Question

Iguana, Inc., manufactures bamboo picture frames that sell for $25 each. Each frame requires 4 linear feet of bamboo, which costs $3.00 per foot. Each frame takes approximately 30 minutes to build, and the labor rate averages $15 per hour. Iguana has the following inventory policies:

• Ending finished goods inventory should be 40 percent of next month’s sales.
• Ending direct materials inventory should be 30 percent of next month’s production.

Expected unit sales (frames) for the upcoming months follow:

March	375
April	450
May	500
June	600
July	575
August	625

Variable manufacturing overhead is incurred at a rate of $0.50 per unit produced. Annual fixed manufacturing overhead is estimated to be $6,000 ($500 per month) for expected production of 5,000 units for the year. Selling and administrative expenses are estimated at $550 per month plus $0.70 per unit sold.

Iguana, Inc., had $11,100 cash on hand on April 1. Of its sales, 80 percent is in cash. Of the credit sales, 50 percent is collected during the month of the sale, and 50 percent is collected during the month following the sale.

Of direct materials purchases, 80 percent is paid for during the month purchased and 20 percent is paid in the following month. Direct materials purchases for March 1 totaled $5,500. All other operating costs are paid during the month incurred. Monthly fixed manufacturing overhead includes $350 in depreciation. During April, Iguana plans to pay $2,000 for a piece of equipment.

PA8-1 (Algo) Preparing Operating Budgets [LO 8-3a, b, c, d, e, f, g]

Required:
Compute the following for Iguana, Inc., for the second quarter (April, May, and June).     

Budgeted sales revenue:

Budgeted production in units:

Budgeted Cost of Direct Materials Purchases

Budgeted Direct Labor costs:

Budgeted Manufacturing Overhead

Budgeted COGS:

Total Budgeted Selling and Administrative Expenses

Answer 1

Solution 1:
Sales Budget - Iguana Inc.
Particulars	April	May	June	2nd Quarter Total
Sales units	450	500	600	1550
Selling price per unit	$25.00	$25.00	$25.00	$25.00
Budgeted Sales Revenue	$11,250.00	$12,500.00	$15,000.00	$38,750.00
Solution 2:
Production Budget - Iguana Inc.
Particulars	April	May	June	2nd Quarter Total	July
Sales units	450	500	600	1550	575
Add: Desired ending inventory (40% of next month sales)	200	240	230	230	250
Less: Opening Inventory	180	200	240	180	230
Budgeted production units	470	540	590	1600	595
Solution 3:
Material Purchase Budget - Iguana Inc.
Particulars	April	May	June	2nd Quarter Total
Unit to Produce	470	540	590	1600
Material needed per unit (In foot)	4	4	4	4
Material needed for unit to produce	1880	2160	2360	6400
Add: Desired units of material in ending inventory (30% of next month production)	648	708	714	714
Less: units of material in beginning inventory	564	648	708	564
Units of material to purchase	1964	2220	2366	6550
Cost per feet	$3.00	$3.00	$3.00	$3.00
Budgeted cost of raw material purchases	$5,892.00	$6,660.00	$7,098.00	$19,650.00
Solution 4:
Budgeted direct labor cost - Iguana Inc.
Particulars	April	May	June	2nd Quarter Total
Unit to Produce	470	540	590	1600
Direct labor required per unit (in hrs)	0.5	0.5	0.5	0.5
Required direct labor hours	235	270	295	800
Labor rate	$15.00	$15.00	$15.00	$15.00
Budgeted direct labor cost	$3,525.00	$4,050.00	$4,425.00	$12,000.00
Solution 5:
Budgeted Manufacturing Overhead - Iguana Inc.
Particulars	April	May	June	2nd Quarter Total
Unit to Produce	470	540	590	1600
Variable overhead cost per unit	$0.50	$0.50	$0.50	$0.50
Total variable overhead cost	$235.00	$270.00	$295.00	$800.00
Fixed overhead	$500.00	$500.00	$500.00	$1,500.00
Budgeted manufacturing overhead	$735.00	$770.00	$795.00	$2,300.00
Solution 6:
Compuatation of Unit Product Cost - Iguana Inc.
Particulars	Per Unit Cost
Direct Material (4*$3)	$12.00
Direct labor (0.5 * $15)	$7.50
Variable manufacturing overhead	$0.50
Fixed manufacturing overhead	$1.20
Unit Product Cost	$21.20
Budgeted Cost of goods sold - Iguana Inc.
Particulars	April	May	June	2nd Quarter Total
Estimated Unit sales	450	500	600	1550
Unit cost	$21.20	$21.20	$21.20	$21.20
Budgeted Cost of goods Sold	$9,540.00	$10,600.00	$12,720.00	$32,860.00
Solution 7:
Budgeted Selling and administrative expenses - Iguana Inc.
Particulars	April	May	June	2nd Quarter Total
Estimated Unit sales	450	500	600	1550
Variable selling expenses per unit	$0.70	$0.70	$0.70	$0.70
Total variable selling expenses	$315.00	$350.00	$420.00	$1,085.00
Fixed selling and administrative expenses	$550.00	$550.00	$550.00	$1,650.00
Total selling and administrative expenses	$865.00	$900.00	$970.00	$2,735.00