Question

Budgeted Income Statement and Supporting Budgets

The budget director of Feathered Friends 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 December:

Estimated sales for December:

Bird house	3,200 units at $50 per unit
Bird feeder	3,000 units at $70 per unit

Estimated inventories at December 1:

Direct materials:
Wood	200 ft.
Plastic	240 lbs.
Finished products:
Bird house	320 units at $27 per unit
Bird feeder	270 units at $40 per unit

Desired inventories at December 31:

Direct materials:
Wood	220 ft.
Plastic	200 lbs.
Finished products:
Bird house	290 units at $27 per unit
Bird feeder	250 units at $41 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	$7.00 per ft.
Plastic	$1.00 per lb.

Direct labor requirements:

Bird House:
Fabrication Department	0.20 hr. at $16 per hr.
Assembly Department	0.30 hr. at $12 per hr.
Bird Feeder:
Fabrication Department	0.40 hr. at $16 per hr.
Assembly Department	0.35 hr. at $12 per hr.

Estimated factory overhead costs for December:

Indirect factory wages	$75,000
Depreciation of plant and equipment	23,000
Power and light	6,000
Insurance and property tax	5,000

Estimated operating expenses for December:

Sales salaries expense	$70,000
Advertising expense	18,000
Office salaries expense	21,000
Depreciation expense—office equipment	600
Telephone expense—selling	550
Telephone expense—administrative	250
Travel expense—selling	4,000
Office supplies expense	200
Miscellaneous administrative expense	400

Estimated other income and expense for December:

Interest revenue	$200
Interest expense	122

Estimated tax rate: 30%

Required:

1. Prepare a sales budget for December.

Feathered Friends Inc. Sales Budget For the Month Ending December 31
	Unit Sales Volume	Unit Selling Price	Total Sales
Bird house
Bird feeder
Total revenue from sales

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

Feathered Friends Inc. Production Budget For the Month Ending December 31
	Units
		Bird House		Bird Feeder
Expected units to be sold
Desired inventory, December 31
Total units available
Estimated inventory, December 1
Total units to be produced

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

Feathered Friends Inc. Direct Materials Purchases Budget For the Month Ending December 31
	Wood	Plastic	Total
Required units for production:
Bird house
Bird feeder
Desired units of inventory, December 31
Total units available
Estimated units of inventory, December 1
Total units to be purchased
Unit price
Total direct materials to be purchased

4. Prepare a direct labor cost budget for December.

Feathered Friends Inc. Direct Labor Cost Budget For the Month Ending December 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 December.

Feathered Friends Inc. Factory Overhead Cost Budget For the Month Ending December 31
Indirect factory wages	$
Depreciation of plant and equipment
Power and light
Insurance and property tax
Total factory overhead cost	$

6. Prepare a cost of goods sold budget for December. Work in process at the beginning of December is estimated to be $29,000, and work in process at the end of December is estimated to be $35,400. For those boxes in which you must enter subtracted or negative numbers use a minus sign.

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

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

Feathered Friends Inc. Selling and Administrative Expenses Budget For the Month Ending December 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 December. In the Other revenue and expense section, indicate expenses as negative amounts.

Feathered Friends Inc. Budgeted Income Statement For the Month Ending December 31
Revenue from sales			$
Cost of goods sold
Gross profit			$
Operating expenses:
Selling expenses		$
Administrative expenses
Total operating expenses
Income from operations			$
Other revenue and expense:
Interest revenue		$
Interest expense
Income before income tax			$
Income tax expense
Net income			$

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Answer 1

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1. Sales Budget
	Unit Sales	Unit Selling Price	Total Sale
Bird House	3200	50	160000
Bird Feeder	3000	70	210000
Total Revenue from Sale			370000
2. Production Budget
	Bird House	Bird Feeder
Expected units to be sold	3200	3000
Desired Inventory, December 31	290	250
Total units Available	3490	3250
Estimated Inventory , December 1	-320	-270
Total Units to be produced	3170	2980
3. Direct Material Purchases Budget
	Wood	Plastic	Total
Required units for production:
Bird House	2536	1585	4121
Bird Feeder	3576	2235	5811
Desired Inventory, December 31	220	200	420
Total units Available	6332	4020	10352
Estimated Inventory , December 1	-200	-240	-440
Total Units to be purchased	6132	3780	9912
Unit Price	7	1
Total Direct Materials to be purchased	42924	3780	46704
4.Direct Labor Cost Budget
	Fabrication	Assembly	Total
Hours required for production:
-Bird Hour	634	951	1585
-Bird Feeder	1192	1043	2235
-Total	1826	1994	3820
Hourly rate	16	12
Total Direct Labor Cost	29216	23928	53144
5. Factory Overhead Cost Budget
Indirect Factory Wages	75000
Depreciation of plant and equipment	23000
Power and light	6000
Insurance and property tax	5000
Total factory overhead cost	109000
6. Cost of Goods Sold Budget
				Working	Working
Finished goods inventory, December 1			19440	(320*27)+(270*40)	1
Work in process inventory, December 1		29000			2
Direct materials:					3
Direct materials inventory, December 1	1640			(200*7)+(240*1)	4
Direct materials purchases	46704				5
Cost of direct materials available for use	48344				6=3+4
Direct materials inventory, December 31	-1740			(220*7)+(200*1)	7
Cost of direct materials placed in production	46604				8=6+7
Direct labor	53144				9
Factory overhead	109000				10
Total manufacturing costs		208748			11=8+9+10
Total work in process during period		237748			12=2+12
Work in process inventory, December 31		-35400			13
Cost of goods manufactured			202348		14=12+13
Cost of finished goods available for sale			221788		15=1+14
Finished goods inventory, December 31			-18080	(290*27)+(250*41)	16
Cost of goods sold			203708		17=15+16
7. Selling and Administrative Budget
Selling Expense:
Sale Salaries Expense	70000
Advertising Expense	18000
Telephone Expense-Selling	550
Travel Expense Selling	4000
Total Selling Expense		92550
Administration Expense:
Office Salaries Expense	21000
Depreciation Expense-Office Equipment	600
Telephone expense—administrative	250
office supplies expense	200
Miscellaneous administrative expense	400
Total administrative expenses		22450
Total operating expenses			115000
8. Budgeted Income Statement
Revenue from sales	From Sales Budget		370000
Cost of goods sold	From COGS Budget		-203708
Gross profit			166292
Operating expenses:
Selling expenses	Selling Budget	92550
Administrative expenses	Selling Budget	22450
Total operating expenses	Selling+Administrative		115000
Income from operations	166292-115000		51292
Other revenue and expense:
Interest revenue			200
Interest expense			-122
Income before income tax			51370
Income tax expense	30%		-15411
Net Income			35959