Question

Wesley Power Tools manufactures a wide variety of tools and accessories. One of its more popular items is a cordless power handisaw. Each handisaw sells for $50. Wesley expects the following unit sales:

January	2,000
February	2,300
March	2,900
April	2,900
May	2,200

Wesley’s ending finished goods inventory policy is 25 percent of the next month’s sales.

Suppose each handisaw takes approximately 0.35 hours to manufacture, and Wesley pays an average labor wage of $14.50 per hour.

Each handisaw requires a plastic housing that Wesley purchases from a supplier at a cost of $7.00 each. The company has an ending direct materials inventory policy of 10 percent of the following month’s production requirements. Materials other than the housing unit total $3.50 per handisaw.

Manufacturing overhead for this product includes $69,000 annual fixed overhead (based on production of 24,000 units) and $0.80 per unit variable manufacturing overhead. Wesley’s selling expenses are 7 percent of sales dollars, and administrative expenses are fixed at $15,000 per month.

Required:
1. Compute the budgeted cost of goods sold for the first quarter.
2. Compute the budgeted selling and administrative expenses for the first quarter.
3. Complete the budgeted income statement for the handisaw product for the first quarter.

Answer 1

Wesley Power Tools
1)	Production budget:
		QTR-1
Sr.No.	Particulars	Jan.	Feb.	Mar.	Apr.	May
1	Opening Stock (Note-1)	500.00	575.00	725.00
2	Sales	2,000.00	2,300.00	2,900.00	2900	2200
3	Closing Stock	575.00	725.00	725.00
4	Production during the month (3+2-1)	2,075.00	2,450.00	2,900.00
	Note - 1: It is assumed that opening inventory for Jan was also maintained as per inventory policy.
2)	Estimated cost of goods sold p.u.
Sr.No.	Particulars	Amount ($)
1	Direct Material	3.50
2	Plastic Housing (Note-2)	7.00
3	Direct Labor	5.08
4	Fixed Manufacturing overheads absorbed p.u.	2.88
5	Variable Manufacturing overheads p.u.	0.80
	Manufacturing cost p.u.	19.25
	Note - 2: It is assumed that Plastic housing is an essential packing and not merely a selling requirement.
3)	Budgeted Cost of Goods sold for the first quarter:
Sr.No.	Particulars	Units	Cost p.u.	Amount
1	Opening stock	500.00	19.25	9,625.00
2	Manufactured during the quarter	7,425.00	19.25	142,931.25
3	Closing Stock	725.00	19.25	13,956.25
4	Cost of goods sold (1+2-3)	7,200.00	19.25	138,600.00
4)	Selling and administrative expenses:
Sr.No.	Particulars	Amount
1	Sales
	- Units	7,200.00
	- Amount @ $ 50/unit	360,000.00
2	Selling Expenses @ 7%	25,200.00
3	Administrative Expenses @ 15000 p.m.	45,000.00
4	Total Selling and Administration Exps.	70,200.00
5)	Material Purchase Budget
Sr.No.	Particulars	Jan	Feb	Mar	Apr
1	Material per unit
	- Direct Material	3.50	3.50	3.50	3.50
	- Plastic Housing	7.00	7.00	7.00	7.00
	Total	10.50	10.50	10.50	10.50
2	Opening Stock @ 10.50 p.u.	2,100.00	2,415.00	3,045.00	3,045.00
3	Required During the month @ 10.50 p.u.	21,787.50	25,725.00	30,450.00	-
4	Closing Stock	2,415.00	3,045.00	3,045.00	-
5	Purchased during the month	22,102.50	26,355.00	30,450.00
6	Total for the quarter	78,907.50
6)	Budgeted Income Statement:
	Particulars		Amount
1	Sales Revenue		360,000.00
	Less:
	1) Material Cost Budget (Direct Material & Packing) (2+3-4)		77,962.50
2	- Opening Stock	2,100.00
3	- Purchases	78,907.50
4	- Closing Stock	3,045.00
	Changes In Inventory Finished Goods (6-5)		(4,331.25)
5	- Closing Stock	13,956.25
6	- Opening Stock	9,625.00
7	Direct Labor		37,681.88
8	Variable Manufacturing overheads		5,760.00
9	Fixed Manufacturing Overheads (69000/4)		17,250.00
10	Selling Expenses		25,200.00
11	Administration Expenses		45,000.00
	Net Income for the quarter		155,476.88