Question

Budgeted income statement and supporting budgets for three months

Newport Inc. gathered the following data for use in developing the budgets for the first quarter (June, July, August) of its fiscal year:

a. Estimated sales at $36 per unit:

June	300,000	units
July	400,000	units
August	500,000	units
September	500,000	units

b. Estimated finished goods inventories:

May 31	16,000	units
June 30	5%	of next month’s sales
July 31	5%	of next month’s sales
August 31	5%	of next month’s sales

c. Work in process inventories are estimated to be insignificant (zero).

d. Estimated direct materials inventories:

May 31	35,000	pounds
June 30	40,000	pounds
July 31	45,000	pounds
August 31	50,000	pounds

e. Manufacturing costs:

	Per Unit
Direct materials (1.5 lbs. per unit × $4 per lb.)	$ 6.00
Direct labor (0.4 hr. per unit × $25 per hr.)	10.00
Variable factory overhead ($4 per direct labor hour)	1.60
Fixed factory overhead ($1,200,000 per month allocated using 500,000 units)	2.40
Total per-unit manufacturing costs	$20.00

f. Selling expenses:

Variable selling expenses	$3	per unit
Fixed selling expenses	$800,000
Administrative expenses (all fixed costs)	$550,000

1. Prepare a sales budget for August.

Newport Inc.
Sales Budget
For the First Quarter Ending August 31
	June	July	August	First Quarter
Estimated units sold	300,000	400,000	500,000	1,200,000
Selling price per unit	x$36	x$36	x$36	x$36
Total budgeted sales	$10,800,000	$14,400,000	$18,000,000	$43,200,000

2. Prepare a production budget for August. For those boxes in which you must enter subtracted or negative numbers use a minus sign.

Newport Inc.
Production Budget
For the First Quarter Ending August 31
	June	July	August	First Quarter
Estimated units sold	300,000	400,000	500,000	1,200,000
Desired ending inventory	20,000	25,000	25,000	25,000
Total units available for sale	320,000	425,000	525,000	1,225,000
Less estimated beginning inventory	-16,000	-20,000	-25,000	-16,000
Total units to be produced	304,000	405,000	500,000	1,209,000

3. Prepare a direct materials purchases budget for August. For those boxes in which you must enter subtracted or negative numbers use a minus sign.

Newport Inc.
Direct Materials Purchases Budget
For the First Quarter Ending August 31
	June	July	August	First Quarter
Units to be produced	304,000	405,000	500,000	1,209,000
Materials required per unit	X 1.5 lbs.	x 1.5 lbs.	x 1.5 lbs.	x 1.5 lbs.
Materials required for production	456,000 lbs.	607,500 lbs.	750,000 lbs.	1,813,500 lbs.
Desired ending inventory	40,000 lbs.	45,000 lbs.	50,000 lbs.	50,000 lbs.
Total materials available for use	496,000 lbs.	652,500 lbs.	800,000 lbs.	1,863,500 lbs.
Less estimated beginning inventory	-35,000 lbs.	-40,000 lbs.	-45,000 lbs.	-35,000 lbs.
Total materials to be purchased	461,000 lbs.	612,500 lbs.	755,000 lbs.	1,828,500 lbs.
Cost per pound	x $4	x$4	x$4	x$4
Cost of direct materials to be purchased	$1,844,000	$2,450,000	$3,020,000	$7,314,000

4. Prepare a direct labor cost budget for August.

Newport Inc.
Direct Labor Cost Budget
For the First Quarter Ending August 31
	June	July	August	First Quarter
Units to be produced	304,000	405,000	500,000	1,209,000
Direct labor required per unit	x 0.4 hr.	x 0.4 hr.	x 0.4 hr.	x 0.4 hr.
Direct labor hours required for production	121, 600 hrs.	162,000 hrs.	200,000 hrs.	482,600 hrs.
Direct labor hourly rate	x$25	x$25	x$25	x$25
Direct labor cost	$3,040,000	$4,050,000	$5,000,000	$12,090,000

5. Prepare a factory overhead cost budget for August.

Newport Inc.
Factory Overhead Cost Budget
For the First Quarter Ending August 31
	June	July	August	First Quarter
Variable factory overhead:
Budgeted direct labor hours	121,600	162,000	200,000	483,600
Variable factory overhead rate	x $4	x $4	x $4	x $4
Budgeted variable factory overhead	$486,400	$648,000	$800,000	$1,934,400
Fixed factory overhead:
Budgeted fixed factory overhead	1,200,000	1,200,000	1,200,000	3,600,000
Total factory overhead cost	$1,686,400	$1,848,000	$2,000,000	$5,534,400

6. Prepare a cost of goods sold budget for August. For those boxes in which you must enter subtracted or negative numbers use a minus sign.

Newport Inc.
Cost of Goods Sold Budget
For the First Quarter Ending August 31
	June	July	August	First Quarter
Beginning finished goods inventory	$	$	$	$
Cost of goods manufactured:
Direct materials	$	$	$	$
Direct labor
Factory overhead
Total cost of goods manufactured	$	$	$	$
Cost of finished goods available for sale	$	$	$	$
Ending finished goods inventory
Cost of goods sold	$	$	$	$

7. Prepare a selling and administrative expenses budget for August. Enter all amounts as positive number.

Newport Inc.
Selling and Administrative Expenses Budget
For the First Quarter Ending August 31
	June	July	August	First Quarter
Selling expenses:
Budgeted sales units
Variable selling expenses per unit sold	x$	x$	x$	x$
Total variable selling expenses	$	$	$	$
Fixed selling expenses
Total selling expenses	$	$	$	$
Administrative expenses:
Budgeted fixed administrative expenses
Total selling and administrative expenses	$	$	$	$

8. Prepare a budgeted income statement with budgeted operating income for August. For those boxes in which you must enter subtracted or negative numbers use a minus sign.

Newport Inc.
Budgeted Income Statement
For the First Quarter Ending August 31
	June	July	August	First Quarter
Sales	$	$	$	$
Cost of goods sold
Gross profit	$	$	$	$
Selling and administrative expenses:
Selling expenses	$	$	$	$
Administrative expenses
Total selling and administrative expenses	$	$	$	$
Operating income	$	$	$	$

Answer 1

6.cost of goods sold budget

particulars	june($)	july($)	august($)	first quarter ($)
beginning finished goods inventory	320000	400000	500000	1220000
cost of goods manufactured:-
direct material	1844000	2450000	3020000	7314000
direct labour	3040000	4050000	5000000	12090000
factory overhead	1686400	1848000	2000000	5534400
total cost of goods manufactured	6570400	8348000	10020000	24938400
cost of finished goods available for sale	6890400	8748000	10520000	26158400
ending finished goods inventory	400000	500000	500000	1400000
cost of goods sold	6490400	8248000	10020000	24758400

7. selling and administrative expense budget

particulars	june($)	july($)	august($)	first quarter ($)
budgetted sales in units	300000	400000	500000
Variable selling expenses per unit sold	3	3	3
Total variable selling expenses	900000	1200000	1500000	3600000
Fixed selling expenses	800000	800000	800000	2400000
Total selling expenses	1700000	2000000	2300000	6000000
Administrative expenses:
Budgeted fixed administrative expenses	550000	550000	550000	1650000
Total selling and administrative expenses	2250000	2550000	2850000	7650000

8.budgetted income statement

particulars	june($)	july($)	august($)	first quarter ($)
sales	10800000	14400000	18000000	43200000
cost of goods sold	6490400	8248000	10020000	24758400
gross profit	4309600	6152000	7980000	18441600
selling and administrative expenses:-
selling expenses	1700000	2000000	2300000	6000000
administrative expenses	550000	550000	550000	1650000
Total selling and administrative expenses	2250000	2550000	2850000	7650000
operating income	2059600	3602000	5130000	10791600

sales revenue=units sold x $36