Question

Iguana, Inc., manufactures bamboo picture frames that sell for $25 each. Each frame requires 4 linear feet of bamboo, which costs $2.50 per foot. Each frame takes approximately 30 minutes to build, and the labor rate averages $14 per hour. Iguana has the following inventory policies:

• Ending finished goods inventory should be 40% of next month’s sales
• Ending direct materials inventory should be 30% of next month’s production.

Expected unit sales (frames) for the upcoming months follow:

Expected unit sales (frames) for the upcoming months follow:

March	350
April	400
May	450
June	550
July	525
August	575

Variable manufacturing overhead is incurred at a rate of $0.40 per unit produced. Annual fixed manufacturing overhead is estimated to be $10,800 ($900 per month) for expected production of 4,000 units for the year. Selling and administrative expenses are estimated at $950 per month plus $0.60 per unit sold

Iguana inc., had $11,900 cash on hand on April 1. Of its sales, 80% is in cash. Of the credit sales, 50% is collected during the month of the sale, and 50% is collected during the month following the sale.

Of direct materials purchases, 80% is paid for during the month purchased and 20% is paid in the following month. Direct materials purchases for March 1 totaled $4,000. All other operating costs are paid during the month incurred. Monthly fixed manufacturing overhead includes $300 in depreciation. During April, Iguana plans to pay $2,000 for a piece of equipment.

1. Compute Iguana’s Budgeted Income Statement for quarter 2

	April	May	June	2nd Quarter Total
Budgeted Sales Revenue
Budgeted Costs Of Goods Sold
Budgeted Gross Margin
Budgeted Selling And Administrative Expenses
Budgeted Net Operating Income

Answer 1

ANSWER

IGUANA, INC.
Budgeted Income Statement
For the Quarter Ending June
	April	May	June	2nd Qua-rter Total
Budgeted Sales Revenue	$      10,000	$      11,250	$      13,750	$              35,000
Budgeted Cost of Goods Sold	8,040	9,045	11,055	28,140
Budgeted Gross Margin	1,960	2,205	2,695	6,860
Budgeted Selling and Administrative Expenses	1,190	1,220	1,280	3,690
Budgeted Net Operating Income	$           770	$           985	$        1,415	$                3,170
Working
	April	May	June	2nd Quarter Total
Bud geted Sales (Units)	400	450	550	1400
x Unit Sales Price	x $25	x $25	x $25	x $25
Budgeted Sales Revenue	$      10,000	$      11,250	$      13,750	$              35,000
Budgeted Manufacturing Costs	Per Unit
Direct Materials (4 ft × $2.50 per ft)	$        10.00
Direct Labor (.5 Hours × $14 per Hour)	7.00
Variable Manufacturing Overhead	0.40
Fixed Manufacturing Overhead ($10,800 / 4,000 Units)	2.70
Budgeted Manufacturing Cost per Unit	$        20.10
	April	May	June	2nd Quarter Total
Bud geted Sales (Units)	400	450	550	1400
x Budgeted Manufacturing Cost per Unit	x $20.10	x $20.10	x $20.10	x $20.10
Budgeted Cost of Goods Sold	$        8,040	$        9,045	$      11,055	$              28,140
	April	May	June	2nd Quarter Total
Bud geted Sales (Units)	400	450	550	1400
x Variable Selling and Administrative Rate	x $0.60	x $0.60	x $0.60	x $0.60
Budgeted Variable Selling and Administrative Expenses	$           240	$           270	$           330	$                   840
Budgeted Fixed Selling and Administrative Expenses	$           950	$           950	$           950	$                2,850
Total Budgeted Selling and Administrative Expenses	$        1,190	$        1,220	$        1,280	$                3,690

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