Question

Required information [The following information applies to the questions displayed below.) Iguana, Inc., manufactures bamboo picture frames that sell for $20 each. Each frame requires 4 linear feet of bamboo, which costs $1.50 per foot. Each frame takes approximately 30 minutes to build, and the labor rate averages $13 per hour. Iguana has the following inventory policies • Ending finished goods inventory should be 40 percent of next month's sales. • Ending direct materials inventory should be 30 percent of next month's production. Expected unit sales (frames) for the upcoming months follow: March April May June July August 345 390 440 540 515 565 Variable manufacturing overhead is incurred at a rate of $0.30 per unit produced. Annual fixed manufacturing overhead is estimated to be $7,200 ($600 per month) for expected production of 6,000 units for the year. Selling and administrative expenses are estimated at $650 per month plus $0.50 per unit sold. Iguana, Inc., had $15,800 cash on hand on April 1. Of its sales, 80 percent is in cash. Of the credit sales, 50 percent is collected during the month of the cale and 50 narrant ic collected during the month following the cale

Answer 1

Solution

Iguana Inc

	Iguana Inc
		April	May	June	2nd Quarter
1	Budgeted Sales Revenue	$7,800	$8,800	$10,800	$27,400
2	Budgeted production in units	410	480	530	1,420
3	Budgeted cost of raw material purchases	$2,586	$2,970	$3,189	$8,745
4	Budgeted direct labor cost	$2,665	$3,120	$3,445	$9,230
5	Budgeted manufacturing overhead	$723	$744	$759	$2,226
6	Budgeted cost of goods sold	$5,974	$6,834	$7,393	$20,201
7	Total budgeted selling and administration expenses	$845	$870	$920	$2,635

Computations:

1. Computation of budgeted sales revenue:

Sales revenue = expected unit sales x sales price per unit

Iguana Inc
Schedule of expected sales revenue:
	April	May	June	2nd Quarter
Sales units	390	440	540	1,370
sales price per unit	$20	$20	$20	$20
Sales Revenue	$7,800	$8,800	$10,800	$27,400
Schedule of budgeted production in units:
	April	May	June	2nd Quarter
expected sales in units	390	440	540	1,370
Add: ending finished goods inventory, 40% of next month sales units	176	216	206
Total requirement	566	656	746
Less: beginning inventory	156	176	216
Production in units	410	480	530	1,420
Schedule of budgeted cost of raw material purchases:
	April	May	June	2nd Quarter
production needs	410	480	530	1,420
raw materials per unit	4 linear feet	4 linear feet	4 linear feet	4 linear feet
total raw materials	1,640	1,920	2,120	5,680
Add: ending inventory	576	636	642
total raw materials needed	2,216	2,556	2,762
less: beginning raw materials inventory	492	576	636
raw materials purchases	1,724	1,980	2,126	5,830
cost per linear foot	$1.50	$1.50	$1.50	$1.50
budgeted raw material purchases	$2,586	$2,970	$3,189	$8,745
Schedule of budgeted direct labor cost:
	April	May	June	2nd Quarter
production needs	410	480	530	1,420
DLH per unit	0.5	0.5	0.5	0.5
total DLH	205	240	265	710
cost per hour	$13	$13	$13	$13
Budgeted direct labor cost	$2,665	$3,120	$3,445	$9,230
Schedule of budgeted manufacturing overhead cost:
	April	May	June	2nd Quarter
Production needs	410	480	530	1,420
variable manufacturing overhead per unit	$0.30	$0.30	$0.30	$0.30
variable manufacturing overhead	$123	$144	$159	$426
Fixed manufacturing overhead	$600	$600	$600	$1,800
Total manufacturing overhead	$723	$744	$759	$2,226
Schedule of budgeted selling and administration expenses:
	April	May	June	2nd Quarter
units sold	390	440	540	1,370
variable selling overhead per unit	$0.50	$0.50	$0.50	$0.50
variable selling overhead cost	$195	$220	$270	$685
fixed selling overhead cost	$650	$650	$650	$1,950
Total selling and administrative expenses	$845	$870	$920	$2,635

Budgeted Cost of Goods Sold:
	April	May	June	Total
Budgeted cost of raw material purchases	$2,586	$2,970	$3,189	$8,745
Budgeted direct labor cost	$2,665	$3,120	$3,445	$9,230
Budgeted manufacturing overhead	$723	$744	$759	$2,226
Budgeted cost of goods sold	$5,974	$6,834	$7,393	$20,201

Note: computation of ending inventory for June is as follows,

Ending finished goods inventory = 40% of next month’s sales

June ending inventory of FG = 40% x 515 = 206 units

Computation of ending raw materials inventory for June –

Ending raw materials inventory for June = 30% of July production needs

July production needs = 515 + (40% x565) – 206 = 535

Ending raw materials inventory for June = 30% x (535 x 4 linear feet) = 642 units