Cost Management
Cost Management
8th Edition
ISBN: 9781259917028
Author: BLOCHER, Edward
Publisher: Mcgraw-hill Education,
Question
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Chapter 10, Problem 52P

1.

To determine

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

1.

Expert Solution
Check Mark

Explanation of Solution

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

"S" Manufacturing Company                                                                               Sales Budget                                                                                                                    2019
ParticularsAmountAmountTotal
Sales (in units)12000900021000
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
ParticularsAmountAmountTotal
Sales (in units)120009000=SUM(C6:D6)
Selling Price per unit 150220 
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
ParticularsAmountAmount
Budgeted Sales (in units)12,0009,000
Add: Desired finished goods300200
Total units needed12,3009,200
Less: Beginning finished goods400150
Budgeted Production (in units) 119009050

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
ParticularsAmountAmountTotal
Raw Material (RM) 1:   
Budgeted Production11,9009,050 
Pounds per Unit97 
RM 1 needed for production107,10063,350170,450
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 Production11,9009,050 
Pounds per Unit03.6 
RM 2 needed for production032,58032,580
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 Production11,9009,050 
Pounds per Unit1.80.8 
RM 3 needed for production21,4207,24028,660
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
ParticularsAmountAmountTotal
Raw Material (RM) 1:   
Budgeted Production119009050 
Pounds per Unit97 
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 Production119009050 
Pounds per Unit03.6 
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 Production119009050 
Pounds per Unit1.80.8 
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
ParticularsAmountAmountTotal
Budgeted production11,9009,050 
Direct labor hours per unit        1.52 
Total direct labor hours needed17,85018,10035,950
Hourly wage rate  $30.00
Budgeted direct labor costs  $1,078,500

Working notes:

"S" Manufacturing Company                                                                               Direct Labor Budget                                                                                                                    2019
ParticularsAmountAmountTotal
Budgeted production119009050 
Direct labor hours per unit        1.52 
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
ParticularsAmountAmount
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
ParticularsAmountAmount
Variable Factory Overhead:  
Indirect materials                              10000 
Miscellaneous supplies and tools 5000 
Indirect labor40000 
Payroll taxes and fringe benefits250000 
Maintenance costs10080 
Heat, light, and power11000326080
   
Fixed Factory Overhead:  
Supervision120000 
Maintenance costs20000 
Heat, light, and power43420 
Total Cash Fixed Factory Overhead183420 
Depreciation71330254750
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
ParticularsAmountAmountTotal
Sales volume12,0009,00021,000
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 Inventory300200 
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
ParticularsAmountAmountTotal
Sales volume120009000=SUM(C116:D116)
Cost per unit (Schedule 1 and 2)   86.3917113.38893 
Cost of Goods Sold                    =C116*C117=D116*D117=SUM(C118:D118)
    
Ending Finished Goods Inventory300200 
Cost per unit (Schedule 1 and 2)86.3917113.38893 
Budgeted ending inventories=C120*C121=D121*D120=SUM(C122:D122)

Schedule-1

Schedule 1: Cost per Unit--Product
Cost ElementUnit Input CostQuantity Per Unit
RM-1$2.009$18.00
RM-3$0.501.8$0.90
Direct labor$30.001.5$45.00
Variable factory OH                          ($293,472 ÷ 35,950)$8.161.5$12.24
Fixed factory OH                                     ($254,579 ÷ 35,950)$6.831.5$10.25
Manufacturing cost per unit  $86.39

Schedule-2

Schedule 2: Cost per Unit--Product
Cost ElementInputs Unit Input Cost  QuantityCost Per Unit
RM-1$2.007$14.00
RM-2$2.503.6$9.00
RM-3$0.500.8$0.40
Direct labor$30.002$60.00
Variable factory OH                          ($293,472 ÷ 35,950)$8.162$16.33
Fixed factory OH                                     ($254,579 ÷ 35,950)$6.832$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
ParticularsAmountAmount
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
ParticularsAmountAmountTotal
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
ParticularsAmountAmountTotal
Sales                       180000019800003780000
Less: Cost of Goods Sold           10366991020499=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.

2.

Expert Solution
Check Mark

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.

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Chapter 10 Solutions

Cost Management

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