BettyBaskets_Budget question

Betty’s Beautiful Baskets

Betty’s Beautiful Baskets, a manufacturing business that sells baskets, wants a master budget prepared for the first three months of this year (January, February and March).

The managers of the different departments have provided the following information:

The Sales Manager has projected the following sales:

o January 5,000 units

o February 4,000 units

o March 6,000 units

o April 5,000 units

o May 11,250 units

o Projected selling price is $35.00/unit

Your Production Manager gave the following information:

o Ending Inventory is to be 20% of next month’s production needs

o April’s Projected Sales 5,000 units

o December 20X5 Ending Inventory was 1,000 units and December unit cost was $23.50.

The Manufacturing Manager has estimated the following:

o Each unit will require 4 grams of material

o Material in Ending Inventory is 20% of next month’s needs

o December’s Ending Material Inventory was 4,800 g

o Projected cost of material: $2.50/gram

The Personnel Manager has estimated that Direct Labor will be projected at:

o 0.75 hours of Direct Labor per unit

o Direct Labor Cost: $8.50/hour

The Facilities Manager has estimated that the Manufacturing Overhead will be projected at:

o Variable Overhead Rate to be $8 per Direct Labor hours

o Fixed Overhead Rate to be $3,000 per month

The Accounting Department Manager has provided the following information:

• Selling and Administrative Expenses are projected to be a monthly cost of:

o Salaries $6,000

o Rent $1,500

o Advertising $1,100

o Telephone $300

o Other $500

Betty’s Beautiful Baskets Page 2

• Cash Receivable:

o December’s Sales were $150,000

o 80% of sales is collected in the month in which they were made

o 20% of sales collected in the following month in which they were made

o Bad Debts is negligible

• Accounts Payable:

o 80% of Payables is paid for in the current month

o 20% of Payables is paid for in the following month

o December’s purchases were $50,000

• Federal Income Tax is estimated at 22% average.

• Betty’s Beautiful Baskets

o has a $20,000 cash balance for the beginning of January

o pays Dividends of $8,000 to be paid in March

o pays projected Federal Income tax in March

o depreciation on the building is $150 per month

o does not carry any WIP inventory

o uses FIFO inventory costing

• From the beginning Balance Sheet:

o Land = $150,000

o Building = $45,000

o Depreciation (Building) = $11,250

o Retained Earnings = $58,780

o Capital Stock = $200,470

For the Master Budget, you are expected to prepare the following:

• Sales budget plus schedule of accounts receivable collections

• Production budget

• Direct materials budget and schedule of cash payments for purchases

• Direct labor budget

• Manufacturing overhead budget

• Cost of Goods Sold Budget

• Selling & Administrative Expenses Budget

• Budgeted income statements

• Cash budget

• Budgeted balance sheet for each month plus a beginning balance sheet

When you prepare the cost of goods sold budget, you must calculate a unit cost for each month. You must also calculate cost of goods manufactured. Remember, there is no Work in Process inventory but you must calculate direct materials used.