SB Problem PA8-1 to PA8-3 [The following information applies to the questions di
ID: 2573838 • Letter: S
Question
SB Problem PA8-1 to PA8-3
[The following information applies to the questions displayed below.]
Iguana, Inc., manufactures bamboo picture frames that sell for $30 each. Each frame requires 4 linear feet of bamboo, which costs $3.50 per foot. Each frame takes approximately 30 minutes to build, and the labor rate averages $12 per hour. Iguana has the following inventory policies:
Ending finished goods inventory should be 40 percent of next month’s sales.
Ending raw materials inventory should be 30 percent of next month’s production.
Expected unit sales (frames) for the upcoming months follow:
Variable manufacturing overhead is incurred at a rate of $0.40 per unit produced. Annual fixed manufacturing overhead is estimated to be $7,200 ($600 per month) for expected production of 4,500 units for the year. Selling and administrative expenses are estimated at $650 per month plus $0.50 per unit sold.
Iguana, Inc., had $13,600 cash on hand on April 1. Of its sales, 80 percent is in cash. Of the credit sales, 50 percent is collected during the month of the sale, and 50 percent is collected during the month following the sale.
Of raw materials purchases, 80 percent is paid for during the month purchased and 20 percent is paid in the following month. Raw materials purchases for March 1 totaled $3,600. All other operating costs are paid during the month incurred. Monthly fixed manufacturing overhead includes $210 in depreciation. During April, Iguana plans to pay $3,600 for a piece of equipment.
PA8-1 Preparing Operating Budgets [LO 8-3a, b, c, d, e, f, g]
Required:
1. Prepare operating budget
Compute the following for Iguana, Inc., for the second quarter (April, May, and June) and second quarter total
Budgeted Sales Revenue
Budgeted Production in Units
Budgeted cost of Raw Materials Purchases
Budgeted Direct Labor Cost
Budgeted Manufacturing Overhead
Budgeted Cost of Goods Sold
Total Budgeted Selling and Adm Expenses
PA8-2 Preparing Budgeted Income Statement [LO 8-3h]
2.
Required:
Complete Iguana's budgeted income statement for quarter 2. (Round cost per unit in intermediate calculations and final answers to 2 decimal places.)
Please Complete sections 1 and 2 with separate columns in a table for April, May, June, and 2sd quarter total.
Thanks!
March 305 April 310 May 360 June 460 July 435 August 485Explanation / Answer
Solution:
1-a) Sales Budget
Sales Budget
Budgeted Unit Sales
Budgeted Unit Price
Budgeted Total Sales
April
310
$30
$9,300
May
360
$30
$10,800
June
460
$30
$13,800
Totals for the 2nd quarter
$33,900
1-b) Budgeted Production in Units
Production Budget
April
May
June
2nd Quarter Total
Next Quarter's Expected Unit Sales
360
460
435
Ratio of inventor to future sales
40%
40%
40%
Budgeted Finished Goods Ending Inventory (units)
144
184
174
Add: Budgeted Sales (units)
310
360
460
Required units of available production
454
544
634
Less: Budgeted Beginning Inventory (Ending Finished Goods Inventory of last month)
124
144
184
Units to be produced
330
400
450
1,180
Note – Beginning Finished Goods Inventory of April Month = Ending Inventory of March Month = April Sales Unit x 40% =310*40% = 124 Units
1-c) Budgeted cost of Raw Materials Purchases
Budgeted cost of Raw Materials Purchases
April
May
June
Quarter 2 Total
Budgeted Production Units (From Part b)
330
400
450
Material Needed per unit (linear feet)
4
4
4
Materials needed for production (linear feet)
1320
1600
1800
Add: Desired Ending Inventory (30% of next quarter's expected need of production)
480
(1600*30%)
540
(1800*30%)
546
(Refer Note 2)
Total materials requirements (linear feet)
1800
2140
2346
Less: Beginning Inventory (Ending Inventory of last month)
396
(1320*30%)
480
540
Materials to be purchased (linear feet)
1404
1660
1806
Cost per linear foot
$3.50
$3.50
$3.50
Total cost of direct materials purchases
$4,914
$5,810
$6,321
$17,045
Note – Ending Raw Material Inventory for June Month
Material Needed for Production in July = Budgeted Production Units of July Month x 4 linear feet per unit
Budgeted Production units of july month = Unit Sales + Ending Finished goods inventory – Beginning FG Inventory
= 435 + (485*40%) – 174
= 455 Units
Material Need for Production in July (linear feet) = 455 Units x 4 = 1,820 Linear feet
Ending Inventory of Raw Material for June = Material Needed for Production in July x 30%
= 1820 x 30%
= 546 Linear feet
1-d) Budgeted Direct Labor Cost
Direct Labor Budget
April
May
June
Quarter 2 Total
Budgeted Production Units (From Part b)
330
400
450
Required Direct Labor hours per unit
0.5
0.5
0.5
Total Direct Labor Hours needed
165
200
225
Direct Labor Cost per hour
$12
$12
$12
Budgeted Direct Labor Cost
$1,980
$2,400
$2,700
$7,080
Hope the above calculations, working and explanations are clear to you and help you in understanding the concept of question.... please rate my answer...in case any doubt, post a comment and I will try to resolve the doubt ASAP…thank you
Pls ask separate question for remaining part.
Sales Budget
Budgeted Unit Sales
Budgeted Unit Price
Budgeted Total Sales
April
310
$30
$9,300
May
360
$30
$10,800
June
460
$30
$13,800
Totals for the 2nd quarter
$33,900
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