Question

Required:

1. Prepare the Sales budget for 2019.

2. Prepare the Production budget for 2019.

3. Prepare the Direct materials purchases budget (units and dollars) for 2019.

4. Prepare the Direct labor budget for 2019.

5. Prepare the Factory overhead budget for 2019.

6. Prepare the Cost of goods sold and ending finished goods inventory budgets for 2019.

7. Prepare the Selling and administrative expense budget, broken down into two components: Selling Expenses, and Administrative Expenses for 2019.

8. Prepare the Budgeted income statement, the last item of which is labeled After-tax Operating Income for 2019.

Spring Manufacturing Company makes two components identified as C12 and D57. Selected budgetary data for 2019 follow:

	Finished Components
	C12				D57
Requirements for each finished component:
RM 1		10	pounds			8	pounds
RM 2		0				4	pounds
RM 3		2	pounds			1	pound
Direct labor		2	hours			3	hours
Product information:
Sales price	$	170			$	240
Sales (units)		12,000				9,000
Estimated beginning inventory (units)		370				200
Desired ending inventory (units)		300				200

	Direct Materials Information
	RM1				RM2				RM3
Cost per pound	$	6			$	1.50			$	0.50
Estimated beginning inventory in pounds		3,200				1,600				800
Desired ending inventory in pounds		4,100				900				1,200

The firm expects the average wage rate to be $25 per hour in 2019. Spring Manufacturing uses direct labor hours to apply overhead. Each year the firm determines the overhead application rate for the year based on budgeted direct labor hours for the year. The firm maintains negligible Work-in-Process Inventory and expects the cost per unit for both beginning and ending inventories of finished products to be identical.

	Factory Overhead Information
Indirect materials—variable	$	10,000
Miscellaneous supplies and tools—variable		4,700
Indirect labor—variable		41,000
Supervision—fixed		110,000
Payroll taxes and fringe benefits—variable		260,000
Maintenance costs—fixed		20,000
Maintenance costs—variable		10,030
Depreciation—fixed		71,290
Heat, light, and power—fixed		43,440
Heat, light, and power—variable		10,000
Total	$	580,460

	Selling and Administrative Expense Information
Advertising	$	58,000
Sales salaries		250,000
Travel and entertainment		60,000
Depreciation—warehouse		5,300
Office salaries		60,000
Executive salaries		300,000
Supplies		3,800
Depreciation—office		6,000
Total	$	743,100

The effective income tax rate for the company is 40%.

Answer 1

1.

Sales budget
Product	units	price	Total
C12	12000	170	2,040,000
D57	9000	240	2,160,000

2.

Production budget
Partculars	C12	D57
Sales unit	12,000	9,000
Add:closing inventory	300	200
Less:opening inventory	370	200
Total production	11,930	9,000

3.

Calculation of direct material requirement
	C12(X)		D57(Y)		Total material required(X+Y)
RM1	119,300	11930X10	72,000	9000X8	191,300
RM2	-	-	36,000	9000X4	36,000
RM3	23,860	11930X2	9,000	9000X1	32,860
Direct material purchase budget(units)
Particulars	a	b	c
Units required	191,300	36,000	32,860
ADD: closing inventory	4,100	900	1,200
Less:opening inventory	3,200	1,600	800
Total purchase	192,200	35,300	33,260
Direct material purchase budget($)
Particulars	RM1	RM2	RM3
Units to be purchased	192,200	35,300	33,260
Price	6	1.5	5.0
Total purchase cost	1,153,200	52,950	166,300

4.

Direct manufacturing labor budget
Particulars	C12	D57
Total units to be produced	11,930	9,000
Hours per unit	2	3
Total hrs	23,860	27,000
Rate per hr.	25	25
Total manf. Labor cost	596,500	675,000

5.

Factory overhead budget
Variable factory overhead
Indirect material	10000
Miscellaneous supplies and tools	4700
Indirect labor	41000
Payroll taxes and fringe benfits	260000
Maintenance costs - variable	10030
Heat, light , power -variable	10000
Total variable overheads(A)	335730
Fixed factory overhead
Supervision	110000
Maintenance cost - fixed	20000
Heat,light,power - fixed	43440
Depreciation	71290
Total fixed overheads (B)	244730
Total factory overhead(A+B)	580460