Question

In: Accounting

1A . Pargo Company is preparing its master budget for 2017. Relevant data pertaining to its...

1A . Pargo Company is preparing its master budget for 2017. Relevant data pertaining to its sales, production, and direct materials budgets are as follows.

Sales:Sales for the year are expected to total 1,000,000 units. Quarterly sales are 20%, 25%,25%,and 30% respectively.The sales price is expected to be $40 per unit for the first three quartersand $45 per unit beginning in the fourth quarter.Sales in the first quarter of 2018 are expected to be 20% higher than the budgeted sales for the first quarter of 2017.

Production:Management desires to maintain the ending finished goods inventories at 25% of the next quarter’s budgeted sales volume.

Direct materials:Each unit requires 2 pounds of raw materials at a cost of $12 per pound.Management desires to maintain raw materials inventories at 10% of the next quarter’s production requirements.Assume the production requirements for first quarter of 2018 are 450,000 pounds.

a) Prepare the sales, production, and direct materials budgets by quarters for 2017.

1B. Preparing its budgeted income statement for 2017 ( Using data from answer 1)

In addition, Pargo budgets 0.3 hours of direct labor per unit, labor costs at $15 per hour, and manufacturing overhead at $20 per direct labor hour. Its budgeted selling and administrative expenses for 2017 are $6,000,000.

a) Calculate the budgeted total unit cost

b) Prepare the budgeted multiple-step income statement for 2017. (Ignore income taxes)

Solutions

Expert Solution

1A

PARGO COMPANY
Sales Budget
For the Year 2017
Quarter 1 Quarter 2 Quarter 3 Quarter 4 Total
Budgeted sales in units 200000 250000 250000 300000 1000000
Unit selling price $ $          40 $          40 $          40 $          45
Total Sales $ 8000000 10000000 10000000 13500000 41500000
PARGO COMPANY
Production Budget
For the Year 2017
Quarter 1 Quarter 2 Quarter 3 Quarter 4 Total
Budgeted sales in units 200000 250000 250000 300000 1000000
Desired ending FG inventory as percent of following month's budgeted sales (units) 25% 25% 25% 25%
Budgeted ending inventory (units) 62500 62500 75000 60000 60000
Required production (units) 262500 312500 325000 360000 1060000
Less: Beginning inventory (units) 50000 62500 62500 75000 50000
Budgeted production in units 212500 250000 262500 285000 1010000
PARGO COMPANY
Direct Materials Budget
For the Year 2017
Quarter 1 Quarter 2 Quarter 3 Quarter 4 Total
Budgeted production / sales (units) 212500 250000 262500 285000 1010000
DM required per unit (pounds) 2 2 2 2 2
DM required for production 425000 500000 525000 570000 2020000
Ending DM inventory as percent of next quarter's production requirement 10% 10% 10% 10%
Budgeted ending inventory (pounds) 50000 52500 57000 45000 45000
Total DM required (pounds) 475000 552500 582000 615000 2065000
Beginning inventory (pounds) 42500 50000 52500 57000 42500
Materials to be purchased (pounds) 432500 502500 529500 558000 2022500
Material price per unit $ $    12.00 $    12.00 $    12.00 $    12.00 $    12.00
Total cost of direct material purchases $ 5190000 6030000 6354000 6696000 24270000

1B

PARGO COMPANY
Budgeted Income Statement
For the Year 2017
Sales 41500000
Cost of goods sold (1000000 x $34.50) 34500000
Gross profit 7000000
Selling and administrative expense 6000000
Net operating income $ 1000000
a) Budgeted total unit cost:
Direct materials (2 x $12) 24
Direct labor (0.3 x $15) 4.5
Manufacturing overhead (0.3 x $20) 6
Total unit cost $ 34.50

b)

PARGO COMPANY
Budgeted Multi-Step Income Statement
For the Year 2017
Sales 41500000
Cost of goods sold:
Cost of goods manufactured (1010000 x $34.50) 34845000
Add: Beginning finished goods inventory (50000 x $34.50) 1725000
Cost of goods available for sale 36570000
Less: Ending finished goods inventory (60000 x $34.50) 2070000
Cost of goods sold 34500000
Gross profit 7000000
Selling and administrative expense 6000000
Net operating income $ 1000000

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