Barker Company produces and sells a single product with budgeted or standard costs as follows: Inputs Standards Direct materials 10 lbs at $10.00 per pound Direct labor 8 hours at $12.50 per hour Variable factory overhead 8 hours at $20.00 per hour Fixed factory overhead 8 hours at $40.00 per hour Overhead rates are based on 8,000 standard direct labor hours per month, i.e., this is the master budget denominator activity level. Desired ending inventories of materials are based on 10% of the next months materials needed. Desired ending finished goods are based on 5% of next periods budgeted unit sales. Unit Sales are budgeted as follows: January February March April 1,000 1,200 1,600 1,400 The budgeted sales price is $1000 per unit. Sales are budgeted as 80% credit sales and 20% cash sales. Past experience indicates that 60% of credit sales are collected during the month of sale, 38% are collected in the following month, and 2% are uncollectible. A 1% cash discount is allowed to all customers (cash or credit) who pay within the month the sale takes place. Selling and administrative expenses are: Variable = 20% of sales dollars, Fixed = $250,000 per month. The budget assumption concerning cash payment proportions is that all current purchases of direct material, direct labor, factory overhead and selling and administrative items will be paid for during the current period. The beginning cash balance for February is $10,000. Depreciation and other non-cash fixed costs are: manufacturing = $100,000, selling and administrative = $75,000. Required: A Partial Master Budget for February as follows: - Sales budget for February, including net sales dollars. - Production Budget, i.e., units to be produced for February. - Direct Material quantity needed for production for February. - Direct Material quantity to be purchased for February. - Budgeted cost of direct material purchases for February. - Budgeted cost of direct material used for February. - Direct labor needed for production for February. - Budgeted cost of direct labor used for February. - Budgeted factory overhead costs for February. - Prepare a cash budget for February (including the cash collections and cash disbursements supporting schedules).
Master Budget
A master budget can be defined as an estimation of the revenue earned or expenses incurred over a specified period of time in the future and it is generally prepared on a periodic basis which can be either monthly, quarterly, half-yearly, or annually. It helps a business, an organization, or even an individual to manage the money effectively. A budget also helps in monitoring the performance of the people in the organization and helps in better decision-making.
Sales Budget and Selling
A budget is a financial plan designed by an undertaking for a definite period in future which acts as a major contributor towards enhancing the financial success of the business undertaking. The budget generally takes into account both current and future income and expenses.
Barker Company produces and sells a single product with budgeted or
|
Inputs |
Standards |
|
Direct materials |
10 lbs at $10.00 per pound |
|
Direct labor |
8 hours at $12.50 per hour |
|
Variable factory overhead |
8 hours at $20.00 per hour |
|
Fixed factory overhead |
8 hours at $40.00 per hour |
Overhead rates are based on 8,000 standard direct labor hours per month, i.e., this is the
Desired ending inventories of materials are based on 10% of the next months materials needed. Desired ending finished goods are based on 5% of next periods budgeted unit sales.
Unit Sales are budgeted as follows:
|
January |
February |
March |
April |
|
1,000 |
1,200 |
1,600 |
1,400 |
The budgeted sales price is $1000 per unit. Sales are budgeted as 80% credit sales and 20% cash sales. Past experience indicates that 60% of credit sales are collected during the month of sale, 38% are collected in the following month, and 2% are uncollectible. A 1% cash discount is allowed to all customers (cash or credit) who pay within the month the sale takes place. Selling and administrative expenses are: Variable = 20% of sales dollars, Fixed = $250,000 per month.
The budget assumption concerning cash payment proportions is that all current purchases of direct material, direct labor, factory overhead and selling and administrative items will be paid for during the current period. The beginning cash balance for February is $10,000.
Required:
A Partial Master Budget for February as follows:
- Sales budget for February, including net sales dollars.
- Production Budget, i.e., units to be produced for February.
- Direct Material quantity needed for production for February.
- Direct Material quantity to be purchased for February.
- Budgeted cost of direct material purchases for February.
- Budgeted cost of direct material used for February.
- Direct labor needed for production for February.
- Budgeted cost of direct labor used for February.
- Budgeted
- Prepare a
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