Question

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Iguana, Inc., manufactures bamboo picture frames that sell for $30 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 $12 per hour. Iguana has the following inventory policies:

Ending finished goods inventory should be 40 percent of next month’s sales.

Ending raw materials inventory should be 30 percent of next month’s production.

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

March	280
April	260
May	310
June	410
July	385
August	435

Variable manufacturing overhead is incurred at a rate of $0.40 per unit produced. Annual fixed manufacturing overhead is estimated to be $7,800 ($650 per month) for expected production of 3,000 units for the year. Selling and administrative expenses are estimated at $700 per month plus $0.50 per unit sold.

     Iguana, Inc., had $10,900 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 raw materials purchases, 80 percent is paid for during the month purchased and 20 percent is paid in the following month. Raw materials purchases for March 1 totaled $2,500. All other operating costs are paid during the month incurred. Monthly fixed manufacturing overhead includes $160 in depreciation. During April, Iguana plans to pay $3,100 for a piece of equipment.

1.

value:
21.00 points

Required information

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

References

eBook & Resources

WorksheetLearning Objective: 08-03b Prepare the following components of the operating budget: Production budget.Learning Objective: 08-03e Prepare the following components of the operating budget: Manufacturing overhead budget.

Difficulty: 3 HardLearning Objective: 08-03c Prepare the following components of the operating budget: Raw materials purchases budget.Learning Objective: 08-03f Prepare the following components of the operating budget: Cost of goods sold budget.

Learning Objective: 08-03a Prepare the following components of the operating budget: Sales budget.Learning Objective: 08-03d Prepare the following components of the operating budget: Direct labor budget.Learning Objective: 08-03g Prepare the following components of the operating budget: Selling and administrative expense budget.

Check my work

2.

value:
4.00 points

Required information

Required:
Complete Iguana's budgeted income statement for quarter 2. (Round cost per unit in intermediate calculations and final answers to 2 decimal places.)

Answer 1

1) Production Budget - Production Budget is nothing but calculation of the units produced during a particular month. We can simply calculate it by the formula - Sales units + Closing units - Opening units = Production units.

Explanation of the above formula - Suppose in a particular month, a company has sold 100 units and it has left with 20 units at the end of month. Thus, these 120 units must have been produced in this particular month provided there were zero opening units available with the company. If out of these 120 units, 10 units are coming from previous month that means that 110 units must have been produced in this month only. Hence the formula - Sales+closing-opening = Production.

COnsidering above, please see here the production Budget -

Closing finished goods are 40% of the next month's sales i.e. in April it will be 310*40% = 124 and so on in the next months.

Opeining finished goods are equal to the closing of the previous month hence in april it 104 and in may it 124 and so on and so forth.

2). Manufacturing Overheads Budget - this will include both fixed and variable. please see below -

Variable Mfg overheads are $0.40 per unit produced. hence, in Apr - 280units*0.40 = 112. In may 350*0.40 = 140 and so on.

Fixed are given in the question as $650 per month.

3)Raw Material puchase budget (units)- To determine the quantity and value of raw material required to be purchased. We can calculate it by the same method as we used in calculating the producton units. Required material in production+Closing inventory - opening = Required to be purchased.

4) Cost of goods sold - We will simply calculate the raw material used in the units sold and that material cost would be our cost of goods sold. hence the calculation is as follows -

Raw material required in Apr - 260*4 = 1040. and cost is 1040*2.50 = 2,600 and so on in May and June.

5). Direct labour budget - total labour hours to be calculated and multiply it by the rate.

Hours required for Apr 280units*0.50hr = 140hrs. Cost = 140hrs*$12 per hr = $1,680. and so on in May and June.