Discuss the components of each of the following manufacturingcost budgets (What each budget proposes to do or accomplish and theelements):
1. Production Budget
2. Direct materials purchases budget
3. Direct labor budget
4. Factory overhead budget
5. Cost of goods manufactured budget
6. Cost of goods sold budget
Discuss the components of each of the following manufacturingcost budgets (What each budget proposes to do or accomplish and theelements):
1. Production Budget
2. Direct materials purchases budget
3. Direct labor budget
4. Factory overhead budget
5. Cost of goods manufactured budget
6. Cost of goods sold budget
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Preparing a Comprehensive Budget
Ginnie Springs Company has been bottling and selling water since1940. The companyâs current owner would like to know how a newproduct would affect the companyâs rent income in the comingyear.
Required
Calculate Ginnie Springs net income for the new product in thecoming year by completing the operating budgets and budgeted incomestatement that follow. Assume that the selling price will remainconstant.
Sales budget
Ginnie Springs Company
Sales Budget
Forthe year Ended December 31
Quarter
1 | 2 | 3 | 4 | Year | |
Sales in Units | 40,000 | 30,000 | 50,000 | 55,000 | 175,000 |
Selling price per unit | X $1 | X ? | X ? | X ? | X ? |
Totals Sales | 40,000 | $ ? | X ? | X ? | X ? |
2. Production Budget:
Ginnie SpringsCompany
ProductionBudget
For the year Ended December31_____________
Quarter
1 | 2 | 3 | 4 | Year | |
Sales in Units | 40,000 | ? | ? | ? | ? |
Plus desired units of ending finished goods inventory* | 30,000 | ? | ? | 6000 | 6000 |
Desired total Units | 43000 | ? | ? | ? | ? |
Less desired units of ending finished goods inventory* | 4000 | ? | ? | ? | 4000 |
Total Production units | 39,000 | ? | ? | ? | ? |
*Desired units of ending finished goods inventory = 10% of nextquarterâs budgeted production needs in ounces. Desired ounces ofbeginning direct materials inventory = 20% of current quartersbudgeted production needs in ounces.
3.DirectMaterials Purchases budget
Ginnie SpringsCompany
Direct Materials PurchaseBudget
For the year Ended December31_____________
Quarter
1 | 2 | 3 | 4 | Year | |
Total production units | 39,000 | 32,000 | 50,500 | 55,500 | ? |
Ounces per unit | X 20 | X 20 | X 20 | X 20 | X 20 |
Total production needs in ounces | 780,000 | ? | ? | ? | ? |
Plus desired ounces of ending direct materials inventory* | 128,000 908,000 | ? ? | ? ? | 240,000 ? | 240,000 ? |
Less desired ounces of ending direct materials inventory* | 156,000 | ? | ? | ? | 156,000 |
Total ounces of direct material to be purchased | 752,000 | ? | ? | ? | ? |
Cost per ounce | X $0.01 | X ? | X ? | X ? | X ? |
Total cost of direct materials purchases | $7520 | ? | ? | ? | ? |
Desired ounces of ending direct material inventory =20% of nextquarters budgeted production needs in ounces.
Desired ounces of beginning direct materials inventory = 20% ofcurrent quarters budgeted production needs in ounces.
4.Directlabor budget:
Ginnie SpringsCompany
Direct LaborBudget
For the year EndedDecember 31_____________
Quarter
1 | 2 | 3 | 4 | Year | |
Total production units | 39,000 | ? | ? | ? | ? |
Direct labor hours per units | X 0.001 | X ? | X ? | X ? | X ? |
Total direct labor hours | 39.0 | ? | ? | ? | ? |
Direct labor cost per hour | X $8 | X ? | X ? | X ? | X ? |
Total direct labor cost | $312 | $ ? | $ ? | $ ? | $ ? |
5.Overheadbudget
Ginnie SpringsCompany
Overhead Budget
For the year EndedDecember 31_____________
Quarter
1 | 2 | 3 | 4 | Year | |
Variable overhead costs: | |||||
Factory supplies ($0.01) | $ 390 | $ ? | $ ? | $ ? | $ ? |
Employee benefits ($0.05) | 1,950 | ? | ? | ? | ? |
Inspection ($0.01) | 390 | ? | ? | ? | ? |
Maintenance and repairs($0.02) | 780 | ? | ? | ? | ? |
Utilities ($0.01) | 390 | ? | ? | ? | ? |
Total Variable overheadcosts | $3900 | $ ? | $ ? | $ ? | $ ? |
Total fixed overhead costs | 1416 | ? | ? | ? | ? |
Total overhead costs | $5,316 | $ ? | $ ? | $ ? | $ ? |
Note: The figures in parentheses are variable costs perunit.
6.Sellingand administrative expenses budget:
Ginnie SpringsCompany
Selling and Administrative Expenses Budget
For the year EndedDecember 31_____________
Quarter
1 | 2 | 3 | 4 | Year | |
Variable Selling and Administrative expenses | |||||
Delivery expenses ($0.01) | $ 400 | $ ? | $ ? | $ ? | $ ? |
Sales Commission ($0.02) | 800 | ? | ? | ? | ? |
Accounting ($0.01) | 400 | ? | ? | ? | ? |
Other administrative expenses($0.01) | 400 | ? | ? | ? | ? |
Total Variable selling and administrative exp. | $2,000 | $ ? | $ ? | $? | $? |
Total fixed selling and administrative exp. | 5000 | ? | ? | $? | ? |
Total selling and administrative expenses | $ 7,000 | $ ? | $ ? | $ ? | $ ? |
Note: The figures in parentheses arevariable costs per unit
7. Cost of goods manufactured budget:
Ginnie SpringsCompany
Cost of Goods Manufactured Budget
For the year EndedDecember 31_____________
Direct Material Used:
Direct Material Inventory,Beginning
Purchases
Cost of Direct materials available foruse
Less: Direct materials Inventory,ending
Cost of Direct Materialsused
Direct laborcosts:
Overhead costs:
Total manufacturing costs
Work in Process Inventory,beginning*
Less: work in process inventory,ending*
Cost of Goods Manufactured
Units produced
Manufactured cost perunit
It is the companyâs policy to have no units in process at theend of theyear.
8. Budgeted income statement
Ginnie Springs Company
Selling and Administrative Expenses Budget
For the year EndedDecember 31_____________
Sales
Cost of goods sold
Finished goods inventory beginning
Cost of goods manufactured
Cost of Goods available for sale
Less finished goods inventory, ending
Cost of good sold
Gross margin
Selling and administrative expenses
Income from operations
Income taxes expenses (30% tax rate)
Net Income
The Sabat Corporation manufactures and sells two products:Thingone and Thingtwo. In July 2013, Sabatââ¬â¢s budget departmentgathered the following data to prepare budgets for 2014:
2014 Projected Sales
Product | Units | Price |
Thingone | 62,000 | $172 |
Thingtwo | 46,000 | $264 |
2014 Inventories in Units
Expected Target
Product | January 1, 2014 | December 31, 2014 |
Thingone | 21,000 | 26,000 |
Thingtwo | 13,000 | 14,000 |
The following direct materials are used in the two products:
Amount used per unit
Direct Material | Unit | Thingone | Thingtwo |
A | Pound | 5 | 6 |
B | Pound | 3 | 4 |
C | Each | 0 | 2 |
Projected data for 2014 for direct materials are:
Direct material | Anticipated purchase price | Expected inventories January 1, 2014 | Target inventories December 31, 2014 |
A | $11 | 37,000lb | 40,000lb |
B | 6 | 32,000lb | 35,000lb |
C | 5 | 10,000 units | 12,000 units |
Projected direct manufacturing labor requirements and rates for2014 are:
Product | Hours per unit | Rate per hour |
Thingone | 3 | $11 |
Thingtwo | 4 | 14 |
Manufacturing overhead is allocated at the rate of $ 19 per directmanufacturing labor-hour.
Based on the preceding projections and budget requirements forThingone and Thingtwo, prepare the ÃÂfollowing budgets for2014:
Required
1. Revenues budget (in dollars)
2. What questions might the CEO ask the marketing manager whenreviewing the revenues budget? Explain briefly.
3. Production budget (in units)
4. Direct material purchases budget (in quantities)
5. Direct material purchases budget (in dollars)
6. Direct manufacturing labor budget (in dollars)
7. Budgeted finished goods inventory at December 31, 2014 ( indollars)
8. What questions might the CEO ask the production manager whenreviewing the production, direct materials, and directmanufacturing labor budgets?
9. How does preparing a budget help Sabat Corporationââ¬â¢s topmanagement better manage thecompany?
