Question

Shadee Corp. expects to sell 550 sun visors in May and 320 in June. Each visor sells for $21. Shadee’s beginning and ending finished goods inventories for May are 60 and 45 units, respectively. Ending finished goods inventory for June will be 60 units.

Each visor requires a total of $3.50 in direct materials that includes an adjustable closure that the company purchases from a supplier at a cost of $2.00 each. Shadee wants to have 27 closures on hand on May 1, 21 closures on May 31, and 22 closures on June 30 and variable manufacturing overhead is $1.75 per unit produced. Suppose that each visor takes 0.70 direct labor hours to produce and Shadee pays its workers $7 per hour. Additional information: Selling costs are expected to be 12 percent of sales. Fixed administrative expenses per month total $1,600.

1. Required: Complete Shadee's budgeted income statement for the months of May and June. (Note: Assume that fixed overhead per unit is $3.00.)

Answer 1

Shadee Corporation

Budgeted Income Statement

For the Month of May and June

Particulars	May	June	Total
Sales Revenue	11,550	6,720	18,270
Less: Cost of Goods Sold	(7,232.50)	(4,208)	(11,440.50)
Gross Profit	4317.50	2,512	6,829.50
Less: Selling and Administrative Expenses
Fixed Administrative Expenses	(1,600)	(1,600)	( 3,200 )
Variable Selling and Administrative Expenses	(1,386)	(806.40)	(2192.40)
Total Selling and Administrative Expenses	(2,986)	(2,406.40)	(5,392.40)
Net Operating Income / (Loss)	1,331.50	105.60	1,437.10

Notes

Particulars	May	June
Sales in Units	550	320
* Sales Price per Unit	21	21
Budgeted Sales Revenue	11,550	6,720

Particulars	Amount
Direct Materials Cost per Unit	3.50
Add: Direct Labour Cost per Unit	4.90
Add: Variable Overhead Cost per Unit	1.75
Add: Fixed Overhead Cost per Unit	3
Unit Product Cost	13.15

Labour Cost per Unit = 0.7 Labour Hours per Unit * $ 7 per Hour = $ 4.90

Particulars	May	June
Sales in Units	550	320
* Unit Product Cost	13.15	13.15
Cost of Goods Sold	7,232.50	4,208

Particulars	May	June
Sales Revenue	11,550	6,720
* Variable Selling Costs in %	12%	12%
Variable Selling Costs	1,386	806.40