Question

During the first calendar quarter of 2016, Clinton Corporation is planning to manufacture a new product and introduce it in two regions. Market research indicates that sales will be 7,000 units in the urban region at a unit price of $53 and 6,000 units in the rural region at $48 each. Because the sales manager expects the product to catch on, he has asked for production sufficient to generate a 5,000-unit ending inventory. The production manager has furnished the following estimates related to manufacturing costs and operating expenses:

			Variable		Fixed
			(per unit)		(total)
Manufacturing costs:
Direct materials
A (4 lb. @ $3.15/lb.)			$12.60		-
B (2 lb. @ $4.65/lb.)			9.30		-
Direct labor (0.5 hours per unit)			7.50		-
Manufacturing overhead:
Depreciation			-		$7,650
Factory supplies			0.90		4,500
Supervisory salaries			-		28,800
Other			0.75		22,950
Operating expenses:
Selling:
Advertising			-		22,500
Sales salaries& commissions*			1.50		15,000
Other*			0.90		3,000
Administrative:
Office salaries			-		2,700
Supplies			0.15		1,050
Other			0.08		1,950

*Varies per unit sold, not per unit produced.

a. Assuming that the desired ending inventories of materials A and B are 5,000 and 7,000 pounds, respectively, and that work-in-process inventories are immaterial, prepare budgets for the calendar quarter in which the new product will be introduced for each of the following operating factors:

Do not use negative signs with any of your answers below.

1. Total sales

$Answer

2. Production

Answer

units

3. Material purchase cost

				Material A	Material B
Total pounds (lbs.) required for production				Answer	Answer
Desired ending materials inventory				Answer	Answer
Total pounds to be available				Answer	Answer
Beginning materials inventory				Answer	Answer
Total material to be purchased (lbs.)				Answer	Answer
Total material purchases ($)				Answer	Answer

4. Direct labor costs

$Answer

5. Manufacturing overhead costs

			Fixed	Variable	Total
Depreciation			Answer	Answer	Answer
Factory supplies			Answer	Answer	Answer
Supervisory salaries			Answer	Answer	Answer
Other			Answer	Answer	Answer
Total manufacturing overhead					Answer

6. Selling and administrative expenses

			Fixed	Variable	Total
Selling expenses:
Advertising			Answer	Answer	Answer
Sales salaries and commissions			Answer	Answer	Answer
Other			Answer	Answer	Answer
Total selling expenses					Answer
Administrative expenses:
Office salaries			Answer	Answer	Answer
Supplies			Answer	Answer	Answer
Other			Answer	Answer	Answer
Total administrative expenses					Answer
Total selling and administrative expenses					Answer

b. Using data generated in requirement (a), prepare a budgeted income statement for the calendar quarter. Assume an overall effective income tax rate of 30%.

Round answers to the nearest whole number.
Do not use negative signs with your answers.

Clinton Corporation Budgeted Income Statement For the Quarter Ended March 31, 2016
Sales					Answer
Cost of Goods Sold:
Beginning Inventory - Finished Goods				Answer
Material:
Beginning Inventory - Material			Answer
Material Purchases			Answer
Material Available			Answer
Ending Inventory - Material			Answer
Direct Material			Answer
Direct Labor			Answer
Manufacturing Overhead			Answer
Total Manufacturing Cost				Answer
Cost of Goods Available for Sale				Answer
Ending Inventory - Finished Goods				Answer
Cost of Goods Sold					Answer
Gross Profit					Answer
Operating Expenses:
Selling Expenses				Answer
Administrative Expenses				Answer
Total Operating Expenses					Answer
Income before Income Taxes					Answer
Income Tax Expense					Answer
Net Income					Answer

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Answer 1

A- 1) Total Sales :-

Sale in Units = 7000 + 6000 = 13000 units

Sales in $ = (7000*$53) + (6000*$48) = $371000 + $288000 = $659000

2) Production :-

Production = Total Sales + Ending Inventory - Beginning Inventory

Production = 13000 units + 5000 units - 0 unit

Production = 18000 units

3) Material Purchase Cost :-

Particulars	Material A	Material B
Total pounds (lbs.) required for production (A)	5000	7000
Desired ending materials inventory (B)	(18000*4)= 72000	(18000*2)= 36000
Total pounds to be available (C)=(A+B)	77000	43000
Beginning materials inventory (D)	0	0
Total material to be purchased (lbs.)(E)=(C+D)	77000	43000
Total material purchases ($)	(77000*$3.15)= $242550	(43000*$4.65)= $199950

4) Direct Labor Cost :-

Total Direct Labor Hours = Total Production * Direct Labor Cost per unit

= 18000 * $7.5

= $135000

5) Manufacturing Overhead Cost :-

Particulars	Fixed Cost	Variable Cost	Total
Depreciation	$7650		$7650
Factory supplies	$4500	(18000*$0.90) = $16200	$20700
Supervisory salaries	$28800		$28800
Other	$22950	(18000*$0.75) = $13500	$36450
Total	$63900	$29700	$93600

6) Selling and Administrative Expenses :-

Particulars	Fixed Cost	Variable Cost	Total
Advertising	$22500		$22500
Sales salaries and commissions	$15000	(13000*$1.50) =$19500	34500
Other	$3000	(13000*$0.90) =$11700	14700
Total Selling Expenses (A)	$40500	$31200	$71700
Administrative Expenses:-
Office salaries	$2700		$2700
Supplies	$1050	(18000*$0.15) =$2700	$3750
Other	$1950	(18000*$0.08) =$1440	$3390
Total Administrative Expenses (B)	$5700	$4140	$9840
Total Selling and administrative Expenses (A+B)	$46200	$35340	$81540