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	$	190			$	230
Sales (units)		12,000				9,000
Estimated beginning inventory (units)		410				130
Desired ending inventory (units)		300				200

	Direct Materials Information
	RM1				RM2				RM3
Cost per pound	$	4			$	3.50			$	0.50
Estimated beginning inventory in pounds		3,000				1,800				1,500
Desired ending inventory in pounds		4,100				1,500				2,000

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	$	7,000
Miscellaneous supplies and tools—variable		4,800
Indirect labor—variable		42,000
Supervision—fixed		110,000
Payroll taxes and fringe benefits—variable		200,000
Maintenance costs—fixed		15,000
Maintenance costs—variable		10,080
Depreciation—fixed		71,380
Heat, light, and power—fixed		43,440
Heat, light, and power—variable		15,000
Total	$	518,700

	Selling and Administrative Expense Information
Advertising	$	65,000
Sales salaries		190,000
Travel and entertainment		61,000
Depreciation—warehouse		4,900
Office salaries		63,000
Executive salaries		300,000
Supplies		4,100
Depreciation—office		5,500
Total	$	693,500

The effective income tax rate for the company is 30%.

Required:

1	SALES BUDGET	PRODUCT
			C12	D57	Total
	A	Unit Sales	12000	9000
	B	Sales Price	$190	$230
	C=A*B	Sales Revenue	$2,280,000	$2,070,000	$4,350,000
	2	PRODUCTION BUDGET
			PRODUCT
			C12	D57
	D	Unit sales	12000	9000
	E	Ending Inventory(Units)	300	200
	F	Beginning Inventory(Units)	410	130
	G=D+E-F	Budgeted Production in units	11890	9070
	3	DIRECT MATERIALS PURCHASE BUDGET
			PRODUCT
			C12	D57	Total
	G	Budgeted Production in units	11890	9070
		Raw Material RM1:
	H	Quantity required per unit(Pound)	10	8
	I=G*H	Total Quantity required (Pound)	118900	72560	191460
	J	Ending Inventory(Pounds)			4100
	K	Beginning Inventory(Pounds)			3000
	L=I+J-K	Budgeted Purchase of RM1			192560
	M	Cost Per Pound			$4
	N=L*M	Budgeted Purchase In dollars for RM1			$770,240
		Raw Material RM2:
		Quantity required per unit(Pound)	0	4
		Total Quantity required (Pound)	0	36280	36280
		Ending Inventory(Pounds)			1500
		Beginning Inventory(Pounds)			1800
		Budgeted Purchase of RM2			35980
		Cost Per Pound			$3.50
	P	Budgeted Purchase In dollars for RM2			$125,930
		Raw Material RM3:
		Quantity required per unit(Pound)	2	1
		Total Quantity required (Pound)	23780	9070	32850
		Ending Inventory(Pounds)			2000
		Beginning Inventory(Pounds)			1500
		Budgeted Purchase of RM3			33350
		Cost Per Pound			$0.50
	Q	Budgeted Purchase In dollars for RM3			$16,675
	R=N+P+Q	Total Budgeted Purchase of Direct Materials			$912,845
	4	DIRECT LABOR BUDGET
			PRODUCT
			C12	D57	Total
	G	Budgeted Production in units	11890	9070
	S	Direct Labor Hour per Unit	2	3
	T=G*S	Total Direct Labor Hour	23780	27210	50990
	U	Direct Labor Wage Rate			$25
	V=T*U	Budgeted Direct Labor Expenses			$1,274,750

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

Now calculated Factory OH Budget
Details
Variable OH	Amnt $
Indirect Material	7,000
Misc Supplies n tools	4,800
Indiect Labour	42,000
Payroll tax	2,00,000
Maintenance cost	10,080
Heat , light	15,000
Variable OH	2,78,880
Fixed OH
Supervision	1,10,000
Maintenance cost	15,000
Depreciation	71,380
Heat , light	43,440
Fixed OH	2,39,820
Total	5,18,700

Schedule - cost per unit - Product - C12
Cost	cost$/Pound	Unit	Cost$unit
RM1	4.00	10	40
RM2	3.50		-
RM3	0.50	2	1
Direct Labour	25	2	50
Variable factory oh	5.47	2	11
$278880/50990
Fixed factory oh	4.70	2	9
$239820/50990
Manufacturing cost/ Unit			111

Schedule - cost per unit - Product - D57
Cost	cost$/Pound	Unit	Cost$unit
RM1	4.00	8	32
RM2	3.50	4	14
RM3	0.50	1	1
Direct Labour	25	3	75
Variable factory oh	5	3	16
$278880/50990
Fixed factory oh	5	3	14
$239820/50990
Manufacturing cost/ Unit			152

Administrative expenses	Amnt $
Advertisement	65,000
Sales Salaries	1,90,000
Travel & Entertainment	61,000
Depreciation Warehouse	4,900
Total Selling cost	3,20,900
Office salaries	63,000
Executive salary	3,00,000
Supplies	4,100
Depreciation office	5,500
Total Admincost	3,72,600
Total Selling & Admin cost	6,93,500

Budgeted Cost of goods sold
	Prod	Prod	Total $
	c12	d57
Sales volume	12,000	9,000
Cost per unit ( as above)	111	152
Cost of goods sold	13,36,142	13,68,160	27,04,302
Desired Closing inventory	300	200
Cost per unit ( as above)	111	152
Budgeted ending inventory	33,404	30,404	63,807

Final Income Statement
	Prod	Prod	Total $
	c12 $	d57 $
Sale Value	22,80,000	20,70,000	43,50,000
Less
cost of goods sold	13,36,142	13,68,160	27,04,302
Gross Profit	9,43,858	7,01,840	16,45,698
Less
Selling and Admin			6,93,500
Net profit before tax			9,52,198
Tax @ 30%			2,85,659
Net profit			6,66,539