Question

Developing a Master Budget
for a Manufacturing Organization
Jacobs Incorporated manufactures a product with a selling price of $50 per unit. Units and monthly cost data follow:

Variable:
Selling and administrative	$5 per unit sold
Direct materials	10 per unit manufactured
Direct labor	10 per unit manufactured
Variable manufacturing overhead	5 per unit manufactured
Fixed:
Selling and administrative	$20,000 per month
Manufacturing (including depreciation of $10,000)	30,000 per month

Jacobs pays all bills in the month incurred. All sales are on account with 50 percent collected the month of sale and the balance collected the following month. There are no sales discounts or bad debts. Jacobs desires to maintain an ending finished goods inventory equal to 20 percent of the following month's sales and a raw materials inventory equal to 10 percent of the following month's production. January 1, 2011, inventories are in line with these policies. Actual unit sales for December and budgeted unit sales for January, February, and March of 2011 are as follows:

JACOBS INCORPORATED Sales Budget For the Months of January, February, and March 2011
Month	December	January	February	March
Sales - Units	5,250	6,000	9,000	9,000
Sales - Dollars	$262,500	$300,000	$450,000	$450,000

Additional information:

• The January 1 beginning cash is projected as $3,000.
• For the purpose of operational budgeting, units in the January 1 inventory of finished goods are valued at variable manufacturing cost.
• Each unit of finished product requires one unit of raw materials.
• Jacobs intends to pay a cash dividend of $7,000 in January.

NOTE: For the entire problem - do not use any negative signs with your answers unless appropriate for net income(loss) or ending balance.

(a) A production budget for January and February.

JACOBS INCORPORATED Production Budget For the Months of January and February 2011
	January	February	March
Requirements for current sales	Answer	Answer	Answer
Desired ending inventory	Answer	Answer
Total requirements	Answer	Answer
Less beginning inventory	Answer	Answer
Production requirements	Answer	Answer

(b) A purchases budget in units for January.

JACOBS INCORPORATED Purchases Budget For the Month of January 2011
	January	February
Current requirements (units)	Answer	Answer
Desired ending inventory	Answer
Total requirements	Answer
Less beginning inventory	Answer
Purchases (units)	Answer
Purchases (dollars at $10 each)	Answer

(c) A manufacturing cost budget for January.

JACOBS INCORPORATED Manufacturing Cost Budget For the Month of January 2011
Variable costs
Direct materials	Answer
Direct labor	Answer
Variable manufacturing overhead	Answer
Total variable costs	Answer
Fixed manufacturing overhead	Answer
Total manufacturing overhead	Answer

(d) A cash budget for January.

JACOBS INCORPORATED Cash Budget For the Month of January 2011
Beginning balance		Answer
Receipts:
December sales	Answer
January sales	Answer	Answer
Total cash available		Answer
Disbursements:
Purchases	Answer
Direct labor	Answer
Variable manufacturing overhead	Answer
Fixed manufacturing overhead (exclude depreciation)	Answer
Variable selling and administrative	Answer
Fixed selling and administrative	Answer
Dividend	Answer	Answer
Ending Balance		Answer

(e) A budgeted contribution income statement for January.

JACOBS INCORPORATED Budgeted Contribution Income Statement For the Month of January 2011
Sales		Answer
Less variable costs:
Cost of goods sold	Answer
Selling and administrative	Answer	Answer
Contribution		Answer
Less fixed costs:
Manufacturing overhead	Answer
Selling and administrative	Answer	Answer
Net income		Answer

Answer 1

Expected cash collection
Budgeted unit sales	6000
Budgeted sales value	$300,000
Cash collection
From Accounts receivable (262500*50%)	$131,250
From current month	$150,000
Total Cash collection	$281,250
Production Budget	Jan	Feb	Mar
expected sales in units	6000	9000	9000
Add Desired Ending Inventory (20%*next month sales)	1800	1800
Total Needs	7800	10800
Less Beginning Inventory	1200	1800
Required Purcahses in units	6600	9000
ans c
Purcahse budget	Jan	Feb
Budgeted cost of raw material purchases
Budgeted production in units	6600	9000
Add Desired Ending Inventory (10%*next month production)	900
Total Needs	7500
Less Beginning Inventory	660
Budgeted raw material purchases	6840
Raw material cost per pound	$10.00
Budgeted cost of raw material purchases	$68,400
Manufacturing Cost Budget
For the Month of January 2011
Variable costs
No. of units produced	6600
Direct materials	$66,000
Direct labor	66000
Variable manufacturing overhead	$33,000
Total variable costs	$165,000.0
Fixed manufacturing overhead	30000
Total manufacturing cost	$195,000.0
A cash budget for January.
JACOBS INCORPORATED
Cash Budget
For the Month of January 2011
Beginning balance		3000
Receipts:
December sales	$131,250
January sales	$150,000	$281,250
Total cash available		$284,250
Disbursements:
Purchases	$68,400
Direct labor	66000
Variable manufacturing overhead	33000
Fixed manufacturing overhead (exclude depreciation)	20000
Variable selling and administrative (5*6000)	30000
Fixed selling and administrative	20000
Dividend	7000	$244,400
Ending Balance		$39,850
(e) A budgeted contribution income statement for January.
JACOBS INCORPORATED
Budgeted Contribution Income Statement
For the Month of January 2011
Sales		300000
Less variable costs:
Cost of goods sold (25*6000)	150000
Selling and administrative	30000	180000
Contribution		120000
Less fixed costs:
Manufacturing overhead	30000
Selling and administrative	20000	50000
Net income		70000
If any doubt please comment