Question

Betty’s Beautiful Baskets

Betty’s Beautiful Baskets, a manufacturing business that sells baskets, wants a master budget prepared for the first three months of this year (January, February and March).

The managers of the different departments have provided the following information:

The Sales Manager has projected the following sales:

January           5,000 units

February         4,000 units

March              6,000 units

April               5,000 units

May              11,250 units

Projected selling price is $35.00/unit

Your Production Manager gave the following information:

Ending Inventory is to be 20% of next month’s production needs

April’s Projected Sales 5,000 units

December 20X5 Ending Inventory was 1,000 units and December unit cost was $23.50.

The Manufacturing Manager has estimated the following:

Each unit will require 4 grams of material

Material in Ending Inventory is 20% of next month’s needs

December’s Ending Material Inventory was 4,800 g

Projected cost of material: $2.50/gram

The Personnel Manager has estimated that Direct Labor will be projected at:

0.75 hours of Direct Labor per unit

Direct Labor Cost: $8.50/hour

The Facilities Manager has estimated that the Manufacturing Overhead will be projected at:

Variable Overhead Rate to be $8 per Direct Labor hours

Fixed Overhead Rate to be $3,000 per month

The Accounting Department Manager has provided the following information:

Selling and Administrative Expenses are projected to be a monthly cost of:

Salaries               $6,000

Rent                     $1,500

Advertising          $1,100

Telephone              $300

Other                       $500

Cash Receivable:

December’s Sales were $150,000

80% of sales is collected in the month in which they were made

20% of sales collected in the following month in which they were made

Bad Debts is negligible

Accounts Payable:

80% of Payables is paid for in the current month

20% of Payables is paid for in the following month

December’s purchases were $50,000

Federal Income Tax is estimated at 22% average.

Betty’s Beautiful Baskets

has a $20,000 cash balance for the beginning of January

pays Dividends of $8,000 to be paid in March

pays projected Federal Income tax in March

depreciation on the building is $150 per month

does not carry any WIP inventory

uses FIFO inventory costing

From the beginning Balance Sheet:

Land = $150,000

Building = $45,000

Depreciation (Building) = $11,250

Retained Earnings = $58,780

Capital Stock = $200,470

For the Master Budget, you are expected to prepare the following:

Sales budget plus schedule of accounts receivable collections

Production budget

Direct materials budget and schedule of cash payments for purchases

Direct labor budget

Manufacturing overhead budget

Cost of Goods Sold Budget

Selling & Administrative Expenses Budget

Budgeted income statements

Cash budget

Budgeted balance sheet for each month plus a beginning balance sheet

When you prepare the cost of goods sold budget, you must calculate a unit cost for each month. You must also calculate cost of goods manufactured. Remember, there is no Work in Process inventory but you must calculate direct materials used.

Answer 1

Sales Budget
	January	February	March	Total
Unit Sales	5000	4000	6000	15000
Unit selling price	35	35	35	35
Budgeted Sales	175000	140000	210000	525000
Schedule of collections:
	January	February	March	Total
Budgeted Sales	175000	140000	210000	525000
Collections:
December sales	30000			30000
January Sales	140000	35000		175000
February Sales		112000	28000	140000
March Saes			168000	168000
Total Collections	170000	147000	196000	513000
Receivables	35000	28000	42000	42000
Production Budget
	January	February	March	Total	April
Budgeted Sales Units	5000	4000	6000	15000	5000
Add: Ending inventory	800	1200	1000	1000	2250
(20% of next month's sales)
Units required	5800	5200	7000	16000	7250
Less: Beginning Inventory	1000	800	1200	1000	1000
Budgeted Production units	4800	4400	5800	15000	6250
Material Purchase Budget
	January	February	March	Total	April
Budgeted Production units	4800	4400	5800	15000	6250
Material per unit (gms)	4	4	4	4	4
Material required for production (gms)	19200	17600	23200	60000	25000
Add: Endinginventory (gms)	3520	4640	5000	5000
(20%of next month's reuirement)
Total material required (gms)	22720	22240	28200	65000
Less: Beginning Inventory   (gms)	4800	3520	4640	4800
Budgeted material purchases( gms)	17920	18720	23560	60200
Cost per gram of material ($)	2.5	2.5	2.5	2.5
Budgeted material purchases ($)	44800	46800	58900	150500
Schedule of payments for material
	January	February	March	Total
Budgeted Purchases ($)	44800	46800	58900	150500
Payments:
December purchases	10000			10000
January purchases	35840	8960		44800
February purchases		37440	9360	46800
March purchases			47120	47120
Payment for purchases	45840	46400	56480	148720
Payables	8960	9360	11780	11780
Direct labor budget
	January	February	March	Total
Budgeted production units	4800	4400	5800	15000
Ditect labor hours per unit	0.75	0.75	0.75	0.75
Direct labor hours for production	3600	3300	4350	11250
Direct labor rate per hour ($)	8.5	8.5	8.5	8.5
Budgeted direct labor cost ($)	30600	28050	36975	95625
Manufacturing overhead budget
	January	February	March	Total
Budgeted production units	4800	4400	5800	15000
Variable overhead rate per hour ($)	8	8	8	8
Budgeted variable overhead ($)	38400	35200	46400	120000
Budgeted fixed overhead    ($)	3000	3000	3000	9000
Budgeted manufacturing overhead ($)	41400	38200	49400	129000
Cost of goods sold budget
	January	February	March	Total
Material required for production (gms)	19200	17600	23200	60000
Cost per gram of material ($)	2.5	2.5	2.5	2.5
Direct material cost	48000	44000	58000	150000
Direct labor cost	30600	28050	36975	95625
Manufacturing overhead	41400	38200	49400	129000
Total cost of manufacture	120000	110250	144375	374625
Budgeted production units	4800	4400	5800	15000
Unit cost of production	25.00	25.06	24.89	24.98
Cost of manufacture	120000	110250	144375	374625
Add: Beginning finished goods inventory	23500	20000	30068	23500
Finished goods available for sale	143500	130250	174443	398125
Less: Ending finished goods inventory	20000	30068	24892	24892
Cost of goods sold budget	123500	100182	149551	373233
Selling and Administrative expenses budget
	January	February	March	Total
Salaries expense	6000	6000	6000	18000
Rent expense	1500	1500	1500	4500
Advertising expense	1100	1100	1100	3300
Telephone expense	300	300	300	900
Other expenses	500	500	500	1500
Budgeted selling and administrative exp.	9400	9400	9400	28200
Budgeted Income Statement
	January	February	March	Total
Sales revenue	175000	140000	210000	525000
Cost of goods sold	123500	100182	149551	373233
Gross profit	51500	39818	60449	151767
Selling and administrative expenses:
Salaries expense	6000	6000	6000	18000
Rent expense	1500	1500	1500	4500
Advertising expense	1100	1100	1100	3300
Telephone expense	300	300	300	900
Other expenses	500	500	500	1500
Total Selling and administrative expenses	9400	9400	9400	28200
Income before taxes	42100	30418	51049	123567
Income tax (@22%)	9262	6692	11231	27185
Net income	32838	23726	39818	96382
Cash Budget
	January	February	March	Total
Beginning Cash Balance	20000	62760	87710	20000
Collection from sales	170000	147000	196000	513000
Total cash available for disbursements	190000	209760	283710	533000
Cash disbursements :
For purchase of material	45840	46400	56480	148720
For direct labor	30600	28050	36975	95625
For manufacturing overhead	41400	38200	49400	129000
For selling and administrative expenses	9400	9400	9400	28200
Total cash disbursemenrs	127240	122050	152255	401545
Ending cash balance	62760	87710	131455	131455