Preparation of Individual Budgets During the first calendar quarter of 2016, Cli
ID: 2552288 • Letter: P
Question
Preparation of Individual Budgets During the first calendar quarter of 2016, Clinton Corporation is planning to manufacture a new product and introduce it in two regions. Market research indicates that sales will be 6,000 units in the urban region at a unit price of $53 and 5,000 units in the rural region at $48 each. Because the sales manager expects the product to catch on, he has asked for production suf-ficient to generate a 4,000-unit ending inventory. The production manager has furnished the following estimates related to manufacturing costs and operating expenses:
Variable Fixed
(per unit) (total)
Manufacturing costs:
Direct material:
A (4 lb. @ $3.15/lb.) ............................................ .$12.60 —
B (2 lb. @ $4.65/lb.) ............................................. 9.30 —
Direct labor (0.5 hr. per unit) ........................................7.50 —
Manufacturing overhead:
Depreciation ................................................. .— $ 7,650
Factory supplies ............................................... 0.90 4,500
Supervisory salaries ............................................ — 28,800
Other ........................................................ 0.75 22,950
Operating expenses:
Selling:
Advertising ................................................... — 22,500
Sales salaries and commissions* ..................................1.50 15,000
Other* ...................................................... 0.90 3,000
Administrative:
Office salaries ................................................. — 2,700
Supplies ..................................................... 0.15 1,050
Other ........................................................ 0.08 1,950
*Varies per unit sold, not per unit produced.
Required
a. Assuming that the desired ending inventories of materials A and B are 4,000 and 6,000 pounds, respectively, and that work-in-process inventories are immaterial, prepare budgets for the cal-endar quarter in which the new product will be introduced for each of the following operating factors:
1. Total sales
2. Production
3. Material purchases cost
4. Direct labor costs
5. Manufacturing overhead costs
6. Selling and administrative expenses
b. Using data generated in requirement (a), prepare a budgeted income statement for the calendar
quarter. Assume an overall effective income tax rate of 30%.
Explanation / Answer
Prepartion of Sales Budget Urban Region Rural Region Sales Unit 6000 5000 Selling Price/Unit $53 $48 Budgeted Sales Value $318,000 $240,000 Prepartion of Production Budget Sales Unit 11000 Ending Inventory 4000 Production Unit 15000 Preparation of Direct Labour Budget Production Unit 15000 Labour Minute Require/Unit 0.5 Hour Total Labour Required for Production (15000*0.5 Hour) 7500 Laour Cost/Hour (7.5*2) $15.00 Total Labour Cost $112,500 Preparation of Direct Material Purchase Budget Material A B Production Unit 15000 Raw material/ Unit 4lb. 2lb. Total Raw Material required for Production (in lb.) 60000 30000 Ending Inventory (in lb.) 4000 6000 Total Raw Material Purchase (in lb.) 64000 36000 Price/Pound $3.15/ib. $4.65/ib. Total Raw Material Purchase Cost $201,600 $167,400 Preparation of Manufacturing Overhead Budget Particular Fixed Variable Production unit=15000 Per Unit Total Depreciation $7,650.00 Factory Supplies $4,500.00 $0.90 13500 Supervisor Salaries $28,800.00 Other $22,950.00 $0.75 $11,250.00 Total $63,900.00 $1.65 $24,750.00 Preparation of Selling & Admin. Overhead Budget Particular Fixed Variable Sales Unit= 11000 Per unit Total Advertising $22,500.00 Sales Salaries & Commision $15,000.00 $1.50 $16,500.00 Other $3,000.00 $0.90 $9,900.00 Office Salaries $2,700.00 Supplies $1,050.00 $0.15 $1,650.00 Other $1,950.00 $0.08 $880.00 Total $46,200.00 $0.23 $28,930.00 Budgeted Income Statement Sales $558,000.00 Less: Cost of Goods Sold Direct Material Cost A: (11000*4lb.*$3.15) $138,600.00 B: (11000*2lb.*$4.65) $102,300.00 Direct Labour Cost (11000*$7.5) $82,500.00 Fixed Manufacturing Overhead $63,900.00 Variable Manufactuing Overhead ($1.65*11000) $18,150.00 Fixed Selling & Adminstration Overhead $46,200.00 Variable Selling & Administration Overhead ($0.23*11000) $2,530.00 $454,180.00 Income Before Tax $103,820.00 Less: Income Tax @30% $31,146.00 Income After Tax $72,674.00