000
Depreciation		53,000
Total	$	231,570

The following selling and administrative expenses are anticipated for the next year.

Salaries and fringe benefits of sales personnel	$	135,000
Advertising		30,000
Management salaries and fringe benefits		150,000
Clerical wages and fringe benefits		46,500
Miscellaneous administrative expenses		7,500
Total	$	369,000

The sales forecast for the next year is as follows:

	Sales Volume				Sales Price
Box type C		470,000	boxes		$	140.00	per hundred boxes
Box type P		470,000	boxes			200.00	per hundred boxes

The following inventory information is available for the next year. The unit production costs for each product are expected to be the same this year and next year.

	Expected Inventory January 1			Desired Ending Inventory December 31
Finished goods:
Box type C	14,500	boxes		9,500	boxes
Box type P	24,500	boxes		19,500	boxes
Raw material:
Paperboard	15,500	pounds		5,500	pounds
Corrugating medium	6,500	pounds		11,500	pounds

7. Prepare the budgeted income statement for the next year. (Do not round intermediate calculations.)

Prepare a master budget for FreshPak Corporation for the next year. Assume an income tax rate of 40 percent.

7. Prepare the budgeted income statement for the next year. (Do not round intermediate calculations.)

Answer 1

7.

FreshPak Corporation Budgeted Income Statement For Next Year
	Box C	Box P	Total
Sales Revenue	$ 658,000	$ 940,000	$ 1,598,000
Less: Cost of Goods Sold
Direct materials	92,120	151,340	243,460
Direct labor	13,160	26,320	39,480
Production overhead	78,020	156,040	234,060
Cost of Goods Sold	183,300	333,700	517,000
Gross Margin	474,700	606,300	1,081,000
Selling and Administrative Expenses
Salaries and fringe benefits of sales personnel			135,000
Advertising expense			30,000
Management salaries and fringe benefits			150,000
Clerical wages and fringe benefits			46,500
Misc. advertising expenses			7,500
Total selling and administrative expenses			369,000
Income from operations			712,000
Income Tax @ 40 %			284,800
Net Income			$427,200

Predetermined overhead rate = Estimated Total Production Overhead / Total Estimated Direct Labor Hours = $ 231,570 / ( 4,650 x 0.20 + 4,650 x 0.40) = $ 83 per direct labor hour.

Sales Budget
	Sales Volume	Unit Sales Price	Sales Revenue
Box C	470,000	$ 1.40	$ 658,000
Box P	470,000	$ 2.00	940,000
Total Sales Revenue			$ 1,598,000