Chapter 10, Problem 52P

1.

To determine

Prepare sales budget of “S” manufacturing Company for the year 2019.

Explanation of Solution

Compute the sales budget of “S” manufacturing Company for the year 2019:

"S" Manufacturing Company                                                                               Sales Budget                                                                                                                    2019
Particulars	Amount	Amount	Total
Sales (in units)	12000	9000	21000
Selling Price per unit	$150	$220
Total Sales Revenue	$1,800,000	$1,980,000	$3,780,000

Working notes:

"S" Manufacturing Company                                                                                                                                                 Sales Budget                                                                                                                                                            2019
Particulars	Amount	Amount	Total
Sales (in units)	12000	9000	=SUM(C6:D6)
Selling Price per unit	150	220
Total Sales Revenue	=C6*C7	=D6*D7	=SUM(C8:D8)

Compute of production budget of “S” manufacturing Company for the year 2019:

"S" Manufacturing Company                                                                               Production Budget                                                                                                                    2019
Particulars	Amount	Amount
Budgeted Sales (in units)	12,000	9,000
Add: Desired finished goods	300	200
Total units needed	12,300	9,200
Less: Beginning finished goods	400	150
Budgeted Production (in units)	11900	9050

Compute the direct material purchase budget of “S” manufacturing Company for the year 2019:

"S" Manufacturing Company                                                                               Direct Material Purchase Budget (units and dollars)                                                                                                                   2019
Particulars	Amount	Amount	Total
Raw Material (RM) 1:
Budgeted Production	11,900	9,050
Pounds per Unit	9	7
RM 1 needed for production	107,100	63,350	170,450
Add: Desired Ending Inventory			4000
Total RM 1 needed			174,450
Less: Beginning inventory			3000
Required purchases of RM 1			171,450
Cost per pound			$2
Budgeted purchases, RM 1			$342,900
Raw Material (RM) 2
Budgeted Production	11,900	9,050
Pounds per Unit	0	3.6
RM 2 needed for production	0	32,580	32,580
Add: Desired Ending Inventory			1,000
Total RM 2 needed			33,580
Less: Beginning inventory			1,500
Required purchases of RM 2			32,080
Cost per pound			$2.50
Budgeted purchases, RM 2			$80,200
Raw Material (RM) 3
Budgeted Production	11,900	9,050
Pounds per Unit	1.8	0.8
RM 3 needed for production	21,420	7,240	28,660
Add: Desired Ending Inventory			1,500
Total RM 3 needed			30,160
Less: Beginning inventory			1,000
Required purchases of RM 3			29,160
Cost per pound			$0.50
Budgeted purchases, RM 3			$14,580

Working notes:

"S" Manufacturing Company                                                                               Direct Material Purchase Budget (units and dollars)                                                                                                                   2019
Particulars	Amount	Amount	Total
Raw Material (RM) 1:
Budgeted Production	11900	9050
Pounds per Unit	9	7
RM 1 needed for production	=C23*C24	=D23*D24	=SUM(C25:D25)
Add: Desired Ending Inventory			4000
Total RM 1 needed			=E25+E26
Less: Beginning inventory			3000
Required purchases of RM 1			=E27-E28
Cost per pound			2
Budgeted purchases, RM 1			=E29*E30
Raw Material (RM) 2
Budgeted Production	11900	9050
Pounds per Unit	0	3.6
RM 2 needed for production	=C34*C35	=D34*D35	=SUM(C36:D36)
Add: Desired Ending Inventory			1000
Total RM 2 needed			=E36+E37
Less: Beginning inventory			1500
Required purchases of RM 2			=E38-E39
Cost per pound			2.5
Budgeted purchases, RM 2			=E40*E41
Raw Material (RM) 3
Budgeted Production	11900	9050
Pounds per Unit	1.8	0.8
RM 3 needed for production	=C45*C46	=D45*D46	=SUM(C47:D47)
Add: Desired Ending Inventory			1500
Total RM 3 needed			=E47+E48
Less: Beginning inventory			1000
Required purchases of RM 3			=E49-E50
Cost per pound			0.5
Budgeted purchases, RM 3			=E51*E52

Compute of direct labor purchase budget of “S” manufacturing Company for the year 2019:

"S" Manufacturing Company                                                                               Direct Labor Budget                                                                                                                    2019
Particulars	Amount	Amount	Total
Budgeted production	11,900	9,050
Direct labor hours per unit	1.5	2
Total direct labor hours needed	17,850	18,100	35,950
Hourly wage rate			$30.00
Budgeted direct labor costs			$1,078,500

Working notes:

"S" Manufacturing Company                                                                               Direct Labor Budget                                                                                                                    2019
Particulars	Amount	Amount	Total
Budgeted production	11900	9050
Direct labor hours per unit	1.5	2
Total direct labor hours needed	=C57*C58	=D57*D58	=SUM(C59:D59)
Hourly wage rate			30
Budgeted direct labor costs			=E59*E60

Compute of factory overhead budget of “S” manufacturing Company for the year 2019:

"S" Manufacturing Company                                                                                                                  Factory overhead Budget                                                                                                                    2019
Particulars	Amount	Amount
Variable Factory Overhead:
Indirect materials	$10,000
Miscellaneous supplies and tools	$5,000
Indirect labor	$40,000
Payroll taxes and fringe benefits	$250,000
Maintenance costs	$10,080
Heat, light, and power	$11,000	$326,080
Fixed Factory Overhead:
Supervision	$120,000
Maintenance costs	$20,000
Heat, light, and power	$43,420
Total Cash Fixed Factory Overhead	$183,420
Depreciation	$71,330	$254,750
Total Budgeted Factory Overhead		$580,830
Budgeted Variable OH:
Variable cost	$293,472
Budgeted Fixed OH:
Cash Charges	$174,249
Depreciation	$71,330
Total Budgeted Fixed OH	$245,579

Working notes:

"S" Manufacturing Company                                                                                                                  Factory overhead Budget                                                                                                                    2019
Particulars	Amount	Amount
Variable Factory Overhead:
Indirect materials	10000
Miscellaneous supplies and tools	5000
Indirect labor	40000
Payroll taxes and fringe benefits	250000
Maintenance costs	10080
Heat, light, and power	11000	326080
Fixed Factory Overhead:
Supervision	120000
Maintenance costs	20000
Heat, light, and power	43420
Total Cash Fixed Factory Overhead	183420
Depreciation	71330	254750
Total Budgeted Factory Overhead		580830
Budgeted Variable OH:
Variable cost	=326080*(1-0.1)
Budgeted Fixed OH:
Cash Charges	=183420*(1-0.05)
Depreciation	71330
Total Budgeted Fixed OH	=SUM(C84:C85)

Prepare cost of goods sold and ending finished goods inventory budget for the year:

"S" Manufacturing Company                                                                                                                  Ending Finished Goods Inventory and Budgeted CGS                                                                                                                   2019
Particulars	Amount	Amount	Total
Sales volume	12,000	9,000	21,000
Cost per unit (Schedule 1 and 2)	$86.39	$113.39
Cost of Goods Sold	$1,036,700	$1,020,500	$2,057,201
Ending Finished Goods Inventory	300	200
Cost per unit (Schedule 1 and 2)	$86.39	$113.39
Budgeted ending inventories	$25,918	$22,678	$48,595

Working notes

"S" Manufacturing Company                                                                                                                  Ending Finished Goods Inventory and Budgeted CGS                                                                                                                   2019
Particulars	Amount	Amount	Total
Sales volume	12000	9000	=SUM(C116:D116)
Cost per unit (Schedule 1 and 2)	86.3917	113.38893
Cost of Goods Sold	=C116*C117	=D116*D117	=SUM(C118:D118)
Ending Finished Goods Inventory	300	200
Cost per unit (Schedule 1 and 2)	86.3917	113.38893
Budgeted ending inventories	=C120*C121	=D121*D120	=SUM(C122:D122)

Schedule-1

Schedule 1: Cost per Unit--Product
Cost Element	Unit Input Cost	Quantity	Per Unit
RM-1	$2.00	9	$18.00
RM-3	$0.50	1.8	$0.90
Direct labor	$30.00	1.5	$45.00
Variable factory OH                          ($293,472 ÷ 35,950)	$8.16	1.5	$12.24
Fixed factory OH                                     ($254,579 ÷ 35,950)	$6.83	1.5	$10.25
Manufacturing cost per unit			$86.39

Schedule-2

Schedule 2: Cost per Unit--Product
Cost Element	Inputs Unit Input Cost	Quantity	Cost Per Unit
RM-1	$2.00	7	$14.00
RM-2	$2.50	3.6	$9.00
RM-3	$0.50	0.8	$0.40
Direct labor	$30.00	2	$60.00
Variable factory OH                          ($293,472 ÷ 35,950)	$8.16	2	$16.33
Fixed factory OH                                     ($254,579 ÷ 35,950)	$6.83	2	$13.66
Manufacturing cost per unit			$113.39

Prepare the selling and administrative budget of “S” manufacturing Company for the year 2019:

"S" Manufacturing Company                                                                                                                  Selling and administrative expense Budget                                                                                                                    2019
Particulars	Amount	Amount
Selling Expenses:
Advertising	$60,000
Sales salaries	$200,000
Travel and entertainment	$60,000
Depreciation	$5,000	$325,000
Administrative expenses:
Offices salaries	$60,000
Executive salaries	$250,000
Supplies	$4,000
Depreciation	$6,000	$320,000
Total selling and administrative expenses		$645,000

Prepare budgeted income statement for the year 2019:

"S" Manufacturing Company                                                                                                                  Budgeted Income Statement                                                                                                                    2019
Particulars	Amount	Amount	Total
Sales	$1,800,000	$1,980,000	$3,780,000
Less: Cost of Goods Sold	$1,036,699	$1,020,499	$2,057,198
Gross Profit	$763,301	$959,501	$1,722,802
Selling and Administrative Expenses			$645,000
Pre-tax Operating Income			$1,077,802
Income Taxes (@40%)			$431,121
After-tax Operating Income			$646,681

Working notes:

"S" Manufacturing Company                                                                                                                  Budgeted Income Statement                                                                                                                    2019
Particulars	Amount	Amount	Total
Sales	1800000	1980000	3780000
Less: Cost of Goods Sold	1036699	1020499	=SUM(C106:D106)
Gross Profit	=C105-C106	=D105-D106	=E105-E106
Selling and Administrative Expenses			645000
Pre-tax Operating Income			=E107-E108
Income Taxes (@40%)			=E109*40%
After-tax Operating Income			=E109-E110

2.

To determine

Explain the benefits of adopting the improvement program by “S” manufacturing.

Explanation of Solution

The revised budget after-tax operating income is $646,681. Therefore, an increase in the amount of income is 37%. The company is benefited in the long-run from the deduction in direct materials, direct labor hours, and factory overhead that is needed in production. The reduction in the consumption of manufacturing elements will decrease the wear and tear of equipment and other facilities.