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Prepare a manufacturing budget
Course:- Accounting Basics
Reference No.:- EM131677738




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Problem - "You are a manager for Peyton Approved, a pet supplies manufacturer. This responsibility requires you to create budgets, make pricing decisions, and analyze the results of operations to determine if changes need to be made to make the company more efficient. You will be preparing a budget for the quarter July through September 2015.  You are provided the following information. The budgeted balance sheet on June 30, 2015, is:"

Peyton Approved Budgeted Balance Sheet

ASSETS



Cash 


$42,000

Accounts receivable


259,900

Raw materials inventory


35,650

Finished goods inventory 


241,080

Total current assets 


578,630

Equipment 

$720,000


Less accumulated depreciation 

240,000

480,000

Total assets 


$1,058,630

LIABILITIES AND EQUITY



Accounts payable


$63,400

Short-term notes payable


24,000

Taxes payable 


10,000

Total current liabilities 


97,400

Long-term note payable 


300,000

     Total liabilities


397,400

Common stock 

$600,000


Retained earnings 

61,230


Total stockholders' equity


661,230

Total liabilities and equity


$1,058,630

All assumptions are new and apply to the July through September budget period.

1. Sales were 20,000 units in June 2015. Forecasted sales in units are as follows: July, 18,000; August, 22,000; September, 20,000; October, 24,000. The product's selling price is $18.00 per unit and its total product cost is $14.35 per unit.

2. The June 30 finished goods inventory is 16,800 units.

3. Going forward, company policy calls for a given month's ending finished goods inventory to equal 70% of the next month's expected unit sales.

4. The June 30 raw materials inventory is 4,600 units. The budgeted September 30 raw materials inventory is 1,980 units. Raw materials cost $7.75 per unit. Each finished unit requires 0.50 units of raw materials. Company policy calls for a given month's ending raw materials inventory to equal 20% of the next month's materials requirements.

5. Each finished unit requires 0.50 hours of direct labor at a rate of $16 per hour.

6. Overhead is allocated based on direct labor hours. The predetermined variable overhead rate is $1.35 per unit produced. Depreciation of $20,000 per month is treated as fixed factory overhead.

7. Monthly general and administrative expenses include $12,000 administrative salaries and 0.9% monthly interest on the long-term note payable.

8. Sales representatives' commissions are 12% of sales and are paid in the month of the sales. The sales manager's monthly salary is $3,750 per month.

Specifically, the following critical elements must be addressed when creating an Operating Budget by completing the budget templates found on the "Budgets" tab below.

Step 1: Prepare a Sales Budget

Complete the Sales Budget on the Budgets tab below by using the information found in the budgeted balance sheet above.

Consider assumption 1 when completing this critical element: Sales were 20,000 units in June 2015. Forecasted sales in units are as follows: July, 18,000; August, 22,000; September, 20,000; October, 24,000. The product's selling price is $18.00 per unit and its total product cost is $14.35 per unit.

You can find an example of a sales budget in Exhibit 22-5 on page 1324 of the textbook.

Step 2: Prepare a Production Budget

Complete the Production Budget on the Budgets tab below by using the information found in the budgeted balance sheet above.

Consider assumption 1 while completing this critical element: Sales were 20,000 units in June 2015. Forecasted sales in units are as follows: July, 18,000; August, 22,000; September, 20,000; October, 24,000. The product's selling price is $18.00 per unit and its total product cost is $14.35 per unit.

Consider assumption 2 while completing this critical element: The June 30 finished goods inventory is 16,800 units.

Consider assumption 3 while completing this critical element: Going forward, company policy calls for a given month's ending finished goods inventory to equal 70% of the next month's expected unit sales.

You can find an example of a production budget in Exhibit 22-6 on page 1325 of the textbook.

Step 3: Prepare a Manufacturing Budget

Complete the Manufacturing Budget on the Budgets tab below by using the information found in the budgeted balance sheet above. The manufacturing budget consists of three parts: the Raw Materials Budget, the Direct Labor Budget, and the Factory Overhead Budget.

Raw Material Budget

Consider assumption 4 while completing this critical element: The June 30 raw materials inventory is 4,600 units. The budgeted September 30 raw materials inventory is 1,980 units. Raw materials cost $7.75 per unit. Each finished unit requires 0.50 units of raw materials. Company policy calls for a given month's ending raw materials inventory to equal 20% of the next month's materials requirements.

Consider units to be produced found in the production budget while completing this critical element.

Direct Labor Budget

Consider assumption 5 while completing this critical element: Each finished unit requires 0.50 hours of direct labor at a rate of $16 per hour.

Consider units to be produced found in the production budget while completing this critical element.

Factory Overhead Budget

Consider assumption 6 while completing this critical element: Overhead is allocated based on direct labor hours. The predetermined variable overhead rate is $1.35 per unit produced. Depreciation of $20,000 per month is treated as fixed factory overhead.

Consider units to be produced found in the production budget while completing this critical element.

Step 4: Prepare a Selling Budget

Complete the Selling Expense Budget.

Consider assumption 8 while completing this critical element: 8. Sales representatives' commissions are 12% of sales and are paid in the month of the sales. The sales manager's monthly salary is $3,750 per month.

Step 5: General and Administrative Expense Budget

Complete the General and Administrative Expense Budget.

Consider assumption 7 while completing this critical element: 7. Monthly general and administrative expenses include $12,000 administrative salaries and 0.9% monthly interest on the long-term note payable.


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