Question

Shadee Corp. expects to sell 500 sun visors in May and 340 in June. Each visor sells for $25. Shadee’s beginning and ending finished goods inventories for May are 60 and 55 units, respectively. Ending finished goods inventory for June will be 60 units.

Each visor requires a total of $4.00 in direct materials that includes an adjustable closure that the company purchases from a supplier at a cost of $1.50 each. Shadee wants to have 27 closures on hand on May 1, 17 closures on May 31, and 23 closures on June 30 and variable manufacturing overhead is $2.50 per unit produced. Suppose that each visor takes 0.80 direct labor hours to produce and Shadee pays its workers $10 per hour.        

Additional information:

• Selling costs are expected to be 10 percent of sales.
• Fixed administrative expenses per month total $1,200.

Required:
Complete Shadee's budgeted income statement for the months of May and June. (Note: Assume that fixed overhead per unit is $2.10.) (Do not round your intermediate calculations. Round your answers to 2 decimal places.)

Answer 1

Answer:

SHADEE CORP.
Budgeted Income Statement
	May	June
Budgeted Sales	12,500	8,500
Budgeted Cost of goods sold	8,300	5,644
Bugeted Gross Margin	4,200	2,856
Budgeted Selling and administrative expenses:
Variable selling cost	1,250	850
Fixed adminstrative expenses	1,200	1,200
Bugeted Net operating income	1,750	806

Calculation:

To prepare the budgeted income statement, we need to first calculate the budgeted sales revenue.

That will be the number of units sold multiplied by the sales price per unit.

May:

Sales revenue = 500 x 25 = 12,500

June:

Sales revenue = 340 x 25 = 8,500

Then we need to calculate the Budgeted Cost of goods sold. For that first, we need to calculate the Budgeted Cost of goods sold per unit and then multiply with the number of units sold.

Direct Material	4
Direct Labor	8
Variable manufacturing Overhead	2.50
Fixed manufacturing Overhead	2.10
Budgeted Manufacturing cost per unit	16.6

Then we need to multiply it with the number of unit, so we get the following:

	May	June
Expected Sales units	500	340
Manufacturing cost per unit	16.6	16.6
Budgeted cost of goods sold	8,300	5,644

Deducting the cost of goods sold will give the gross margin. Then we need to calculate the selling and adminsitrative expenses.

Variable selling cost is the 10 percent of sales.

So,

May:

Sales revenuex 10% = 12,500 x 10% = 1,250

June:

Sales revenue x10% =  8,500x 10% = 850

The fixed expenes is same for both months which is 1,200, deducting all these gives Bugeted Net operating income.