MA47 Problem: Budgeting - Storey Manufacturing Company

MA47 Problem: Budgeting - Storey Manufacturing Company

The Storey Manufacturing Company makes two basic products known as Cee and Dee. Data that have been assembled by the managers follow:

CeeDee

Requirements for finished unit:Raw material 1 10 kg 8 kgRaw material 2 4 kgRaw material 3 2 units 1 unitDirect labour 5 hours 8 hoursSales price $100 $150Sales units 12,000 9,000Estimated beginning inventory 400 150Desired ending inventory 300 200

 Raw Materials

1

2

3

Cost $2.00 per kg

2.50 per kg

$0.50 per unit

Estimated beginning inventory

3,000

1,500

1,000

Desired ending inventory 4,000

1,000

1,500

The direct labour wage rate is $4 per hour. Overhead is applied on the basis of direct labour hours. Thetax rate is 40%.The budgeted sales level is divided into quarters. Storey estimated that 20% of the annual sales will be inthe first quarter, 30% in the second, and 25% in the third and fourth quarters. The beginning inventory of finished products has the same cost per unit as the ending inventory. The work-in-process inventory isnegligible.

 Storey Manufacturing Company Sales Forecasts By Products 20x1Cee

 Dee

Total 

Units Dollars Units Dollars Dollars

First quarter 2,400 $ 240,000 1,800 $ 270,000 $ 510,000Second quarter 3,600 360,000 2,700 405,000 765,000Third quarter 3,000 300,000 2,250 337,500 637,500Fourth quarter 3,000 300,000 2,250 337,500 637,500Total 12,000 1,200,000 9,000 1,350,000 $2,550,000 

Factory Overhead Costs

Indirect materials $ 10,000Miscellaneous supplies and tools 5,000Indirect labour 40,000Supervision 20,000Payroll taxes and fringe benefits 75,000Maintenance costs-fixed 20,000Maintenance costs-variable 10,000

Depreciation 70,000

Heat, light and power – fixed 8,710

Heat, light and power – variable 5,090

$263,800

 Selling And Administrative Expenses

Advertising $ 60,000Sales salaries 200,000Travel and entertainment 60,000Depreciation-warehouse 5,000Office salaries 20,000Executive salaries 250,000Supplies 4,000Depreciation-office 6,000$605,000

 Required -

Prepare the following:a. Production budget. b. Direct materials purchase budget.c. Direct labour budget.d. Cost of goods sold budget.e. Budgeted income statement. Note: because you are given inventory values for the beginning and the end of the year, it is impossible toconstruct budgets by quarter. The budgets should be presented for the whole year