Tammi’s Cookies produces cookies for resale at grocery stores throughout North America. The company is currently in the process of establishing a master budget on a quarterly basis for this coming fiscal year, which ends December 31. Prior year quarterly sales were as follows (1 unit= 1 batch): First quarter: 64,000 units Second quarter: 76,800 units Third quarter: 96,000 units Fourth quarter: 83,200 units Unit sales are expected to increase 25 percent, and each unit is expected to sell for $8. Management prefers to maintain ending finished goods inventory equal to 10 percent of next quarter's sales. Assume finished goods inventory at the end of the fourth quarter budget period is estimated to be 9,000 units. Tammi's Cookies is now preparing the budget for direct materials purchases, direct labor, and manufacturing overhead. Direct Materials Purchases Budget Information
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.
Tammi’s Cookies produces cookies for resale at grocery stores throughout North America. The company is currently in the process of establishing a
First quarter: 64,000 units
Second quarter: 76,800 units
Third quarter: 96,000 units
Fourth quarter: 83,200 units
Unit sales are expected to increase 25 percent, and each unit is expected to sell for $8. Management prefers to maintain ending finished goods inventory equal to 10 percent of next quarter's sales. Assume finished goods inventory at the end of the fourth quarter budget period is estimated to be 9,000 units.
Tammi's Cookies is now preparing the budget for direct materials purchases, direct labor, and manufacturing overhead.
Direct Materials Purchases Budget Information
Each unit of product requires 1.5 pounds of direct materials per unit, and the cost of direct materials is $2 per pound. Management prefers to maintain ending raw materials inventory equal to 30 percent of next quarter's materials needed in production. Assume raw materials inventory at the end of the fourth quarter budget period is estimated to be 41,000 pounds.
Direct Labor Budget Information
Each unit of product requires 0.20 direct labor hours at a cost of $12 per hour.
Manufacturing Overhead Budget Information
Variable overhead costs are:
Indirect materials: $0.20 per unit
Indirect labor: $0.15 per unit
Other: $0.35 per unit
Fixed overhead costs each quarter are:
Salaries: $28,000
Rent: $22,000
Tammi's Cookies estimates that all selling and administrative costs are fixed. Quarterly selling and administrative cost estimates for the coming year are:
Salaries: $60,000
Rent: $7,000
Advertising: $10,000
Depreciation: $8,000
Other: $1,000
Tammi's Cookies has the following information pertaining to the capital expenditures and cash budgets.
Capital Expenditures
The company plans to purchase selling and administrative equipment totaling
$20,000 and production equipment totaling $28,000. Both will be purchased at the end of the fourth quarter, and will not affect depreciation expense for the coming year.
All sales are on credit. The company expects to collect 70 percent of sales in the quarter of sale, 25 percent of sales in the quarter following the sale, and S percent will not be collected (
All direct materials purchases are on credit. The company expects to pay
80 percent of purchases in the quarter of purchase and 20 percent the following quarter. Accounts payable at the end of last year totalled $50,000, all of which will be paid in the first quarter of this coming year.
Assume Tammi's Cookies will collect 25 percent of fourth quarter budgeted sales in full next year (this represents accounts receivable at the end of the fourth quarter). The following account balances are expected at the end of the fourth quarter:
Property, plant, and equipment (net): $320,000
Common stock: $450,000
Required:
4. Prepare a direct labor budget for Tammi's Cookies.
5. Prepare a manufacturing overhead budget for Tammi's Cookies using the format shown in Exhibit 9.5. Prepare a selling and administrative budget for Tammi's Cookies.
6. Prepare a
Trending now
This is a popular solution!
Step by step
Solved in 4 steps with 11 images
