Iguana, Inc., manufactures bamboo picture frames that sell for $25 each. Each fr
ID: 2446013 • Letter: I
Question
Iguana, Inc., manufactures bamboo picture frames that sell for $25 each. Each frame requires 4 linear feet of bamboo, which costs $2.00 per foot. Each frame takes approximately 30 minutes to build, and the labor rate averages $15.00 per hour. Iguana has the following inventory policies: Ending finished goods inventory should be 40 percent of next month’s sales. Ending raw materials inventory should be 30 percent of next month’s production. Expected unit sales (frames) for the upcoming months follow:
March 385 April 360 May 410 June 510 July 485 August 535
Variable manufacturing overhead is incurred at a rate of $0.20 per unit produced. Annual fixed manufacturing overhead is estimated to be $4,200 ($700 per month) for expected production of 3,000 units for the year. Selling and administrative expenses are estimated at $760 per month plus $0.50 per unit sold. Iguana, Inc., had $11,900 cash on hand on April 1... Of its sales, 80 percent is in cash. Of the credit sales, 50% is collected during the month of the sale, and 50% is collected during the month following the sale. Of raw materials purchases, 80 percent is paid for during the month purchased and 20 percent is paid in the following month. Raw materials purchases for March 1 totaled $3,100. All other operating costs are paid during the month incurred. Monthly fixed manufacturing overhead includes $260 in depreciation. During April, Iguana plans to pay $4,100 for a piece of equipment.
1. compute budgeted cash payments
Explanation / Answer
Calculation of budgeted cash payments:
March
April
May
June
July
August
Expected unit sales (frames)
385
360
410
510
485
535
Add: Ending finished goods inventory
144
164
204
194
214
(40 percent of next month’s sales)
(360*40%)
(410*40%)
(510*40%)
(485*40%)
(535*40%)
Less: Beginning finished goods inventory
-144
-164
-204
-194
Units to be produced (Frames)
380
450
500
505
Raw Material per frame (Feet)
4
4
4
4
Total raw material required for production (Frames * 4)
1520
1800
2000
2020
Add: Ending Raw material inventory
456
540
600
606
(30 percent of next month’s production)
(1520*30%)
(1800*30%)
(2000*30%)
(2020*30%)
Less: Beginning Raw material inventory
-456
-540
-600
Raw Material Purchase (Feets)
1604
1860
2006
Price Per Feet
$2
$2
$2
Raw Material Purchase ($) = Feets * $2
$3,100
$3,208
$3,720
$4,012
Cash Payment for Purchases:
80 percent during the month
$2,480
$2,566
$2,976
$3,210
(3100*80%)
(3208*80%)
(3720*80%)
(4012*80%)
20 percent in the following month
$496
$513
$595
(3100*20%)
(3208*20%)
(3720*20%)
Cash Payment for Purchases (A)
$3,062
$3,489
$3,805
Variable manufacturing overhead Payment:
Units Produced
380
450
500
Rate
$0.20
$0.20
$0.20
Cash Payment for Variable Man OH (Units * rate) (B)
$76.00
$90.00
$100.00
Fixed manufacturing overhead
$ 700
$ 700
$ 700
Less: Depreciation
$ (260)
$ (260)
$ (260)
Cash Payment for Fixed manufacturing overhead (C)
$ 440
$ 440
$ 440
Variable Selling and administrative expenses
Units Sales
360
410
510
Rate
$0.50
$0.50
$0.50
Cash Payment for Variable Selling and administrative expenses =units * rate (D)
$180.00
$205.00
$255.00
Cash Payment for Fixed Selling and administrative expenses (E)
$ 760
$ 760
$ 760
Cash Payment for Equipment Purchase (F)
$ 4,100
Total budgeted cash payments (A+B+C+D+E+F)
$8,618.40
$4,984.28
$5,359.80
Calculation of budgeted cash payments:
March
April
May
June
July
August
Expected unit sales (frames)
385
360
410
510
485
535
Add: Ending finished goods inventory
144
164
204
194
214
(40 percent of next month’s sales)
(360*40%)
(410*40%)
(510*40%)
(485*40%)
(535*40%)
Less: Beginning finished goods inventory
-144
-164
-204
-194
Units to be produced (Frames)
380
450
500
505
Raw Material per frame (Feet)
4
4
4
4
Total raw material required for production (Frames * 4)
1520
1800
2000
2020
Add: Ending Raw material inventory
456
540
600
606
(30 percent of next month’s production)
(1520*30%)
(1800*30%)
(2000*30%)
(2020*30%)
Less: Beginning Raw material inventory
-456
-540
-600
Raw Material Purchase (Feets)
1604
1860
2006
Price Per Feet
$2
$2
$2
Raw Material Purchase ($) = Feets * $2
$3,100
$3,208
$3,720
$4,012
Cash Payment for Purchases:
80 percent during the month
$2,480
$2,566
$2,976
$3,210
(3100*80%)
(3208*80%)
(3720*80%)
(4012*80%)
20 percent in the following month
$496
$513
$595
(3100*20%)
(3208*20%)
(3720*20%)
Cash Payment for Purchases (A)
$3,062
$3,489
$3,805
Variable manufacturing overhead Payment:
Units Produced
380
450
500
Rate
$0.20
$0.20
$0.20
Cash Payment for Variable Man OH (Units * rate) (B)
$76.00
$90.00
$100.00
Fixed manufacturing overhead
$ 700
$ 700
$ 700
Less: Depreciation
$ (260)
$ (260)
$ (260)
Cash Payment for Fixed manufacturing overhead (C)
$ 440
$ 440
$ 440
Variable Selling and administrative expenses
Units Sales
360
410
510
Rate
$0.50
$0.50
$0.50
Cash Payment for Variable Selling and administrative expenses =units * rate (D)
$180.00
$205.00
$255.00
Cash Payment for Fixed Selling and administrative expenses (E)
$ 760
$ 760
$ 760
Cash Payment for Equipment Purchase (F)
$ 4,100
Total budgeted cash payments (A+B+C+D+E+F)
$8,618.40
$4,984.28
$5,359.80