Question

Part 1- Capital Budgeting Questions

Please use the following information to answer questions 1- 6 (PLEASE SHOW CALCULATIONS)

Bob makes wooden tables and is creating his 2017 capital budget. He expects to sell 40 tables in 2017 at $150 per table.

Additional Information for 2017:

DM per table: 6 board feet (b.f.) per table at $2.00 per b.f.

DL per table: 2 DLH per table at $25 per DLH

O/H is applied at a rate of $4 per DLH (and allocated O/H = actual O/H)

DM Inventory:                              WIP Inventory                   FG Inventory

BB = 50 b.f. of wood                     BB = 0                               BB = 5 tables

DEI = 75 b.f. of wood                   EB = 0                               DEI = 15 tables

For simplicity, assume costs and revenue per table are the same for those manufactured in 2017 or in previous years.

Assume variable operating expenses are $6 per unit sold and fixed operating expenses are $80.

1) What is budgeted revenue for 2017 in dollars?

2) How many tables (FG units) should be produced in 2017?

­3) What is the budgeted O/H cost per unit?

4) What is budgeted Cost of Goods Sold (in dollars) for 2017?

5) What are budgeted Operating Expenses (period costs) in dollars for 2017?

6) What is estimated operating income for 2017?

Answer 1

1	Budgeted revenue=Budgeted table sales*Selling price per table=40*150=$ 6000
2	Tables to be produced:
				Tables
	Budgeted table sales			40
	Add: DEI of FG inventory			15
	`			55
	Less:BB of FG inventory			5
	Tables to be produced			50
3	Budgeted overhead cost per unit=DLH per table*O/H application rate=2*4=$ 8
4	Budgeted cost of goods sold=Budgeted table sales*Table cost per unit
	Table cost per unit:
			$
	DM	(6*2)	12
	DL	(2*25)	50
	O/H	(2*4)	8
	Total		70
	Budgeted cost of goods sold=40*70=$ 2800
5	Budgeted operating expenses:
				$
	Variable			240
	(Budgeted table sales*6)			(40*6)
	Fixed			80
	Total			320
6	Estimated operating income:
					$
	Budgeted revenue				6000
	Less:Budgeted cost of goods sold				2800
	Gross profit				3200
	Less:Budgeted operating expenses				320
	Estimated operating income				2880
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