Question

Preparation of Individual Budgets
During the first calendar quarter of 2016, Clinton Corporation is planning to manufacture a new product and introduce it in two regions. Market research indicates that sales will be 5,000 units in the urban region at a unit price of $53 and 4,000 units in the rural region at $48 each. Because the sales manager expects the product to catch on, he has asked for production sufficient to generate a 3,000-unit ending inventory. The production manager has furnished the following estimates related to manufacturing costs and operating expenses:

			Variable		Fixed
			(per unit)		(total)
Manufacturing costs:
Direct materials
A (4 lb. @ $3.15/lb.)			$12.60		-
B (2 lb. @ $4.65/lb.)			9.30		-
Direct labor (0.5 hours per unit)			7.50		-
Manufacturing overhead:
Depreciation			-		$7,650
Factory supplies			0.90		4,500
Supervisory salaries			-		28,800
Other			0.75		22,950
Operating expenses:
Selling:
Advertising			-		22,500
Sales salaries& commissions*			1.50		15,000
Other*			0.90		3,000
Administrative:
Office salaries			-		2,700
Supplies			0.15		1,050
Other			0.08		1,950

*Varies per unit sold, not per unit produced.

a. Assuming that the desired ending inventories of materials A and B are 3,000 and 5,000 pounds, respectively, and that work-in-process inventories are immaterial, prepare budgets for the calendar quarter in which the new product will be introduced for each of the following operating factors:

Do not use negative signs with any of your answers below.

1. Total sales

$_____

2. Production

_____ units

3. Material purchase cost

				Material A	Material B
Total pounds (lbs.) required for production				Answer	Answer
Desired ending materials inventory				Answer	Answer
Total pounds to be available				Answer	Answer
Beginning materials inventory				Answer	Answer
Total material to be purchased (lbs.)				Answer	Answer
Total material purchases ($)				Answer	Answer

4. Direct labor costs

$ _____

5. Manufacturing overhead costs

			Fixed	Variable	Total
Depreciation			Answer	Answer	Answer
Factory supplies			Answer	Answer	Answer
Supervisory salaries			Answer	Answer	Answer
Other			Answer	Answer	Answer
Total manufacturing overhead					Answer

6. Selling and administrative expenses

			Fixed	Variable	Total
Selling expenses:
Advertising			Answer	Answer	Answer
Sales salaries and commissions			Answer	Answer	Answer
Other			Answer	Answer	Answer
Total selling expenses					Answer
Administrative expenses:
Office salaries			Answer	Answer	Answer
Supplies			Answer	Answer	Answer
Other			Answer	Answer	Answer
Total administrative expenses					Answer
Total selling and administrative expenses					Answer

b. Using data generated in requirement (a), prepare a budgeted income statement for the calendar quarter. Assume an overall effective income tax rate of 30%.

Round answers to the nearest whole number.
Do not use negative signs with your answers.

Clinton Corporation Budgeted Income Statement For the Quarter Ended March 31, 2016
Sales					Answer
Cost of Goods Sold:
Beginning Inventory - Finished Goods				Answer
Material:
Beginning Inventory - Material			Answer
Material Purchases			Answer
Material Available			Answer
Ending Inventory - Material			Answer
Direct Material			Answer
Direct Labor			Answer
Manufacturing Overhead			Answer
Total Manufacturing Cost				Answer
Cost of Goods Available for Sale				Answer
Ending Inventory - Finished Goods				Answer
Cost of Goods Sold					Answer
Gross Profit					Answer
Operating Expenses:
Selling Expenses				Answer
Administrative Expenses				Answer
Total Operating Expenses					Answer
Income before Income Taxes					Answer
Income Tax Expense					Answer
Net Income					Answer

Answer 1

a)
1) Sales Budget:
Sales in units (5000+4000)	$       9,000
Sales in $ (5000*53+4000*48)	$   457,000
2) Production Budget:
Desired ending inventory	$       3,000
Sales	$       9,000
Production Units	$     12,000
3) Materials purchases cost:	Material A	Material B
Required for production	$     12,000	$    12,000
Pounds per unit	$              4	$             2
Total pounds (lbs.) required for production	$     48,000	$    24,000
Desired ending materials inventory	$       3,000	$      5,000
Total pounds to be available	$     51,000	$    29,000
Beginning materials inventory	$            -	$            -
Total material to be purchased (lbs.)	$     51,000	$    29,000
Material purchases ($)	$              3	$             5
Total material purchases ($)	$   160,650	$ 134,850	$ 295,500
4) Direct Labor cost budget:
Total direct labor hours needed (12000*0.5)	$       6,000
Direc labor cost at $15 per DLH	$     90,000
5) Manufacturing overhead costs:
Depreciation	$       7,650
Factory supplies (4500+0.9*12000)	$     15,300
Supervisory salaries	$     28,800
Other (22950+0.75*12000)	$     31,950
Total manufacturing overhead	$     83,700
6) Selling and administrative expenses:
Selling expenses:
Advertising	$     22,500
Sales salaries and commissions (15000+9000*1.5)	$     28,500
Other (3000+0.9*9000)	$     11,100
Total selling expenses	$     62,100
Administrative expenses:
Office salaries	$       2,700
Supplies (1050+12000*0.15)	$       2,850
Other (1950+0.08*12000)	$       2,910
Total administrative expenses	$       8,460
Total selling and administrative expenses	$     70,560
Clinton Corporation
Budgeted Income Statement
For the Quarter Ended March 31, 2016
Sales			$ 457,000
Cost of Goods Sold:
Beginning Inventory - Finished Goods		$            -
Material:
Beginning Inventory - Material	$            -
Material Purchases	$   295,500
Material Available	$   295,500
Ending Inventory - Material (3000*3.15+5000*4.65)	$     32,700
Direct Material	$   262,800
Direct Labor	$     90,000
Manufacturing Overhead	$     83,700
Total Manufacturing Cost		$ 436,500
Cost of Goods Available for Sale		$ 436,500
Ending Inventory - Finished Goods (436500/12000*3000)		$ 109,125
Cost of Goods Sold			$ 327,375
Gross Profit			$ 129,625
Operating Expenses:
Selling Expenses		$    62,100
Administrative Expenses		$      8,460
Total Operating Expenses			$   70,560
Income before Income Taxes			$   59,065
Income Tax Expense			$   17,720
Net Income			$   41,346