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

$Answer

2. Production

Answer

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

$Answer

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

Solution

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.

Particular	Amount	Amount	Amount
1) Sales Budget:
Sales in units = 6000 + 5000 =	11000
Sales in $ = 6000*$53+5000*$48 =	558000
2) Production Budget:
Desired ending inventory	4000
Sales	11000
Total needs	15000
Less: Beginning inventory	0
Budgeted production for the quarter	15000
3) Materials purchases cost:	Material A	Material B	Total
Desired ending inventory	4000	6000
Required for production	60000	30000
Total needs	64000	36000
Less: Beginning inventory	0	0
Budgeted purchases for the quarter	64000	36000
Unit cost	3.15	4.65
Material purchase cost	201600	167400	369000
4) Direct Labour cost budget:
Total direct labour hours needed = 15000*0.5 =	7500
Direct labour cost at 15 per DLH	112500
5) Manufacturing overhead costs:
Depreciation	7650
Factory supplies = 4500+0.90*15000 =	18000
Supervisory salaries	28800
Other = 22950 + 0.75*15000 =	34200
Total manufacturing overhead	88650
6) Selling & administrative expenses:
Selling expenses:
Advertising	22500
Sales salaries & commissions = 15000+11000*1.5 =	31500
Other = 3000 + 0.9*11000 =	12900
Total selling expenses	66900
Administrative expenses:
Office salaries	2700
Supplies = 1050+15000*0.15 =	3300
Other = 1950+0.08*15000 =	3150
Total administrative expenses	9150
Total selling & administrative expenses	76050
b) Budgeted Income statement:
Sales	558000
Cost of goods sold	388410
Gross profit	169590
Selling & administrative expenses	76050
Income before tax	93540
Income tax at 30%	28062
Net Income	65478
Cost of goods produced:
Direct materials = 60000*3.15+30000*4.65 =	328500
Direct labour	112500
Manufacturing overheads	88650
Cost of production	529650
Less: ending inventory = 529650*4000/15000 =	141240
Cost of goods sold	388410