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Chapter 22: Q25E (page 1234)

Preparing an operating budget鈥攃ost of goods sold budget

Refer to the budgets prepared in Exercise E22-24. Determine the cost per kit to manufacture the model airplane kits. Grady projects sales of 100, 150, 100, and 200 kits for the next four quarters. Prepare a cost of goods sold budget for the year. Grady has no kits in beginning inventory. Round amounts to two decimal places.

Short Answer

Expert verified

Answer

The total budgeted cost of goods sold is $3.025

Step by step solution

01

Calculation of cost per unit


Amount ($)

Direct materials cost per kit (4 ounce per kit x $1/Ounce)

$4

Direct labor cost per kit (0.10 hour per kit x $10 per direct labor hour)

$1

Manufacturing overhead cost per kit (0.10 hour per kit x$5/DLHr)

$0.5

Total projected manufacturing cost per kit

$5.5

02

Preparation of cost of goods sold budget


Quarter 1

Quarter 2

Quarter 3

Quarter 4

Projected sales of kits

100

150

100

200

projected manufacturing cost per kit

$5.5

$5.5

$5.5

$5.5

Total budgeted cost of goods sold

$550

$825

$550

$1,100

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Most popular questions from this chapter

Preparing a financial budget鈥攃ash budget, sensitivity analysis

Leichter Auto Parts, a family-owned auto parts store, began January with \(10,500 cash. Management forecasts that collections from credit customers will be \)11,000 in January and \(15,200 in February. The store is scheduled to receive \)8,500 cash on a business note receivable in January. Projected cash payments include inventory purchases (\(15,600 in January and \)14,800 in February) and selling and administrative expenses (\(2,900 each month).

Leichter Auto Part'sbank requires a \)10,000 minimum balance in the store鈥檚 checking account. At the end of any month when the account balance falls below \(10,000, the bank automatically extends credit to the store in multiples of \)1,000. Leichter Auto Parts borrows as little as possible and pays back loans in quarterly installments of \(2,000, plus 4% APR interest on the entire unpaid principal. The first payment occurs three months after the loan.

Requirements

1. Prepare Leichter Auto Part'scash budget for January and February.

2. How much cash will Leichter Auto Parts borrow in February if collections from customers that month total \)14,200 instead of $15,200?

Preparing a financial budget鈥攕chedule of cash receipts, schedule of cash payments, cash budget

Haney Company has provided the following budget information for the first quarter of 2018:

Total sales \(214,000 Budgeted purchases of direct materials 40,300 Budgeted direct labor cost 37,200 Budgeted manufacturing overhead costs:

Variable manufacturing overhead 1,150 Depreciation 1,200 Insurance and property taxes 6,600 Budgeted selling and administrative expenses: Salaries expense 13,000 Rent expense 2,500 Insurance expense 1,100 Depreciation expense 350 Supplies expense 4,280 Additional data related to the first quarter of 2018 for Haney Company:

a. Capital expenditures include \)38,000 for new manufacturing equipment, to be purchased and paid in the first quarter.

b. Cash receipts are 65% of sales in the quarter of the sale and 35% in the quarter following the sale.

c. Direct materials purchases are paid 50% in the quarter purchased and 50% in the next quarter.

d. Direct labor, manufacturing overhead, and selling and administrative costs are paid in the quarter incurred.

e. Income tax expense for the first quarter is projected at \(44,000 and is paid in the quarter incurred.

f. Haney Company expects to have adequate cash funds and does not anticipate borrowing in the first quarter.

g. The December 31, 2017, balance in Cash is \)45,000, in Accounts Receivable is \(23,200, and in Accounts Payable is \)9,000.

Requirements

1. Prepare Haney Company鈥檚 schedule of cash receipts from customers and schedule of cash payments for the first quarter of 2018.

2. Prepare Haney Company鈥檚 cash budget for the first quarter of 2018.

Southeast Suites operates a regional hotel chain. Each hotel is operated by a manager and an assistant manager/controller. Many of the staff who run the front desk, clean the rooms, and prepare the breakfast buffet work part-time or have a second job, so employee turnover is high.

Assistant Manager/Controller Terry Dunn asked the new bookkeeper to help prepare the hotel鈥檚 master budget. The master budget is prepared once a year and is submitted to company headquarters for approval. Once approved, the master budget is used to evaluate the hotel鈥檚 performance. These performance evaluations affect hotel managers鈥� bonuses, and they also affect company decisions on which hotels deserve extra funds for capital improvements.

When the budget was almost complete, Dunn asked the bookkeeper to increase the amounts budgeted for labor and supplies by 15%. When asked why, Dunn responded that hotel manager Clay Murry told her to do this when she began working at the hotel. Murry explained that this budgetary cushion gave him flexibility in running the hotel. For example, because company headquarters tightly control capital improvement funds, Murry can use the extra money budgeted for labor and supplies to replace broken televisions or pay 鈥渂onuses鈥� to keep valued employees. Dunn initially accepted this explanation because she had observed similar behavior at the hotel where she worked previously.

Requirements Put yourself in Dunn鈥檚 position. In deciding how to deal with the situation, answer the following questions:

1. What is the ethical issue?

2. What are the options?

3. What are the possible consequences?

4. What should you do?

What budgets are included in the financial budget for a merchandising company?

Question:Brooks Company expects to sell 8,500 units for \(175 each for a total of \)1,487,500 in January and 2,500 units for \(200 each for a total of \)500,000 in February. The company expects cost of goods sold to average 70% of sales revenue, and the company expects to sell 4,700 units in March for \(280 each. Brooks鈥檚 target ending inventory is \)20,000 plus 50% of the next month鈥檚 cost of goods sold. Prepare Brooks鈥檚 inventory, purchases, and cost of goods sold budget for January and February
See all solutions

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