In: Accounting
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)
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 |