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 6,000 units in the urban region at a unit price of $53 and 5,000 units in the rural region at $48 each. Because the sales manager expects the product to catch on, he has asked for production suf-ficient to generate a 4,000-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 material:

A (4 lb. @ $3.15/lb.) ............................................ .$12.60 —

B (2 lb. @ $4.65/lb.) ............................................. 9.30 —

Direct labor (0.5 hr. 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 and 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.

Required

a. Assuming that the desired ending inventories of materials A and B are 4,000 and 6,000 pounds, respectively, and that work-in-process inventories are immaterial, prepare budgets for the cal-endar quarter in which the new product will be introduced for each of the following operating factors:

1. Total sales

2. Production

3. Material purchases cost

4. Direct labor costs

5. Manufacturing overhead costs

6. Selling and administrative expenses

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%.

Answer 1

Prepartion of Sales Budget
	Urban Region	Rural Region
Sales Unit	6000	5000
Selling Price/Unit	$53	$48
Budgeted Sales Value	$318,000	$240,000
Prepartion of Production Budget
Sales Unit	11000
Ending Inventory	4000
Production Unit	15000
Preparation of Direct Labour Budget
Production Unit	15000
Labour Minute Require/Unit	0.5 Hour
Total Labour Required for Production (15000*0.5 Hour)	7500
Laour Cost/Hour (7.5*2)	$15.00
Total Labour Cost	$112,500
Preparation of Direct Material Purchase Budget
Material	A	B
Production Unit	15000
Raw material/ Unit	4lb.	2lb.
Total Raw Material required for Production (in lb.)	60000	30000
Ending Inventory (in lb.)	4000	6000
Total Raw Material Purchase (in lb.)	64000	36000
Price/Pound	$3.15/ib.	$4.65/ib.
Total Raw Material Purchase Cost	$201,600	$167,400
Preparation of Manufacturing Overhead Budget
Particular	Fixed	Variable
Production unit=15000		Per Unit	Total
Depreciation	$7,650.00
Factory Supplies	$4,500.00	$0.90	13500
Supervisor Salaries	$28,800.00
Other	$22,950.00	$0.75	$11,250.00
Total	$63,900.00	$1.65	$24,750.00
Preparation of Selling & Admin. Overhead Budget
Particular	Fixed	Variable
Sales Unit= 11000		Per unit	Total
Advertising	$22,500.00
Sales Salaries & Commision	$15,000.00	$1.50	$16,500.00
Other	$3,000.00	$0.90	$9,900.00
Office Salaries	$2,700.00
Supplies	$1,050.00	$0.15	$1,650.00
Other	$1,950.00	$0.08	$880.00
Total	$46,200.00	$0.23	$28,930.00
				Budgeted Income Statement
Sales		$558,000.00
Less: Cost of Goods Sold
Direct Material Cost
A: (11000*4lb.*$3.15)	$138,600.00
B: (11000*2lb.*$4.65)	$102,300.00
Direct Labour Cost (11000*$7.5)	$82,500.00
Fixed Manufacturing Overhead	$63,900.00
Variable Manufactuing Overhead ($1.65*11000)	$18,150.00
Fixed Selling & Adminstration Overhead	$46,200.00
Variable Selling & Administration Overhead ($0.23*11000)	$2,530.00	$454,180.00
Income Before Tax		$103,820.00
Less: Income Tax @30%		$31,146.00
Income After Tax		$72,674.00