Question

Budgeted Income Statement and Supporting Budgets

The budget director of Birding Homes & Feeders Inc., with the assistance of the controller, treasurer, production manager, and sales manager, has gathered the following data for use in developing the budgeted income statement for January:

1. Estimated sales for January:

   Bird house	15,000 units at $25 per unit
   Bird feeder	40,000 units at $15 per unit

2. Estimated inventories at January 1:

   Direct materials:
   Wood	600 ft.
   Plastic	1,000 lbs.
   Finished products:
   Bird house	1,000 units at $15 per unit
   Bird feeder	2,500 units at $8 per unit

3. Desired inventories at January 31:

   Direct materials:
   Wood	500 ft.
   Plastic	1,250 lbs.
   Finished products:
   Bird house	1,500 units at $15 per unit
   Bird feeder	3,000 units at $8 per unit

4. Direct materials used in production:

   In manufacture of Bird House:
   Wood	0.80 ft. per unit of product
   Plastic	0.10 lb. per unit of product
   In manufacture of Bird Feeder:
   Wood	0.20 ft. per unit of product
   Plastic	1.00 lb. per unit of product

5. Anticipated cost of purchases and beginning and ending inventory of direct materials:

   Wood	$2.50 per ft.
   Plastic	$0.80 per lb.

6. Direct labor requirements:

   Bird House:
   Fabrication Department	0.40 hr. at $18 per hr.
   Assembly Department	0.20 hr. at $12 per hr.
   Bird Feeder:
   Fabrication Department	0.25 hr. at $18 per hr.
   Assembly Department	0.10 hr. at $12 per hr.

7. Estimated factory overhead costs for January:

   Indirect factory wages	$40,000
   Depreciation of plant and equipment	20,000
   Power and light	10,000
   Insurance and property tax	5,000

8. Estimated operating expenses for January:

   Sales salaries expense	$125,000
   Advertising expense	80,000
   Office salaries expense	40,000
   Depreciation expense—office equipment	4,000
   Travel expense—selling	25,000
   Office supplies expense	2,500
   Miscellaneous administrative expense	3,500

9. Estimated other revenue and expense for January:

   Interest revenue	$4,540
   Interest expense	3,000

10. Estimated tax rate: 25%

Required:

1. Prepare a sales budget for January.

Birding Homes & Feeders Inc. Sales Budget For the Month Ending January 31
	Unit Sales Volume	Unit Selling Price	Total Sales
Bird house		$	$
Bird feeder
Total revenue from sales			$

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

Birding Homes & Feeders Inc. Production Budget For the Month Ending January 31
	Units
		Bird House		Bird Feeder

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

Birding Homes & Feeders Inc. Direct Materials Purchases Budget For the Month Ending January 31
	Wood	Plastic	Total
Required units for production:
Bird house
Bird feeder
Desired units of inventory, January 31
Total units available
Estimated units of inventory, January 1
Total units to be purchased
Unit price	×$	×$
Total direct materials to be purchased	$	$	$

4. Prepare a direct labor cost budget for January.

Birding Homes & Feeders Inc. Direct Labor Cost Budget For the Month Ending January 31
			Fabrication Department		Assembly Department	Total
Hours required for production:
	Bird house
	Bird feeder
	Total
Hourly rate			×$		×$
Total direct labor cost			$		$	$

5. Prepare a factory overhead cost budget for January.

Birding Homes & Feeders Inc. Factory Overhead Cost Budget For the Month Ending January 31
	$
Total factory overhead cost	$

6. Prepare a cost of goods sold budget for January. Work in process at the beginning of January is estimated to be $9,000, and work in process at the end of January is estimated to be $10,500. For those boxes in which you must enter subtracted or negative numbers use a minus sign.

Birding Homes & Feeders Inc. Cost of Goods Sold Budget For the Month Ending January 31
			$
		$
Direct materials:
	$
Cost of direct materials available for use	$
Cost of direct materials placed in production	$
Total manufacturing costs
Total work in process during period		$
Cost of goods manufactured
Cost of finished goods available for sale			$
Cost of goods sold			$

7. Prepare a selling and administrative expenses budget for January.

Birding Homes & Feeders Inc. Selling and Administrative Expenses Budget For the Month Ending January 31
Selling expenses:
		$
Total selling expenses			$
Administrative expenses:
		$
Total administrative expenses
Total operating expenses			$

8. Prepare a budgeted income statement for January. In the Other revenue and expense section, indicate expenses as negative amounts.

Birding Homes & Feeders Inc. Budgeted Income Statement For the Month Ending January 31
			$
			$
Operating expenses:
		$
Total operating expenses
Operating income			$
Other revenue and expense:
		$
Income before income tax			$
Net income			$

Answer 1

Ans. 1	Birding Homes & Feeders Inc.
	Sales Budget
	For the Month Ending January 31
		Unit Sales Volume (a)	Unit Selling Price (b)	Total Sales (a*b)
	Bird house	15000	$25	$375,000
	Bird feeder	40000	$15	$600,000
	Total revenue from sales			$975,000
Ans. 2	Birding Homes & Feeders Inc.
	Production Budget
	For the Month Ending January 31
	Particulars	Bird house	Bird feeder
	Expected units to be sold	15000	40000
	Add: Desired ending finished inventory	1500	3000
	Total required units	16500	43000
	Less: Beginning finished inventory units	-1000	-2500
	Units to be produced	15500	40500
Ans. 3	Birding Homes & Feeders Inc.
	Direct Materials Purchases Budget
	For the Month Ending January 31
		Wood	Plastic	Total
	Required units for production:
	Bird house	12400	1550
	Bird feeder	8100	40,500
	Add: Desired units of ending materials inventory	500	1250
	Total units available	21000	43300
	Less: Estimated beginning materials inventory	-600	-1000
	Total units to be purchased	20400	42300
	(*) Unit price	$2.50	$0.80
	Total direct materials to be purchased	$51,000	$33,840	$84,840
	*Calculations:
	Required units for production =   Units produced * Materials required per unit
		Wood	Plastic
	Required units for production:
	Bird house	15,500 * 0.80 ft	15,500 * 0.10 lb.
	Bird feeder	40,500 * 0.20 ft	40,500 * 1.00 lb.
Ans. 4	Birding Homes & Feeders Inc.
	Direct Labor Cost Budget
	For the Month Ending January 31
		Fabrication Department	Assembly Department	Total
	Hours required for production:
	Bird house	6200	3100
	Bird feeder	10125	4050
	Total	16325	7150
	(*) Hourly rate	$18.00	$12.00
	Total direct labor cost	$293,850	$85,800	$379,650
	*Calculations:
	Hours required for production = Units produced * Direct labor hours per unit
		Fabrication Department	Assembly Department
	Hours required for production:
	Bird house	15,500 * 0.40 hour	15,500 * 0.20 hour
	Bird feeder	40,500 * 0.25 hour	40,500 * 0.10 hour