Question

Required information

[The following information applies to the questions displayed below.]

Iguana, Inc., manufactures bamboo picture frames that sell for $25 each. Each frame requires 4 linear feet of bamboo, which costs $2.50 per foot. Each frame takes approximately 30 minutes to build, and the labor rate averages $14 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	315
April	330
May	380
June	480
July	455
August	505

Variable manufacturing overhead is incurred at a rate of $0.60 per unit produced. Annual fixed manufacturing overhead is estimated to be $7,200 ($600 per month) for expected production of 3,000 units for the year. Selling and administrative expenses are estimated at $650 per month plus $0.50 per unit sold.

Iguana, Inc., had $11,000 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 $3,000. All other operating costs are paid during the month incurred. Monthly fixed manufacturing overhead includes $230 in depreciation. During April, Iguana plans to pay $2,000 for a piece of equipment.

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

1.Budgeted sales revenue

2.Budgeted production in units

3.Budgeted cost of direct material purchases

4.Budgeted dirrect labor cost

5.Budgeted manufacturing overhead

6.Bdgeted cost of goods sold

7.Total budgeted selling and administrative expenses

Answer 1

Solutions:

Sales Budget - Iguana Inc.
Particulars	April	May	June	2nd Quarter Total
Sales units	330	380	480	1190
Selling price per unit	$25.00	$25.00	$25.00	$25.00
Budgeted Sales Revenue	$8,250.00	$9,500.00	$12,000.00	$29,750.00
Production Budget - Iguana Inc.
Particulars	April	May	June	2nd Quarter Total	July
Sales units	330	380	480	1190	455
Add: Desired ending inventory (40% of next month sales)	152	192	182	182	202
Less: Opening Inventory	132	152	192	132	182
budgeted production in units	350	420	470	1240	475
Raw Material Purchase Cost Budget - Iguana Inc.
Particulars	April	May	June	2nd Quarter Total
Unit to Produce	350	420	470	1240
Material needed per unit (In foot)	4	4	4	4
Material needed for unit to produce	1400	1680	1880	4960
Add: Desired units of material in ending inventory (30% of next month production)	504	564	570	570
Less: units of material in beginning inventory	420	504	564	420
Units of material to purchase	1484	1740	1886	5110
Cost per feet	$2.50	$2.50	$2.50	$2.50
Budgeted cost of raw material purchases	$3,710.00	$4,350.00	$4,715.00	$12,775.00
Budgeted direct labor cost - Iguana Inc.
Particulars	April	May	June	2nd Quarter Total
Unit to Produce	350	420	470	1240
Direct labor required per unit (in hrs)	0.5	0.5	0.5	0.5
Required direct labor hours	175	210	235	620
Labor rate	$14.00	$14.00	$14.00	$14.00
Budgeted direct labor cost	$2,450.00	$2,940.00	$3,290.00	$8,680.00
Budgeted manufacturing Overhead cost - Iguana Inc.
Particulars	April	May	June	2nd Quarter Total
Unit to Produce	350	420	470	1240
Variable Overhead rate	$0.60	$0.60	$0.60	$0.60
Variable Manufacturing Overhead	$210.00	$252.00	$282.00	$744.00
fixed Overhead	$600.00	$600.00	$600.00	$1,800.00
Budgeted manufacturing overhead	$810.00	$852.00	$882.00	$2,544.00

Computation of Unit Product Cost - Iguana Inc.
Particulars	Per Unit Cost
Direct Material (4*$2.50)	$10.00
Direct labor (0.5 * $14)	$7.00
Variable manufacturing overhead	$0.60
Fixed manufacturing overhead ($7200 /3000)	$2.40
Unit Product Cost	$20.00

Budgeted Cost of goods sold- Iguana Inc.
Particulars	April	May	June	2nd Quarter Total
Unit sales	330	380	480	1190
Unit Product cost	$20.00	$20.00	$20.00	$20.00
Budgeted Cost of goods sold	$6,600.00	$7,600.00	$9,600.00	$23,800.00

Budgeted Selling and admin. expense- Iguana Inc.
Particulars	April	May	June	2nd Quarter Total
Unit sales	330	380	480	1190
Variable Selling and admin. Rate	$0.50	$0.50	$0.50	$0.50
Variable Selling and admin. Expenses	$165.00	$190.00	$240.00	$595.00
Fixed Selling and admin. Expenses	$650.00	$650.00	$650.00	$1,950.00
Total Selling and admin. Expenses	$815.00	$840.00	$890.00	$2,545.00