Iguana, Inc., manufactures bamboo picture frames that sell for $30 each. Each fr
ID: 2557951 • Letter: I
Question
Iguana, Inc., manufactures bamboo picture frames that sell for $30 each. Each frame requires 4 linear feet of bamboo, which costs $3.00 per foot. Each frame takes approximately 30 minutes to build, and the labor rate averages $15 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 $0.50 per unit produced. Annual fixed manufacturing overhead is estimated to be $6,000 ($500 per month) for expected production of 3,000 units for the year. Selling and administrative expenses are estimated at $550 per month plus $0.50 per unit sold.
Iguana, Inc., had $16,500 cash on hand on April 1. Of its sales, 80 percent is in cash. Of the credit sales, 50 percent is collected during the month of the sale, and 50 percent is collected during the month following the sale.
Explanation / Answer
Iguana Inc. Budgeted Income Statement For the quarter ending June April May June 2nd quarter Total Sales 12300 13800 16800 42900 Less : Cost of goods sold Variable costs 8200 9200 11200 28600 Fixed costs 500 500 500 1500 Budgted Gross margin 3600 4100 5100 12800 Operating expenses Variable selling & admin expenes 205 230 280 715 Fixed Selling & admin expenses 550 550 550 1650 Budgted Net Operating Income 2845 3320 4270 10435 Cost of goods sold Direct Materials 4920 5520 6720 Direct labor 3075 3450 4200 Variable Manufacturing Overhead 205 230 280 Fixed manufacturing Overhead 500 500 500 Total cost of goods sold 8700 9700 11700