Question

Developing a Master Budget
for a Manufacturing Organization
Jacobs Incorporated manufactures a product with a selling price of $50 per unit. Units and monthly cost data follow:

Variable:
Selling and administrative	$5 per unit sold
Direct materials	10 per unit manufactured
Direct labor	10 per unit manufactured
Variable manufacturing overhead	5 per unit manufactured
Fixed:
Selling and administrative	$20,000 per month
Manufacturing (including depreciation of $10,000)	30,000 per month

Jacobs pays all bills in the month incurred. All sales are on account with 50 percent collected the month of sale and the balance collected the following month. There are no sales discounts or bad debts. Jacobs desires to maintain an ending finished goods inventory equal to 20 percent of the following month's sales and a raw materials inventory equal to 10 percent of the following month's production. January 1, 2011, inventories are in line with these policies. Actual unit sales for December and budgeted unit sales for January, February, and March of 2011 are as follows:

JACOBS INCORPORATED Sales Budget For the Months of January, February, and March 2011
Month	December	January	February	March
Sales - Units	5,750	3,000	10,000	7,000
Sales - Dollars	$287,500	$150,000	$500,000	$350,000

Additional information:

• The January 1 beginning cash is projected as $7,000.
• For the purpose of operational budgeting, units in the January 1 inventory of finished goods are valued at variable manufacturing cost.
• Each unit of finished product requires one unit of raw materials.
• Jacobs intends to pay a cash dividend of $6,000 in January.

(c) A manufacturing cost budget for January.

JACOBS INCORPORATED Manufacturing Cost Budget For the Month of January 2011
Variable costs
Direct materials	?
Direct labor	?
Variable manufacturing overhead	?
Total variable costs	?
Fixed manufacturing overhead	?
Total manufacturing overhead	?

(d) A cash budget for January.

JACOBS INCORPORATED Cash Budget For the Month of January 2011
Beginning balance		?
Receipts:
December sales	?
January sales	?	?
Total cash available		?
Disbursements:
Purchases	?
Direct labor	?
Variable manufacturing overhead	?
Fixed manufacturing overhead (exclude depreciation)	?
Variable selling and administrative	?
Fixed selling and administrative	?
Dividend	?	?
Ending Balance		?

(e) A budgeted contribution income statement for January.

JACOBS INCORPORATED Budgeted Contribution Income Statement For the Month of January 2011
Sales		?
Less variable costs:
Cost of goods sold	?
Selling and administrative	?	?
Contribution		?
Less fixed costs:
Manufacturing overhead	?
Selling and administrative	?	?
Net income		?

Answer 1

Production Budget
	Jan	Feb
Budgeted Sales in Units	3,000	10,000
Add: Desired Ending Inventory	2,000	1,400
Total Finished Goods Inventory Needed	5,000	11,400
Less: Beginning Inventory	600	2,000
Budgeted Production in Units	4,400	9,400

c.

Jacobs Inc. Maufacturing Cost Budget For the month of January 2011
Variable Costs
Direct Materials	$ 44,000
Direct Labor	44,000
Variable Manufacturing Overhead	22,000
Total Variable Costs	$ 110,000
Fixed Manufacturing Overhead	30,000
Total Manufacturing Costs	$ 140,000

d.

Jacobs Inc. Cash Budget For the month of January 2011
Beginning balance		$ 7,000
Receipts
December Sales	143,750
January Sales	75,000	218,750
Total cash available		$ 225,750
Disbursements
Purchases	49,000
Direct labor	44,000
Variable manufacturing overhead	22,000
Fixed manufacturing overhead	20,000
Variable selling and administrative overhead	15,000
Fixed selling and administrative overhead	20,000
Dividends	6,000	176,000
Ending balance		$ 49,750

e.

Jacobs Inc. Budgeted Contribution Margin Income Statement For the month of January 2011
Sales Revenue		$ 150,000
Variable Costs
Variable Cost of Goods Sold	75,000
Variable Selling and Administrative	15,000	90,000
Contribution Margin		60,000
Fixed Costs
Manufacturing	30,000
Selling and Administrative	20,000	50,000
Net Income		$ 10,000