Question

Budgeted Income Statement and Supporting Budgets

The budget director of Birds of a Feather 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:

Estimated sales for January:

Bird house	6,000 units at $55 per unit
Bird feeder	4,500 units at $75 per unit

Estimated inventories at January 1:

Direct materials:
Wood	220 ft.
Plastic	250 lbs.
Finished products:
Bird house	300 units at $23 per unit
Bird feeder	240 units at $34 per unit

Desired inventories at January 31:

Direct materials:
Wood	180 ft.
Plastic	210 lbs.
Finished products:
Bird house	340 units at $23 per unit
Bird feeder	200 units at $34 per unit

Direct materials used in production:

In manufacture of Bird House:
Wood	0.80 ft. per unit of product
Plastic	0.50 lb. per unit of product
In manufacture of Bird Feeder:
Wood	1.20 ft. per unit of product
Plastic	0.75 lb. per unit of product

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

Wood	$8.00 per ft.
Plastic	$1.20 per lb.

Direct labor requirements:

Bird House:
Fabrication Department	0.20 hr. at $15 per hr.
Assembly Department	0.30 hr. at $12 per hr.
Bird Feeder:
Fabrication Department	0.40 hr. at $15 per hr.
Assembly Department	0.35 hr. at $12 per hr.

Estimated factory overhead costs for January:

Indirect factory wages	$80,000
Depreciation of plant and equipment	25,000
Power and light	$8,000
Insurance and property tax	2,000

Estimated operating expenses for January:

Sales salaries expense	$90,000
Advertising expense	20,000
Office salaries expense	18,000
Depreciation expense—office equipment	800
Telephone expense—selling	500
Telephone expense—administrative	200
Travel expense—selling	5,000
Office supplies expense	250
Miscellaneous administrative expense	450

Estimated other income and expense for January:

Interest revenue	$300
Interest expense	224

Estimated tax rate: 30%

Required:

1. Prepare a sales budget for January.

Birds of a Feather 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.

Birds of a Feather Inc. Production Budget For the Month Ending January 31
	Units
		Bird House		Bird Feeder
Expected units to be sold
Plus desired inventory, January 31
Total
Less estimated inventory, January 1
Total units to be produced

3. Prepare a direct materials purchases budget for January.

Birds of a Feather Inc. Direct Materials Purchases Budget For the Month Ending January 31
	Wood	Plastic	Total
Required units for production:
Bird house
Bird feeder
Plus desired units of inventory, January 31
Total
Less 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.

Birds of a Feather 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.

Birds of a Feather Inc. Factory Overhead Cost Budget For the Month Ending January 31
	Indirect factory wages
	Depreciation of plant and equipment
	Power and light
	Insurance and property tax
	Total	$

6. Prepare a cost of goods sold budget for January. Work in process at the beginning of January is estimated to be $29,000, and work in process at the end of January is estimated to be $35,400.

Birds of a Feather Inc. Cost of Goods Sold Budget For the Month Ending January 31
Finished goods inventory, January 1
Work in process inventory, January 1
Direct materials:
Direct materials inventory, January 1
Direct materials purchases
Cost of direct materials available for use
Less: Direct materials inventory, January 31
Cost of direct materials placed in production
Direct labor
Factory overhead
Total manufacturing costs
Total work in process during the period
Less: Work in process inventory, January 31
Cost of goods manufactured
Cost of finished goods available for sale
Less: Finished goods inventory, January 31
Cost of goods sold			$

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

Birds of a Feather Inc. Selling and Administrative Expenses Budget For the Month Ending January 31
Selling expenses:
	Sales salaries expense
	Advertising expense
	Telephone expense—selling
	Travel expense—selling
	Total selling expenses
Administrative expenses:
	Office salaries expense
	Depreciation expense—office equipment
	Telephone expense—administrative
	Office supplies expense
	Miscellaneous administrative expense
	Total administrative expenses
Total operating expenses			$

8. Prepare a budgeted income statement for January.

Birds of a Feather Inc. Budgeted Income Statement For the Month Ending January 31
Revenue from sales
Cost of goods sold
Gross profit
Operating expenses:
	Selling expenses
	Administrative expenses
	Total operating expenses
Income from operations
Other income:
	Interest revenue
Other expenses:
	Interest expense
Income before income tax
Income tax expense (30% rate)
Net income			$

Answer 1

1. Birds of a Feather Inc.

Sales Budget

For the month ending January 31

	Unit Sales Volume	Unit Selling Price	Total Sales
Bird House	6,000	$ 55	$ 330,000
Bird Feeder	4,500	$ 75	$ 337,500
Total Revenue from Sales			$ 667,500

2. Birds of a Feather Inc.

Production Budget

For the month ending January 31

	Bird House	Bird Feeder
Expected units to be sold	6,000	4,500
Plus: Desired ending inventory, January 31	340	200
Total	6,340	4,700
Less: Estimated Inventory, January 1	300	240
Total units to be produced	6,040	4,460

3. Birds of a Feather Inc.

Direct Materials Purchases Budget

For the month ended January 31

	Wood	Plastic	Total
Required units for production
Bird House	4,832	3,020
Bird Feeder	5,352	3,345
Plus desired units of inventory,January 31	180	210
Total	10,364	6,575
Less: Estimated units of inventory, January 1	220	250
Total units to be purchased	10,144 ft.	6,325 lbs.
Unit Price	$ 8.00 per ft	$ 1.20 per lb.
Total direct materials to be purchased	$ 81,152	$ 7,590	$ 88,742

4. Birds of a Feather Inc.

Direct Labor Cost Budget

For the month ending January 31

	Fabrication	Assembly	Total
Hours required for production
Bird House	1,208	1,338
Bird Feeder	2,416	1,561
Total	3,624	2,899
Hourly rate	$ 15	$ 12
Total direct labor cost	$ 54,360	$ 34,788	$ 89,148

5. Birds of a Feather Inc.

Factory Overhead Cost Budget

For the month ending January 31

Indirect factory wages	$ 80,000
Depreciation of plant and equipment	25,000
Power and light	8,000
Insurance and property taxes	2,000
Total	$ 115,000