for a Manufacturing Organization Jacobs Incorporated manufactures a product with a selling price of $50 per unit. Units and monthly cost data follow: Variable: Selling and administrative $5 per unit sold Direct materials 10 per unit manufactured Direct labor 10 per unit manufactured Variable manufacturing overhead 5 per unit manufactured Fixed: Selling and administrative $20,000 per month Manufacturing (including depreciation of $10,000) 30,000 per month
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.
Developing a Master Budget
for a Manufacturing Organization
Jacobs Incorporated manufactures a product with a selling price of $50 per unit. Units and monthly cost data follow:
| Variable: | |
| Selling and administrative |
$5 per unit sold |
| Direct materials | 10 per unit manufactured |
| Direct labor | 10 per unit manufactured |
| Variable manufacturing overhead | 5 per unit manufactured |
| Fixed: | |
| Selling and administrative |
$20,000 per month |
| Manufacturing (including |
30,000 per month |
Jacobs pays all bills in the month incurred. All sales are on account with 50 percent collected the month of sale and the balance collected the following month. There are no sales discounts or
| JACOBS INCORPORATED Sales Budget For the Months of January, February, and March 2011 |
||||
|---|---|---|---|---|
| Month | December | January | February | March |
| Sales - Units | 5,750 | 3,000 | 10,000 | 7,000 |
| Sales - Dollars | $287,500 | $150,000 | $500,000 | $350,000 |
Additional information:
- The January 1 beginning cash is projected as $7,000.
- For the purpose of operational budgeting, units in the January 1 inventory of finished goods are valued at variable manufacturing cost.
- Each unit of finished product requires one unit of raw materials.
- Jacobs intends to pay a cash dividend of $6,000 in January.
NOTE: For the entire problem - do not use any negative signs with your answers unless appropriate for net income(loss) or ending balance.
(a) A production budget for January and February.
| JACOBS INCORPORATED Production Budget For the Months of January and February 2011 |
|||
|---|---|---|---|
| January | February | March | |
| Requirements for current sales | |||
| Desired ending inventory | |||
| Total requirements | |||
| Less beginning inventory | |||
| Production requirements |
(b) A purchases budget in units for January.
| JACOBS INCORPORATED Purchases Budget For the Month of January 2011 |
||
|---|---|---|
| January | February | |
| Current requirements (units) | ||
| Desired ending inventory | ||
| Total requirements | ||
| Less beginning inventory | ||
| Purchases (units) | ||
| Purchases (dollars at $10 each) |
(c) A manufacturing cost budget for January.
| JACOBS INCORPORATED Manufacturing Cost Budget For the Month of January 2011 |
|
|---|---|
| Variable costs | |
| Direct materials | |
| Direct labor | |
| Variable manufacturing overhead | |
| Total variable costs | |
| Fixed manufacturing overhead | |
| Total |
(d) A
| JACOBS INCORPORATED Cash Budget For the Month of January 2011 |
||
|---|---|---|
| Beginning balance | ||
| Receipts: | ||
| December sales | ||
| January sales | ||
| Total cash available | ||
| Disbursements: | ||
| Purchases | ||
| Direct labor | ||
| Variable manufacturing overhead | ||
| Fixed manufacturing overhead (exclude depreciation) | ||
| Variable selling and administrative | ||
| Fixed selling and administrative | ||
| Dividend | ||
| Ending Balance |
(e) A
| JACOBS INCORPORATED Budgeted Contribution Income Statement For the Month of January 2011 |
||
|---|---|---|
| Sales | ||
| Less variable costs: | ||
| Cost of goods sold | ||
| Selling and administrative | ||
| Contribution | ||
| Less fixed costs: | ||
| Manufacturing overhead | ||
| Selling and administrative | ||
| Net income |
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