Question

Wesley Power Tools manufactures a wide variety of tools and accessories. One of its more popular items is a cordless power handisaw. Each handisaw sells for $44. Wesley expects the following unit sales: January 2,000 February 2,200 March 2,700 April 2,500 May 1,900 Wesley’s ending finished goods inventory policy is 30 percent of the next month’s sales. Suppose each handisaw takes approximately 0.75 hours to manufacture, and Wesley pays an average labor wage of $18 per hour. Each handisaw requires a plastic housing that Wesley purchases from a supplier at a cost of $7.00 each. The company has an ending direct materials inventory policy of 25 percent of the following month’s production requirements. Materials other than the housing unit total $4.50 per handisaw. Manufacturing overhead for this product includes $72,000 annual fixed overhead (based on production of 27,000 units) and $1.20 per unit variable manufacturing overhead. Wesley’s selling expenses are 7 percent of sales dollars, and administrative expenses are fixed at $18,000 per month.

Compute the following for the first quarter: (Round your intermediate calculations to nearest whole dollar.)
1. Compute the budgeted cost of goods sold for the first quarter.
2. Compute the budgeted selling and administrative expenses for the first quarter.
3. Complete the budgeted income statement for the handisaw product for the first quarter.

Answer 1

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Budgeted Cost of Goods Sold:
		Input Units	Rate	Total Cost per Unit of Handisaw
Direct Labor		0.75	$          18.00	$                                                     13.50
Plastic Housing				$                                                       7.00
Other Material				$                                                       4.50
Variable Overheads				$                                                       1.20
Fixed Overheads				$                                                       2.67
$72,000/27,000 Units
Budgeted Cost of Goods Sold per unit	a			$                                                     28.87
		Jan	Feb	March	Total
Units Sold in Q1	b	2,000	2,200	2,700
Budgeted Cost of Goods Sold	a*b	$        57,733	$        63,507	$                                                   77,940	$      199,180
Budgeted selling and Admin Expenses:
		Jan	Feb	Mar	Total
Sales Dollar		$        88,000	$        96,800	$                                                118,800	$      303,600
Variable selling and admin	7% of Sale	$          6,160	$          6,776	$                                                     8,316	$        21,252
Fixed Selling and Admin		$        18,000	$        18,000	$                                                   18,000	$        54,000
Budgeted selling and Admin		$        24,160	$        24,776	$                                                   26,316	$        75,252
Budgeted Income Statement:
	Jan	Feb	Mar	Total
Sales Revenue	$       88,000	$        96,800	$      118,800	$                                                303,600
Less: Cost of Goods Sold	$      -57,733	$      -63,507	$      -77,940	$                                               -199,180
Gross Margin	$       30,267	$        33,293	$        40,860	$                                                104,420
Less: Selling and Admin Expenses	$      -24,160	$      -24,776	$      -26,316	$                                                 -75,252
Net Income	$          6,107	$          8,517	$        14,544	$                                                   29,168