Question

The JustOneMore Company produces and sells organic plain potato chips. The one-pound family size bag of chips has two direct materials – potatoes and packaging. JustOneMore is preparing budgets for the second quarter ending June 30, 2019. For each requirement below prepare budgets by month for April, May, and June, and a total budget for the quarter.

1. The previous year’s sales (2018) for the corresponding period were:

April                      60,000 bags

May                       70,000 bags

June                       85,000 bags

July                       75,000 bags

August                   65,000 bags

The company expects the above volume of sales to increase by 6% for the period April 2019 – August 2019. The budgeted selling price for 2019 is $11.00 per bag of chips. The company expects 20% of its sales to be cash (COD) sales. The remaining 80% of sales will be made on credit. Prepare a Sales Budget for JustOneMore.

2. The company desires to have finished goods inventory on hand at the end of each month equal to 12 percent of the following month's budgeted unit sales. On March 31, 2019, JustOneMore expects to have 7,632 bags of chips on hand. Prepare a Production budget.

3. The final product (bags of chips) requires two direct materials: potatoes and packaging. 4 pounds of raw potatoes are required for each one-pound bag of potato chips. Management desires to have materials on hand (i.e., pounds of potatoes) at the end of each month equal to 25 percent of the following month's production needs. The beginning materials inventory, April 2019, is expected to be 66,504 pounds. Potatoes cost $1.10 per pound.

Packaging material is purchased by the roll and 50 bags of chips are produced from each roll. The packaging is made from biodegradable, organic plant fiber that extends the shelf life of the potato chips while preserving its freshness. Management desires to have packaging on hand at the end of each month equal to 15 percent of the following month's production needs. The beginning inventory of packaging (i.e., rolls of packaging material) in April 2019 is expected to be 200 rolls. Packaging is expected to cost $13 per roll.

Note, budgeted production in July is required in order to complete the direct materials budget for June. Also, use the @ROUNDUP function to round up to the nearest whole number of pounds of potatoes and number of rolls of packaging material to purchase. Further, because two direct materials are required for production – potatoes and rolls of packaging - you will need a separate schedule for each direct material. Prepare a Direct Materials budget.

4. Each bag of chips requires 0.15 hours of direct labor. Each hour of direct labor costs the company $21. Prepare a Direct Labor budget.

5. JustOneMore budgets indirect materials (e.g., salt, oil) at $0.04 per bag. JustOneMore treats indirect labor and utilities as mixed costs. The variable components are $0.45 per bag for indirect labor and $0.15 per bag for utilities. The following fixed costs per month are budgeted for indirect labor, $20,000, utilities, $3,000, and other, $10,000. Prepare a Manufacturing Overhead budget.

6. Variable selling and administrative expenses are $1.05 per bag of chips sold. Fixed selling and administrative expenses are $40,000 per month. These costs are not itemized, i.e., the budget has only two line items – variable operating expenses and fixed operating expenses.   Prepare an Operating Expenses budget.

7. Prepare a Budgeted Manufacturing Cost per unit budget. Refer to exhibit 9-11 for guidance. To calculate FMOH/unit calculate total FMOH for the year and divide this by budgeted production for the year. The total production volume for the year is budgeted at 850,000 bags.
8. Prepare a Budgeted Income Statement for the quarter for JustOneMore. Assume interest expense of $0, and income tax expense of 21% of income before taxes.

Answer 1

Only first four budgets are prepared

Budget 1 Sales Budget Budgeted Sales (units) Quarter 227900 Selling Price p.u Budgeted Sales (in $) Cash Sales (20%) Credit Sales (80%) Apr 63600 (60000*1.06) 11.00 $ 6,99,600 $ 1,39,920 $ 5,59,680 $ May 74200 (70000*1.06) 11.00 $ 8,16,200 $ 1,63,240 $ 6,52,960 $ Jun 90100 (85000*1.06) 11.00 9,91,100 1,98,220 7,92,880 $ $ $ $ 11.00 25,06,900 5,01,380 20,05,520 Budget 2 Production Budget Budgeted Sales (units) (+) Closing Inventory (12% of next month Budg.Sale) (-) Opening Inventory Budgeted Production (units) Apr 63600 8904 -7632 64872 May 74200 10812 -8904 76108 Jun 90100 9540 -10812 88828 Quarter 227900 9540 -7632 229808 Budgeted Sales for July (in units) (75000*1.06) Closing Inventory for Jun (79500*12%) 79500 9540

Budget 3 Apr May Jun Quarter 76108 88828 229808 Direct Materials Budget A. Potatoes Budgeted Production (units) Raw material req. per unit Total Materials needs for production (in pounds) (+) Closing Inventory (25% of next month needs) (-) Opening Inventory Budgeted Potatoes to be purchased (pounds) Cost per pound (A) Budgeted cost of potatoes purchased 64872 4. 259488 76108 -66504 269092 1.10 2.96,001.20 304432 88828 -76108 317152 1.10 3,48,867.20 355312 78228 -88828 344712 1.10 3,79,183.20 919232 78228 -66504 930956 1.10 10,24,051.60 $ $ S $ $ $ $ B. Packaging rolls Budgeted Production (units) Raw material req. per unit Total Materials needs for production (in pounds) (+) Closing Inventory (15% of next month needs) (-) Opening Inventory Budgeted Potatoes to be purchased (pounds) Cost per pound (B) Budgeted cost of potatoes purchased 64872 0.02 1297.44 228.324 -200 1326 13.00 17,238.00 76108 0.02 1522.16 266.484 -228.324 1561 13.00 20,293.00 88828 0.02 1776.56 234.684 -266.484 1745 13.00 22,685.00 229808 0.02 4596.16 234.684 -200 4632 13.00 60,216.00 $ $ $ $ $ $ Total Direct Material purchases (A+B) $ 3,13,239.20 $ 3,69,160.20 $ 4,01,868.20 $ 10,84,267.60 Budgeted Sales for July (in units) (75000*1.06) Closing Inventory for July (65000*1.06*12%) (-) Opening Inventory for July Budgeted Production for July Closing Potato inventory for July (78228*4* 25%) Closing Packaging inventory for July (78228/50*15%) 79500 8268 -9540 78228 78228 234.684

Budget 4 Direct Labor Budget Budgeted Production (units) Labor hours req. per unit Total labor hours needed for production (in pounds) Cost per labor hr Budgeted Direct labor cost Apr 64872 0.15 9730.8 21.00 2,04,346.80 May 76108 0.15 11416.2 21.00 2,39,740.20 Jun 88828 0.15 13324.2 21.00 $ 2,79,808.20 $ Quarter 229808 0.15 34471.2 21.00 7,23,895.20 $ $ $ $ $