Question

Country Cookin' Inc. begins the budgeting process for the following year in the 1st quarter of the current year. With the information provided below, prepare the sales, production and direct materials budgets for the 1st quarter of next year. Also determine the budgeted manufacturing cost per unit and prepare the budgeted income statement for January of next year.

Country Cookin' Inc. sells the cooker/smokers they manufacture to various retailers for $130 each. Each cooker/smoker requires 11 ounces of raw material, which is purchased by Country Cookin' Inc. for $8.00 per ounce. To prepare for next month's production, Country Cookin' Inc. likes to maintain an ending stock of raw material equal to 10% of the production requirements for the current month. The company would also like to maintain an ending stock of finished cooker/smokers equal to 20% of next month's sales.

Sales are projected to be 6,000 for January, 8,000 for February and 14,000 for March.

Your Company expects to sell 12,000 cooker/smokers in April and needs 132,000 ounces of direct materials for production.

15% of sales from Country Cookin' Inc. to retailers are cash sales, while the remaining 85% are sold on account.

Additional budgeted information includes:

Month

1st Quarter

Projections For Next Year

January

February

March

Direct labor

$         24,000

$         34,500

$               51,000

$      109,500

Manufacturing overhead:

Variable

$         28,800

$         41,400

$               61,200

$      131,400

Fixed 1

$         41,000

$         41,000

$               41,000

$      123,000

Total operating expenses 2

$         71,000

$         74,000

$               95,000

$      240,000

Each cooker/smoker requires 0.25 of an hour of direct labor at the rate of $15.00.

Country Cookin' Inc. estimated at the beginning of the year that it would produce 307,500 cooker/smokers next year.

Interest expense is budgeted at zero since the company has no outstanding debt.

Income tax expense is budgeted at 35% of income before taxes.

Prepare next year's 1st quarter sales budget for Country Cookin' Inc.

Country Cookin' Inc.

Sales Budget

For the Quarter Ended March 31

Month

1st Quarter

January

February

March

Unit sales

Unit selling price

Total sales revenue

Type of Sale

Cash sales

Credit sales

Total sales revenue

Prepare next year's 1st quarter production budget for Country Cookin' Inc.

Country Cookin' Inc.

Production Budget

For the Quarter Ended March 31

Month

1st Quarter

January

February

March

Unit sales

Plus: Desired ending inventory

Total needed

Less: Beginning inventory

Units to produce

Prepare next year's 1st quarter direct materials budget for Country Cookin'.

Country Cookin' Inc.

Direct Materials Budget

For the Quarter Ended March 31

Month

1st Quarter

January

February

March

Units to be produced

x Ounces of direct materials needed per unit

Ounces needed for production

Plus: Desired ending inventory of direct materials

Total ounces needed

Less: Beginning inventory of direct materials

Ounces to purchase

x Cost per ounce

Total cost of direct materials purchases

Prepare next year's budgeted manufacturing cost per unit for Country Cookin' Inc.

Country Cookin' Inc.

Budgeted Manufacturing Cost per Unit

January

Direct materials

Direct labor

Manufacturing overhead:

Variable

Fixed

hint: you must take into account total annualized fixed costs in relation to total expected units for the year

Cost of manufacturing each widget

Prepare next year's budgeted income statement for the month ended January 31 for Country Cookin' Inc.

Country Cookin' Inc.

Budgeted Income Statement

For the month ended January 31

Sales Revenue

Less: Cost of goods sold

Gross profit

Less: Operating expenses

Operating income

Less: Interest expense

Less: Income tax expense

Net income

Answer 1

Country Cookin' Inc.
Sales Budget
For the Quarter Ended March 31
	Month			1st
	January	February	March	Quarter
Unit sales	6000	8000	14000	28000
Unit selling price	$130	$130	$130	$130
Total sales revenue	$780,000	$1,040,000	$1,820,000	$3,640,000
Type of Sale
Cash sales (15% *T)	$117,000	$156,000	$273,000	$546,000
Credit sales (85%*T)	$663,000	$884,000	$1,547,000	$3,094,000
Total sales revenue	$780,000	$1,040,000	$1,820,000	$3,640,000
Prepare next year's 1st quarter production budget for Country Cookin' Inc.
Country Cookin' Inc.
Production Budget
For the Quarter Ended March 31
	Month			1st
	January	February	March	Quarter	April
Unit sales	6000	8000	14000	28000	12000
Plus: Desired ending inventory (20%*next month sales)	1600	2800	2400	2400
Total needed	7600	10800	16400	30400
Less: Beginning inventory	0	1600	2800	0
Units to produce	7600	9200	13600	30400
Prepare next year's 1st quarter direct materials budget for Country Cookin'.
Country Cookin' Inc.
Direct Materials Budget
For the Quarter Ended March 31
	Month			1st
	January	February	March	Quarter
Units to be produced	7600	9200	13600	30400
x Ounces of direct materials needed per unit	11	11	11	11
Ounces needed for production O	83600	101200	149600	334400
Plus: Desired ending inventory of direct materials O*10%	8360	10120	14960	14960
Total ounces needed	91960	111320	164560	349360
Less: Beginning inventory of direct materials	0	8360	10120	0
Ounces to purchase	91960	102960	154440	349360
x Cost per ounce	8	8	8	8
Total cost of direct materials purchases	735680	823680	1235520	2794880
Prepare next year's budgeted manufacturing cost per unit for Country Cookin' Inc.
Country Cookin' Inc.
Budgeted Manufacturing Cost per Unit
January
Direct materials (11*8)	$88
Direct labor (.25*15)	3.75
Manufacturing overhead:
Variable (41400/9200 from Feb calculation)	4.50
Fixed (41000*12)/307500	1.60
Cost of manufacturing each widget	$97.85
Prepare next year's budgeted income statement for the month ended January 31 for Country Cookin' Inc.
Country Cookin' Inc.
Budgeted Income Statement
For the month ended January 31
Sales Revenue	$3,640,000
Less: Cost of goods sold (28000*97.85)	$2,739,800
Gross profit	$900,200
Less: Operating expenses
Operating income
Less: Interest expense	0
Less: Income tax expense (35%)	$315,070.00
Net income	$585,130.00