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Six
1 2 Months
Budgeted sales in units 36,000 56,000 92,000
Sales revenue $5,520,000
Cost of goods sold * 3,507,960
Gross Profit 2,012,040
Cost per bag
Cost element Quantity Unit Cost Total
Direct materials
Gumm 5 pounds $3.80 $19.00
Tarr 6 pounds 1.50 9.00
For the Six Months Ending June 30, 2017
Quarter
COOK FARM SUPPLY COMPANY
Budgeted Income Statement
For the Six Months Ending June 30, 2017
Selling and Administrative Budget
COOK FARM SUPPLY COMPANY
P23-5A Prepare purchases and income statement budgets for a merchandiser
The budget committee of Suppar Company collects the following data for its San Miguel Store in
preparing budgeted income statements for May and June 2017.
1. Sales for May are expected to be $800,000. Sales in June and July are expected to be 5%
higher than the preceding month.
2. Cost of goods sold is expected to be 75% of sales.
3. Company policy is to maintain ending merchandise inventory at 10% of the following
month's cost of goods sold.
4. Operating expenses are estimated to be:
$35,000 per month
Advertising 6% of monthly sales
2% of monthly sales
5% of monthly sales
$5,000 per month
$800 per month
$600 per month
$500 per month
5. Interest expense is $2,000 per month. Income taxes are estimated to be 30% of income before income
taxes.
Instructions
(a) Prepare the merchandise purchases budget for each month in columnar form.
(b) Prepare budgeted income statements for each month in columnar form. Show in the
statements the details of cost of goods sold.
NOTE: Enter a number in cells requesting a value; enter either a number or a formula in cells with a "?" .
May June
Budgeted Sales
Value ?
Budgeted cost of goods sold Value ?
Add: Desired ending merchandise inventory ? ?
Total ? ?
Less: Beginning merchandise inventory ? Value
Required merchandise purchases ? ?
May June
Sales Revenue Value Value
Cost of goods sold
Beginning inventory Value Value
Add: Purchases Value Value
Cost of goods available for sale ? ?
Less: Ending inventory Value Value
Cost of goods sold ? ?
Gross profit ? ?
Operating expenses
Sales salaries Value Value
Advertising* ? ?
Delivery** ? ?
Sales commissions*** ? ?
San Miguel Store
Budgeted Income Statement
For the Months of May and June, 2017
Insurance
SUPPAR COMPANY
San Miguel Store
Merchandise Purchases Budget
For the Months of May and June, 2017
SUPPAR COMPANY
Utilities
Sales salaries
Delivery expense
Sales commissions
Rent expense
Depreciation
Rent Value Value
Depreciation Value Value
Utilities Value Value
Insurance Value Value
Total ? ?
Income from operations ? ?
Interest expense Value Value
Income before income taxes ? ?
Income tax expense (30%) ? ?
Net income ? ?
*6% of sales
**2% of sales.
***5% of sales.
After you have completed P23-5A consider the following additional question.
1. Assume that expected sales in May changed to $875,000 and cost of goods
sold changed to 70% of sales. Revise the merchandising purchases budget
and the budgeted income statement to reflect these changes.
P23-5A Solution
May June
Budgeted Sales 800,000$ 840,000$
(1) $800,000 x 105% = $840,000; $840,000 x 75% = $630,000.
(2) $630,000 x 10% = $63,000.
May June
Sales Revenue 800,000$ 840,000$
Cost of goods sold
Beginning inventory 60,000 63,000
Add: Purchases 603,000 633,150
Operating expenses
Sales salaries 35,000 35,000
Advertising* 48,000 50,400
Delivery** 16,000 16,800
Sales commissions*** 40,000 42,000
Rent 5,000 5,000
Budgeted Income Statement
For the Months of May and June, 2017
SUPPAR COMPANY
San Miguel Store
Merchandise Purchases Budget
For the Months of May and June, 2017
SUPPAR COMPANY
San Miguel Store
*6% of sales
P23-5A Solution to additional question
1. Assume that expected sales in May changed to $875,000 and cost of goods
sold changed to 70% of sales. Revise the merchandising purchases budget
and the budgeted income statement to reflect these changes.
May June
Budgeted Sales 875,000$ 918,750$
Less: Beginning merchandise inventory 61,250
(4)
64,313
Required merchandise purchases 615,563$ 646,341$
May June
Sales Revenue 875,000$ 918,750$
Cost of goods sold
Beginning inventory 61,250 64,313
Operating expenses
Sales salaries 35,000 35,000
Advertising* 52,500 55,125
Delivery** 17,500 18,375
Budgeted Income Statement
For the Months of May and June, 2017
SUPPAR COMPANY
San Miguel Store
Merchandise Purchases Budget
For the Months of May and June, 2017
SUPPAR COMPANY
San Miguel Store
*6% of sales
CD23 Current Designs
Diane Buswell is preparing the 2017 budget for one of Current Design's rotomolded kayaks. Extensive meetings with
members of the sales department and executive team have resulted in the following unit sales projections for 2017.
Quarter 1 1,000 kayaks
Quarter 2 1,500 kayaks
Quarter 3 750 kayaks
Quarter 4 750 kayaks
Current Designs' policy is to have finished goods ending inventory in a quarter equal to 20% of the next quarter's anticipated
sales. Preliminary sales projections for 2018 are 1,100 units for the first quarter and 1,500 units for the second quarter. Ending
inventory of finished goods at December 31, 2016, will be 200 rotomolded kayaks.
Production of each kayak requires 54 pounds of polyethylene powder and a finishing kit (rope, seat, hardware, etc.). Company
policy is that the ending inventory of polyethylene powder should be 25% of the amount needed for production in the next
quarter. Assume that the ending inventory of polyethylene powder on December 31, 2016 is 19,400 pounds. The finishing kits
can be assembled as they are needed. As a result, Current Designs does not maintain a significant inventory of the finished kits.
The polyethylene powder used in these kayaks cost $1.50 per pound, and the finishing kits cost $170 each. Production of a
single kayak requires 2 hours of time by more experienced, type I employees and 3 hours of finishing time by type II employees.
The type I employees are paid $15 per hour, and the type II employees are paid $12 per hour.
Selling and administrative expenses for this line are expected to be $45 per unit sold plus $7,500 per quarter. Manufacturing
overhead is assigned at 150% of labor costs.
Instructions
Prepare the production budget, direct materials budget, direct labor budget, manufacturing overhead budget, and selling and
administrative budget for this product line by quarter and in total for 2017.
NOTE: Enter a number in cells requesting a value; enter either a number or a formula in cells with a "?" .
Quarter 1 Quarter 2 Quarter 3 Quarter 4 Total
Expected unit sales Value Value Value Value ?
Add: desired ending finished goods units ? ? ? ? ?
Total required units ? ? ? ? ?
Less: beginning finished goods units ? Value Value Value ?
Required production units ? ? ? ? ?
Quarter 1 Quarter 2 Quarter 3 Quarter 4 Total
Units to be produced Value Value Value Value ?
Pounds of polyethylene powder per unit x 54 lbs. x 54 lbs. x 54 lbs. x 54 lbs. x 54 lbs.
Total pounds needed for production ? ? ? ? ?
Add: desired ending inventory of powder Value Value Value Value ?
Total pounds of powder required ? ? ? ? ?
Less: beginning inventory of powder Value Value Value Value ?
Pounds of polyethylene powder to be purchased ? ? ? ? ?
Cost per pound x $1.50 x $1.50 x $1.50 x $1.50 x $1.50
Cost of polyethylene powder to be purchased ? ? ? ? ?
Cost of required finishing kits ? ? ? ? ?
Total costs for direct materials ? ? ? ? ?
Quarter 1 Quarter 2 Quarter 3 Quarter 4 Total
Units to be produced Value Value Value Value ?
Number of hours of more skilled labor/unit x 2 x 2 x 2 x 2 x 2
Total number of hours of more skilled labor ? ? ? ? ?
Hourly rate for more skilled labor x $15 x $15 x $15 x $15 x $15
CURRENT DESIGNS
Direct Labor Budget
For the Year Ending December 31, 2017
For the Year Ending December 31, 2017
CURRENT DESIGNS
Production Budget
For the Year Ending December 31, 2017
CURRENT DESIGNS
Direct Materials Budget
Total cost of more skilled labor ? ? ? ? ?
Units to be produced Value Value Value Value ?
Number of hours of less skilled labor/unit x 3 x 3 x 3 x 3 x 3
Total number of hours of less skilled labor ? ? ? ? ?
Hourly rate for less skilled labor x $12 x $12 x $12 x $12 x $12
Total cost of less skilled labor ? ? ? ? ?
Total cost for direct labor ? ? ? ? ?
Quarter 1 Quarter 2 Quarter 3 Quarter 4 Total
Total costs for direct labor Value Value Value Value ?
Manufacturing overhead rate per direct labor dollar x 150% x 150% x 150% x 150% x 150%
Manufacturing overhead costs ? ? ? ? ?
Quarter 1 Quarter 2 Quarter 3 Quarter 4 Total
Expected unit sales Value Value Value Value ?
Variable selling and administrative costs @ $45/unit ? ? ? ? ?
Fixed selling and administrative costs Value Value Value Value ?
Total selling and administrative costs ? ? ? ? ?
After you have completed CD23 consider the following additional question.
1. Assume that each kayak requires 55 pounds of polyethylene powder and that ending inventory of polyethylene
powder changed to 20% of the amount needed for production in the next quarter. Show the impact of these
changes on the budgets.
CURRENT DESIGNS
Selling and Administrative Budget
For the Year Ending December 31, 2017
CURRENT DESIGNS
Manufacturing Overhead Budget
For the Year Ending December 31, 2017
CD23 Solution
Quarter 1 Quarter 2 Quarter 3 Quarter 4 Total
Expected unit sales 1,000 1,500 750 750 4,000
Add: desired ending finished goods units* 300 150 150 220 220
*20% of next quarter's sales
Quarter 1 Quarter 2 Quarter 3 Quarter 4 Total
Units to be produced 1,100 1,350 750 820 4,020
Pounds of polyethylene powder per unit x 54 lbs. x 54 lbs. x 54 lbs. x 54 lbs. x 54 lbs.
Total pounds needed for production 59,400 72,900 40,500 44,280 217,080
Add: desired ending inventory of powder* 18,225 10,125 11,070 15,930 15,930 **
Quarter 1 Quarter 2 Quarter 3 Quarter 4 Total
Units to be produced 1,100 1,350 750 820 4,020
Number of hours of more skilled labor/unit x 2 x 2 x 2 x 2 x 2
Total number of hours of more skilled labor 2,200 2,700 1,500 1,640 8,040
Hourly rate for more skilled labor x $15 x $15 x $15 x $15 x $15
Total cost of more skilled labor $33,000 $40,500 $22,500 $24,600 $120,600
Quarter 1 Quarter 2 Quarter 3 Quarter 4 Total
Total costs for direct labor $72,600 $89,100 $49,500 $54,120 $265,320
CURRENT DESIGNS
Direct Labor Budget
For the Year Ending December 31, 2017
CURRENT DESIGNS
Manufacturing Overhead Budget
For the Year Ending December 31, 2017
For the Year Ending December 31, 2017
CURRENT DESIGNS
Production Budget
For the Year Ending December 31, 2017
CURRENT DESIGNS
Direct Materials Budget
Quarter 1 Quarter 2 Quarter 3 Quarter 4 Total
Expected unit sales 1,000 1,500 750 750 4,000
CURRENT DESIGNS
Selling and Administrative Budget
For the Year Ending December 31, 2017
CD23 Solution to additional question
1. Assume that each kayak requires 55 pounds of polyethylene powder and that ending inventory of polyethylene
powder changed to 20% of the amount needed for production in the next quarter. Show the impact of these
changes on the budgets.
Quarter 1 Quarter 2 Quarter 3 Quarter 4 Total
Expected unit sales 1,000 1,500 750 750 4,000
Add: desired ending finished goods units* 300 150 150 220 220
Quarter 1 Quarter 2 Quarter 3 Quarter 4 Total
Units to be produced 1,100 1,350 750 820 4,020
Pounds of polyethylene powder per unit x 55 lbs. x 55 lbs. x 55 lbs. x 55 lbs. x 55 lbs.
Total pounds needed for production 60,500 74,250 41,250 45,100 221,100
Add: desired ending inventory of powder* 14,850 8,250 9,020 12,980 12,980
Quarter 1 Quarter 2 Quarter 3 Quarter 4 Total
Units to be produced 1,100 1,350 750 820 4,020
Number of hours of more skilled labor/unit x 2 x 2 x 2 x 2 x 2
Total number of hours of more skilled labor 2,200 2,700 1,500 1,640 8,040
Hourly rate for more skilled labor x $15 x $15 x $15 x $15 x $15
CURRENT DESIGNS
Direct Labor Budget
For the Year Ending December 31, 2017
For the Year Ending December 31, 2017
CURRENT DESIGNS
Production Budget
For the Year Ending December 31, 2017
CURRENT DESIGNS
Direct Materials Budget
Quarter 1 Quarter 2 Quarter 3 Quarter 4 Total
Total costs for direct labor $72,600 $89,100 $49,500 $54,120 $265,320
Quarter 1 Quarter 2 Quarter 3 Quarter 4 Total
Expected unit sales 1,000 1,500 750 750 4,000
Variable selling and administrative costs $45,000 $67,500 $33,750 $33,750 $180,000
CURRENT DESIGNS
Selling and Administrative Budget
For the Year Ending December 31, 2017
CURRENT DESIGNS
Manufacturing Overhead Budget
For the Year Ending December 31, 2017
