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Iguana, Inc., manufactures bamboo picture frames that sell for $30 each. Each frame requires 4 linear...

Iguana, Inc., manufactures bamboo picture frames that sell for $30 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 $11 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 300
April 300
May 350
June 450
July 425
August 475


Variable manufacturing overhead is incurred at a rate of $0.30 per unit produced. Annual fixed manufacturing overhead is estimated to be $9,600 ($800 per month) for expected production of 4,000 units for the year. Selling and administrative expenses are estimated at $850 per month plus $0.60 per unit sold.


Iguana, Inc., had $12,800 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 $3,500. All other operating costs are paid during the month incurred. Monthly fixed manufacturing overhead includes $200 in depreciation. During April, Iguana plans to pay $3,500 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 Material Purchases:

Budgeted Direct Labor Cost:

Budgeted Manufacturing Overhead:

Budgeted Cost of Goods Sold:

Total Budgeted Selling and Administrative Expenses:

Solutions

Expert Solution

Solution 1:
Sales Budget - Iguana Inc.
Particulars April May June 2nd Quarter Total
Sales units 300 350 450 1100
Selling price per unit $30.00 $30.00 $30.00 $30.00
Budgeted Sales Revenue $9,000.00 $10,500.00 $13,500.00 $33,000.00
Solution 2:
Production Budget - Iguana Inc.
Particulars April May June 2nd Quarter Total July
Sales units 300 350 450 1100 425
Add: Desired ending inventory (40% of next month sales) 140 180 170 170 190
Less: Opening Inventory 120 140 180 120 170
Budgeted production units 320 390 440 1150 445
Solution 3:
Material Purchase Budget - Iguana Inc.
Particulars April May June 2nd Quarter Total
Unit to Produce 320 390 440 1150
Material needed per unit (In foot) 4 4 4 4
Material needed for unit to produce 1280 1560 1760 4600
Add: Desired units of material in ending inventory (30% of next month production) 468 528 534 534
Less: units of material in beginning inventory 384 468 528 384
Units of material to purchase 1364 1620 1766 4750
Cost per feet $3.00 $3.00 $3.00 $3.00
Budgeted cost of raw material purchases $4,092.00 $4,860.00 $5,298.00 $14,250.00
Solution 4:
Budgeted direct labor cost - Iguana Inc.
Particulars April May June 2nd Quarter Total
Unit to Produce 320 390 440 1150
Direct labor required per unit (in hrs) 0.5 0.5 0.5 0.5
Required direct labor hours 160 195 220 575
Labor rate $11.00 $11.00 $11.00 $11.00
Budgeted direct labor cost $3,520.00 $4,290.00 $4,840.00 $12,650.00
Solution 5:
Budgeted Manufacturing Overhead - Iguana Inc.
Particulars April May June 2nd Quarter Total
Unit to Produce 320 390 440 1150
Variable overhead cost per unit $0.30 $0.30 $0.30 $0.30
Total variable overhead cost $96.00 $117.00 $132.00 $345.00
Fixed overhead $800.00 $800.00 $800.00 $2,400.00
Budgeted manufacturing overhead $896.00 $917.00 $932.00 $2,745.00
Solution 6:
Compuatation of Unit Product Cost - Iguana Inc.
Particulars Per Unit Cost
Direct Material (4*$3) $12.00
Direct labor (0.5 * $11) $5.50
Variable manufacturing overhead $0.30
Fixed manufacturing overhead $2.40
Unit Product Cost $20.20
Budgeted Cost of goods sold - Iguana Inc.
Particulars April May June 2nd Quarter Total
Estimated Unit sales 300 350 450 1100
Unit cost $20.20 $20.20 $20.20 $20.20
Budgeted Cost of goods Sold $6,060.00 $7,070.00 $9,090.00 $22,220.00
Solution 7:
Budgeted Selling and administrative expenses - Iguana Inc.
Particulars April May June 2nd Quarter Total
Estimated Unit sales 300 350 450 1100
Variable selling expenses per unit $0.60 $0.60 $0.60 $0.60
Total variable selling expenses $180.00 $210.00 $270.00 $660.00
Fixed selling and administrative expenses $850.00 $850.00 $850.00 $2,550.00
Total selling and administrative expenses $1,030.00 $1,060.00 $1,120.00 $3,210.00

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