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 $12 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	320
April	340
May	390
June	490
July	465
August	515

Variable manufacturing overhead is incurred at a rate of $0.20 per unit produced. Annual fixed manufacturing overhead is estimated to be $7,200 ($600 per month) for expected production of 4,000 units for the year. Selling and administrative expenses are estimated at $650 per month plus $0.50 per unit sold.

Iguana, Inc., had $10,500 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 $2,000. All other operating costs are paid during the month incurred. Monthly fixed manufacturing overhead includes $240 in depreciation. During April, Iguana plans to pay $2,000 for a piece of equipment.

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

5. Budgeted Manufacturing Overhead

6. Budgeted Cost of Goods Sold

7. Total Budgeted Selling and Admin Expenses

Answer 1

Solution 5:
Budgeted Manufacturing Overhead - Iguana Inc.
Particulars	April	May	June	2nd Quarter Total
Unit to Produce	360	430	480	1270
Variable overhead cost per unit	$0.20	$0.20	$0.20	$0.20
Total variable overhead cost	$72.00	$86.00	$96.00	$254.00
Fixed overhead	$600.00	$600.00	$600.00	$1,800.00
Budgeted manufacturing overhead	$672.00	$686.00	$696.00	$2,054.00
Solution 6:
Compuatation of Unit Product Cost - Iguana Inc.
Particulars	Per Unit Cost
Direct Material (4*$3)	$12.00
Direct labor (0.5 * $12)	$6.00
Variable manufacturing overhead	$0.20
Fixed manufacturing overhead	$1.80
Unit Product Cost	$20.00
Budgeted Cost of goods sold - Iguana Inc.
Particulars	April	May	June	2nd Quarter Total
Estimated Unit sales	340	390	490	1220
Unit cost	$20.00	$20.00	$20.00	$20.00
Budgeted Cost of goods Sold	$6,800.00	$7,800.00	$9,800.00	$24,400.00
Solution 7:
Budgeted Selling and administrative expenses - Iguana Inc.
Particulars	April	May	June	2nd Quarter Total
Estimated Unit sales	340	390	490	1220
Variable selling expenses per unit	$0.50	$0.50	$0.50	$0.50
Total variable selling expenses	$170.00	$195.00	$245.00	$610.00
Fixed selling and administrative expenses	$650.00	$650.00	$650.00	$1,950.00
Total selling and administrative expenses	$820.00	$845.00	$895.00	$2,560.00