Pargo Company is preparing its budgeted income statement for 2017. Relevant data

Question

Pargo Company is preparing its budgeted income statement for 2017. Relevant data pertaining to its sales, production, and direct materials budgets are as follows.

Sales. Sales for the year are expected to total 1,000,000 units. Quarterly sales are 18%, 27%, 27%, and 28%, respectively. The sales price is expected to be $42 per unit for the first three quarters and $47 per unit beginning in the fourth quarter. Sales in the first quarter of 2018 are expected to be 12% higher than the budgeted sales for the first quarter of 2017.

Production. Management desires to maintain the ending finished goods inventories at 19% of the next quarter’s budgeted sales volume.

Direct materials. Each unit requires 2 pounds of raw materials at a cost of $11 per pound. Management desires to maintain raw materials inventories at 10% of the next quarter’s production requirements. Assume the production requirements for first quarter of 2018 are 496,000 pounds.

Pargo budgets 0.2 hours of direct labor per unit, labor costs at $11 per hour, and manufacturing overhead at $18 per direct labor hour. Its budgeted selling and administrative expenses for 2017 are $6,983,000.

Calculate the budgeted total unit cost. (Round answer to 2 decimal places, e.g. 12.25.) Total unit cost $ Prepare the budgeted multiple-step income statement for 2017. (Ignore income taxes.) PARGO COMPANY Budgeted Income Statement

Explanation / Answer

Answer:1

Labour cost per unit = $11*0.2 hours = $2.2

Manufacturing overhead cost per unit = $18*0.2 hours = $3.6

Direct material purchases cost per unit = 22202268/1004104 = $22.11

Total budgeted cost per unit = $2.2+ $3.6+ $22.11 = $27.91

Answer:2

Sales budget Quarter 1 Quarter 2 Quarter 3 Quarter 4 year Units 180000 270000 270000 280000 1000000 Sales price 42 42 42 47 Total sales 7560000 11340000 11340000 13160000 43400000 Production budget Quarter 1 Quarter 2 Quarter 3 Quarter 4 year Sales units 180000 270000 270000 280000 1000000 Desired ending finished goods units 51300 51300 53200 38304 194104 Beginning finished goods units 34200 51300 51300 53200 190000 Required production units 197100 270000 271900 265104 1004104 Direct materials budget Quarter 1 Quarter 2 Quarter 3 Quarter 4 year Units to be produced 197100 270000 271900 265104 1004104 Direct material budget 2 2 2 2 2 Total pounds needed for production 394200 540000 543800 530208 2008208 Desired ending direct material (pounds) 54000 54380 53020.8 49600 211000.8 Beginning direct materials (pounds) 39420 54000 54380 53020.8 200820.8 Direct material purchases 408780 540380 542440.8 526787.2 2018388 Cost per pound 11 11 11 11 11 Total cost of direct material purchases 4496580 5944180 5966849 5794659 22202268

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