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Question: Preparing an operating budget鈥攕ales, production, direct materials, direct labor, overhead, COGS, and S&A expense budgets

The Langley Batting Company manufactures wood baseball bats. Langley鈥檚 two primary products are a youth bat, designed for children and young teens, and an adult bat, designed for high school and college-aged players. Langley sells the bats to sporting goods stores, and all sales are on account. The youth bat sells for \(40; the adult bat sells for \)65. Langley鈥檚 highest sales volume is in the first three months of the year as retailers prepare for the spring baseball season. Langley鈥檚 balance sheet for December 31, 2018, follows:

Other data for Langley Batting Company for the first quarter of 2019:

a. Budgeted sales are 1,200 youth bats and 2,600 adult bats.

b. Finished Goods Inventory on December 31, 2018, consists of 300 youth bats at \(14 each and 950 adult bats at \)18 each.

c. Desired ending Finished Goods Inventory is 350 youth bats and 300 adult bats; FIFO inventory costing method is used.

d. Direct materials requirements are 48 ounces of wood per youth bat and 56 ounces of wood per adult bat. The cost of wood is \(0.25 per ounce.

e. Raw Materials Inventory of December 31, 2018, consists of 24,000 ounces of wood at \)0.25 per ounce.

f. Desired ending Raw Materials Inventory is 24,000 ounces (indirect materials are insignificant and not considered for budgeting purposes).

g. Each bat requires 0.7 hours of direct labor; direct labor costs average \(18 per hour. h. Variable manufacturing overhead is \)0.30 per bat.

i. Fixed manufacturing overhead includes \(1,300 per quarter in depreciation and \)20,140 per quarter for other costs, such as insurance and property taxes.

j. Fixed selling and administrative expenses include \(9,000 per quarter for salaries; \)2,500 per quarter for rent; \(1,000 per quarter for insurance; and \)200 per quarter for depreciation.

k. Variable selling and administrative expenses include supplies at 2% of sales.

Requirements

1. Prepare Langley鈥檚 sales budget for the first quarter of 2019.

2. Prepare Langley鈥檚 production budget for the first quarter of 2019.

3. Prepare Langley鈥檚 direct materials budget, direct labor budget, and manufacturing overhead budget for the first quarter of 2019. Round the predetermined overhead allocation rate to two decimal places. The overhead allocation base is direct labor hours.

4. Prepare Langley鈥檚 cost of goods sold budget for the first quarter of 2019.

5. Prepare Langley鈥檚 selling and administrative expense budget for the first quarter of 2019.

Step by step solution

01

Preparation of sales budget

Langley Batting Company Sales Budget For the first quarter, 2019
	Youth Bats	Adult Bats
Budgeted bats to be sold	1,200	2,600
Sales price per unit	X $40	X $65
Total budgeted sales	$48,000	$169,000

02

Preparation of production budget

Langley Batting Company Production Budget For the first quarter, 2019
	Youth Bats	Adult Bats
Budgeted bats to be sold	1,200	2,600
Plus: Desired bats in ending inventory	350	300
Total bats needed	1,550	2,900
Less: Bats in beginning inventory	300	950
Bats to be produced	1,250	1,950

03

Preparation of direct materials budget

Langley Batting Company Direct Materials Budget For the first quarter, 2019
	Youth Bats	Adult Bats	Total
Budgeted bats to be produced	1,250	1,950	3,200
Direct material required (ounces) per bat	48	56	104
Direct material needed for production	60,000	109,200	169,200
Plus: Desired direct materials in ending inventory (Ounces)			24,000
Total direct material needed			193,200
Less: Direct materials in the beginning inventory			24,000
Budgeted purchase of the raw material			169,200
Direct material cost per ounce			X $0.25
Budgeted cost of direct material purchases			$42,300

04

Preparation of direct labor budget

Langley Batting Company Direct Labor Budget For the first quarter, 2019
	Youth Bats	Adult Bats	Total
Budgeted bats to be produced	1,250	1,950	3,200
Direct labor hours needed for production	0.7	0.7	0.7
Direct labor hours needed for production	875	1,365	2,240
Direct labor cost per hour	$18	$18	$18
Budgeted direct labor cost	$15,750	$24,570	$40,320

05

Preparation of manufacturing overhead budget

Langley Batting Company Direct Materials Budget For the first quarter, 2019
	Youth Bats	Adult Bats	Total
Budgeted bats to be produced	1,250	1,950	3,200
VOH per bat	$0.30	$0.30	$0.30
Budgeted variable overhead	$375	$585	$960
Budgeted FOH Cost:
Depreciation			$1,300
Other FOH			$24,140
Budgeted manufacturing overhead cost			$25,440
Direct labor hours			2,240
Predetermined overhead allocation rate ($25,440/2,240)			$11.36

06

Preparation of cost of goods sold budget

Langley Batting Company Cost of goods sold Budget For the first quarter, 2019
	Youth Bats	Adult Bats	Total
Beginning inventory	$4,200	$17,100	$21,300
Bats produced and sold in 2019 Istquarter@$29.61	1,200 x $29.61=$35,532	2,600 x $29.61=$76,986	$112,518
Total budgeted cost of goods sold	$39,732	$94,086	$133,818

07

Preparation of selling and administrative budget

Langley Batting Company Selling and administrative Budget For the first quarter, 2019
	Amount
Salaries	$9,000
Rent	$2,500
Insurance	$1,000
Depreciation	$200
Variable selling and administrative expenses	$8,450
Total	$21,150

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