The board of directors of Southwest Manufacturing Company recently approved the
ID: 2492348 • Letter: T
Question
The board of directors of Southwest Manufacturing Company recently approved the company’s budget and production plan for its coming fiscal year, 20X7. Budgeted units of production equal budgeted unit sales for the company’s single product. Using the information below, included in the budget and production plan:
a. Compute the amount of required sales – number of units and dollars – necessary to achieve the company’s budgeted net income for its fiscal year ended (FYE) December 31, 20X7
b. Prepare the company’s budgeted income statement for its FYE December 31, 20X7 using the Variable Costing Method (Contribution Margin Format). Show all computations in good form and label properly all amounts presented.
Budgeted amounts:
Product selling price (SP) $280.00
Variable manufacturing costs: Direct materials (DM) $62.50 , Direct labor (DL) $52.00, Manufacturing overhead (MOH) costs $75.50 , Variable selling and admin. (S&A) costs $50.00,Estimated combined effective tax rate 40.0% (i.e., 0.40)
Sales dollars ?
Sales units ?
Fixed costs:
Manufacturing overhead (MOH) costs $3,150,000
Selling and administrative (S&A) costs $3,375,000
Research and development (R&D) costs $2,250,000
Net income $2,835,000
a. Amount of required sales – number of units and dollars – necessary to achieve the company’s budgeted net income for its fiscal year ended (FYE) December 31, 20X7:
Net Income 2,835,000
Add back:Inc Tax Exp. (2,835,000*40/60) 1,890,000
Income Before Tax (2,835,000 *100/60) 4,725,000
Add back all fixed EXP to get contribution:
MOH 3,150,000
Selling and Admin. 3,375,000
R&D 2, 250,000
Total fixed cost 3,150,000+3,375,000+2,250,000 = 8,775,000
Total Contribution 4,725,000+8,775,000 =13,500,000
In need help to calculate number of units and dollars?
b. Prepare the company’s budgeted income statement for its FYE December 31, 20X7 using the Variable Costing Method (Contribution Margin Format) Southwest Manufacturing Company Budgeted Income Statement Fiscal year ended December 31, 20X7
Units:
Per unit:
Total:
Sales $
Variable expenses:
Cost of goods sold $
Total variable expenses $
Explanation / Answer
Selling Price/unit 280 Less: Variable Mfg. Costs Direct Materials 62.5 Direct Labour 52 Mfg. OH 75.5 Var.Sell&admn.costs 50 Total Variable cost/unit 240 Contribution /unit 40 Less: Fixed costs Manufacturing OH 3150000 Sell&admin costs 3375000 R&D costs 2250000 Total Fixed costs 8775000 Net Income 4725000 Suppose x is the no.of sales units, As per the question 40*x-8775000=4725000 Solving for x, we get the no. of sales units to obtain the given profit = 337500 or $ 337500*280= 94500000 From you answer also, we get the same figure,ie, Total Contribution =13500000/40(Per unit Contribution as above) = 337500 units Ie, $ 94500000 Budgeted Income Statement Sales 337500 units@ 280 94500000 Less: Variable Expenses Direct Materials @62.5 21093750 Direct Labour @52 17550000 Mfg. OH @75.5 25481250 Var.Sell&admn.costs@50 16875000 Total Variable cost 81000000 Contribution 13500000 Less: Fixed costs Manufacturing OH 3150000 Sell&admin costs 3375000 R&D costs 2250000 Total Fixed costs 8775000 Income before Tax 4725000 Less: Tax @ 40% 1890000 Net Income after tax 2835000 Budgeted units of production equal budgeted unit sales for the company’s single product So,COGS= Variable+Fixed=81000000+8775000= 89775000
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