ABC Company will sell a product in May 2015 for $10 per unit. Anticipated growth
ID: 2449986 • Letter: A
Question
ABC Company will sell a product in May 2015 for $10 per unit. Anticipated growth rate in sales units will be 10% per month beginning in May, so May sales in units will be 10% more than April sales. Unit costs and sales prices are constant. Target monthly ending inventory in units of finished product is 80% of the next months estimated sales. On April 30, 2015 there were 150,000 finished units in inventory, costed @ $750,000. A unit of finished product requires 4 pounds of direct materials at a cost of $1.20 per pound. On April 30, 2015 there were 800,000 pounds of direct materials in inventory. Target monthly ending inventory for direct materials is equal to the same equivalent units of finished goods in inventory at a 1:4 ratio, so if target ending finished goods inventory is 100 units, target direct materials inventory would be 400 pounds. Overhead is allocated at $0.25 per pound of direct materials used. No labor is required.
April sales = $ 1,800,000 180,000 units
Direct material purchased in April was $950,000
A. Create a sales budget, showing estimated sales in dollars for May 2015
B. Create a production budget, showing how many units should be produced in May 2015
C. Create a materials budget, showing how many pounds of direct materials should be ordered in May and how much it will cost
D. Create a Cost of Goods Sold statement, showing the COGS for May 2015, assume that they use FIFO inventory method
E. Create a partial income statement that shows the gross margin for May 2015, Sales - COGS = GM
Explanation / Answer
A. Sales Budget for ABC Company (All values, unless otherwise specified, in $) May Sales Units 198000 Price/unit sold ($) 10 Sale Value in $ 1980000 B. Production Budget for ABC Company May Units Cost/unit $ Total Cost $ Opening Inventory of FG 150000 5 750000 Production in May 222240 Sales in May 198000 Closing Inventory of FG 174240 5 871200 C. Materials Budget for ABC Company May Pounds Cost/pound $ Total Cost $ Opening Inventory of RM 800000 1.2 960000 RM Purchase in May 785920 1.2 943104 RM utilised in prouduction 888960 1.2 1066752 Closing Inventory of RM 696960 1.2 836352 D. Cost of Goods Sold Statement for ABC Company Raw Material Cost 1066752 Overhead Cost 222240 Quantity of RM utilised in production X 0.25$ per pound Cost of Goods Sold 1288992 E. Partial Income Statement for ABC Company Sales (from above) 1980000 Cost of Goods Sold (Refer D) -1288992 Gross Margin 691008