Question

Lane Products manufactures a popular kitchen utensil. The company recently expanded, and the controller believes that it will need to borrow cash to continue operations.

Answer 1

a.1	Lane Products
	Production Schedule Budget (Units)
	For February, March and April
		February	March	April
	Budgeted Sales units	12,000	9,000	12,000
	Add : Desired ending inventory (25% of next month sales)	2,250	3,000	3,000
	Total needs	14,250	12,000	15,000
	Less: Beginning inventory	2,400	2,250	3,000
	Budgeted production-Units	11,850	9,750	12,000
	Closing stock of FG for April month = May sales * 25% = 12,000*25%
	Working notes:
	Production requirements
		February	March	April
	Budgeted production units	11,850	9,750	12,000	a
	Material needed per utensil (in pounds)	0.50	0.50	0.50	b
	Budgeted production needs in pounds	5,925	4,875	6,000	a*b
a.2	Raw Materials Inventory
	Purchase Budget (Pounds)
	For February and March
		February	March
	Budgeted production needs in pounds	5,925	4,875
	Add : Desired ending inventory (20% of next month )	975	1,200	6,000*20%
	Total pounds needs	6,900	6,075
	Less: Inventory on hand at beginning of the month	2,280	1,105	see working below
	Balance required to purchase	4,620	4,970
	Budgeted purchases - Pounds	4,750	5,000	250*19 & 250*20
	Beginning inventory for March month
	Beginning inventory	2,280
	Budgeted purchases	4,750
		7,030
	Less: Production need for February month	5,925
	Ending inventory for February (beginning inventory for Mar)	1,105

 

b	Lane Products
	Projected Income Statement
	For the Month of March
	Sales revenue		$540,000	9,000*$60
	Less: Cash discounts on sales	$10,800		$540,000*2%
	Estimated bad debts	$5,400	$16,200	$540,000*1%
	Net sales		$523,800
	Cost of sales
	Variable cost	$297,000		9,000*$33
	Fixed cost	$120,000		as given
	Total cost of sales		$417,000
	Gross profit on sales		$106,800
	Expenses:
	Selling expense	$32,400		$540,000*6%
	Administrative expense	$68,400
	Interest expense	$200		$40,000*0.50%
	Total expenses		$101,000
	Net Operating Income		$5,800
	Working notes:
	Direct Material	$150,000
	Direct Labor	$120,000
	Variable overhead	$60,000
	Total variable cost	$330,000	a
	Total units	10,000	b
	Variable cost per unit	$33.00	a/b

Working notes is given above as per requirement with the calculations