Iguana, Inc., manufactures bamboo picture frames that sell for $25 each. Each fr
ID: 2525332 • 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:
Prepare the following for Iguana, Inc., for the second quarter (April, May, and June). Include each month as well as the quarter 2 total for each budget.
1. Sales budget.
2. Production budget.
3. Raw materials purchases budget.
4. Direct labor
5. Manufacturing overhead budget.
6. Budgeted cost of goods sold.
7. Selling and administrative expenses budget.
March April May 275 250 300 July August 375 425Explanation / Answer
Notes :
1. Closing and opening values of raw materials and finished goods are calculated based on the given criteria.
2. Production Units = Closing+ Sold Units- Opening
3. Cost per unit of Finished good is taken as follows
Fixed cost per unit is taken as 7200/4000 = 1.8 $/unit
1. Sales Budget April May June Total No.of units 250 300 400.00 950 Sales in $ 6250 7500 10000 23750 2. Production Budget April May June Total July (In Units) Expected sales 250 300 400.00 950.00 375 Opening Finished goods 100 120 160 380.00 150 Closing Inventory shall be 120 160 150.00 430.00 170 Production required 270 340 390 1000.00 395 3. Raw Material Purchase Budget April May June Total July (In Units) No of Units Produced 270 340 390.00 1000 395 Raw Material required for production 1080 1360 1560 4000 1580 Opening Balance 324 408 468 1200 474 Closing Balance 408 468 474.00 1350 Raw Material to be purchased 1164 1420 1566 4150 4. Direct labour April May June Total Labours hours required 135 170 195 500 Direct labour cost 1620 2040 2340 6000 5. Manufacturing overhead budget April May June Total Variable Manufacturing overhead in $ 81 102 117 300 Fixed manufacturing overhead in $ 600 600 600 1800 Total manufacturing overhead 681 702 717 2100 6.Budgeted cost of goods sold April May June Total Opening Stock of raw materials in $ 648 816 936 2400 Raw Material Purchased 2328 2840 3132 8300 Closing Raw Material 816 936 948 2700 Material used in production 2160 2720 3120 8000 Direct Labour 1620 2040 2340 6000 Manufacturing Overhead 681 702 717 2100 Production Cost 4461 5462 6177 16100 Opening Balance of Finished Goods 1610 1932 2576 6118 Closing Balance of finished Goods 1932 2576 2415 6923 Cost of Goods Sold 4139 4818 6338 15295 7. Selling and administrative overhead budget April May June Total Fixed per month 650 650 650.00 1950 Based on units sold per month @ $0.60 per unit sold 150 180 240 570 Total Selling and adminstrative overheads 800 830 890 2520