Iguana. Inc., manufactures bamboo picture frames that sell for $25 each. Each fr
ID: 2476272 • 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 $12.00 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. Variable manufacturing overhead is incurred at a rate of $0.30 per unit produced. Annual fixed manufacturing overhead is estimated to be $7.200 ($600 per month) for expected production of 4.000 units for the year. Selling and administrative expenses are estimated at $650 per month plus $0.60 per unit sold. Required: Compute the following for Iguana. Inc., for the second quarter (April, May, and June).Explanation / Answer
1
Calculation of Budgeted Sales Revenue :
March
April
May
June
2nd Quarter Total
July
Units sales (A)
250
300
400
Sales Price (B)
$ 25
$ 25
$ 25
Budgeted Sales Revenue = A*B
$ 6,250
$ 7,500
$ 10,000
$ 23,750
2
Calculation of Production in units :
March
April
May
June
2nd Quarter Total
July
August
Units sales
250
300
400
375
425
Add: Ending Finished Goods inventory
100
120
160
150
170
(40% of next months sales)
(250*40%)
(300*40%)
(400*40%)
(375*40%)
(425*40%)
Less: Beginning Finished Goods inventory
-100
-120
-160
-150
Production in units
270
340
390
1000
395
3
Calculation of Budgeted Cost of Raw Material Purchase:
March
April
May
June
2nd Quarter Total
July
Production in units (A)
270
340
390
395
Feet Bamboo required per unit (B)
4
4
4
4
Total Feet required for production = A*B
1080
1360
1560
1580
Add: Ending Raw Material Inventory
324
408
468
474
(30% of next month's Production)
(1080*30%)
(1369*30%)
(1560*30%)
(1580*30%)
Less: Beginning Raw Material Inventory
-324
-408
-468
Raw Material Purchase (Feets)
1164
1420
1566
4,150
Cost Per feet
$2
$2
$2
Budgeted Cost of Raw Material Purchase = Feets * $2
$2,328
$2,840
$3,132
$8,300
4
Calculation of Budgeted Direct Labor Cost
April
May
June
2nd Quarter Total
Production in units (A)
270
340
390
Hours Per unit (B) = 30 min / 60 min =
0.5
0.5
0.5
Total Labor Hours Required = A*B
135
170
195
Rate per labor hour
$12
$12
$12
Budgeted Direct Labor Cost = Hours * Rate
$1,620
$2,040
$2,340
$6,000
1
Calculation of Budgeted Sales Revenue :
March
April
May
June
2nd Quarter Total
July
Units sales (A)
250
300
400
Sales Price (B)
$ 25
$ 25
$ 25
Budgeted Sales Revenue = A*B
$ 6,250
$ 7,500
$ 10,000
$ 23,750
2
Calculation of Production in units :
March
April
May
June
2nd Quarter Total
July
August
Units sales
250
300
400
375
425
Add: Ending Finished Goods inventory
100
120
160
150
170
(40% of next months sales)
(250*40%)
(300*40%)
(400*40%)
(375*40%)
(425*40%)
Less: Beginning Finished Goods inventory
-100
-120
-160
-150
Production in units
270
340
390
1000
395
3
Calculation of Budgeted Cost of Raw Material Purchase:
March
April
May
June
2nd Quarter Total
July
Production in units (A)
270
340
390
395
Feet Bamboo required per unit (B)
4
4
4
4
Total Feet required for production = A*B
1080
1360
1560
1580
Add: Ending Raw Material Inventory
324
408
468
474
(30% of next month's Production)
(1080*30%)
(1369*30%)
(1560*30%)
(1580*30%)
Less: Beginning Raw Material Inventory
-324
-408
-468
Raw Material Purchase (Feets)
1164
1420
1566
4,150
Cost Per feet
$2
$2
$2
Budgeted Cost of Raw Material Purchase = Feets * $2
$2,328
$2,840
$3,132
$8,300
4
Calculation of Budgeted Direct Labor Cost
April
May
June
2nd Quarter Total
Production in units (A)
270
340
390
Hours Per unit (B) = 30 min / 60 min =
0.5
0.5
0.5
Total Labor Hours Required = A*B
135
170
195
Rate per labor hour
$12
$12
$12
Budgeted Direct Labor Cost = Hours * Rate
$1,620
$2,040
$2,340
$6,000