To meet sales requirements and to have 2,500 units of finished goods on hand at

Question

To meet sales requirements and to have 2,500 units of finished goods on hand at December 31, 2017, the production budget shows 9,000 required units of output. The total unit cost of production is expected to be $18. Krause uses the first-in, first-out (FIFO) inventory costing method. Interest expense is expected to be $3,500 for the year. Income taxes are expected to be 40% of income before income taxes. In 2017, the company expects to declare and pay an $9,550 cash dividend.

The company’s cash budget shows an expected cash balance of $5,880 at December 31, 2017. All sales and purchases are on account. It is expected that 60% of quarterly sales are collected in cash within the quarter and the remainder is collected in the following quarter. Direct materials purchased from suppliers are paid 50% in the quarter incurred and the remainder in the following quarter. Purchases in the fourth quarter were the same as the materials used. In 2017, the company expects to purchase additional equipment costing $11,210. $8,393 of depreciation expense on equipment is included in the budget data and split equally between manufacturing overhead and selling and administrative expenses. Krause expects to pay $9,580 on the outstanding notes payable balance plus all interest due and payable to December 31 (included in interest expense $3,500, above). Accounts payable at December 31, 2017, includes amounts due suppliers (see above) plus other accounts payable of $10,020. Unpaid income taxes at December 31 will be $5,490.

Problem 21-6A (Part Level Submission) Krause Industries' balance sheet at December 31, 2016, is presented below KRAUSE INDUSTRIES Balance Sheet December 31, 2016 Assets Current Assets Cash Accounts receivable Finished goods inventory (1,500 units) $7,500 73,500 25,040 106,040 Total current assets Property, Plant, and Equipment Equipment $40,660 Less: Accumulated depreciation 10,790 29,870 Total assets $135,910 Liabilities and Stockholders' Equity Liabilities $25,510 45,750 71,260 Notes payable Accounts payable Total liabilities Stockholders' Equity $39,640 25,010 Common stock Retained earnings Total stockholders' equity 64,650 Total liabilities and stockholders' equity $135,910 Budgeted data for the year 2017 include the following 2017 Quarter 4 Total Sales budget (8,000 units at $32) Direct materials used Direct labor Manufacturing overhead applied Selling and administrative expenses $76,800 $256,000 62,500 50,900 48,940 75,000 13,350 12,500 10,000 17,940

Explanation / Answer

KRAUSE INDUSTRIES Budgeted Cost of Goods sold For the year ended 31st December 2017 Finished Goods Inventory as on 31st December 2016 (1500 units) $25,040 Add : Cost of Manufacturing during the year (9000 Units) Direct Material Used $62,500 Direct Labor $50,900 Manufacturing Overhead applied $48,940 $162,340 Cost of goods available for sale (10500 units) $187,380 Less : Finished Goods Inventory as on 31st December 2017 (2500 units) $45,000 Cost of goods sold (8000 units) $142,380

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