Question

Assume that The AM Bakery is preparing a budget for the month ending October 31. Management prepares the budget by starting with the actual results for August 31. Next, management considers what the differences in costs will be between August and October.

Management expects revenue in October to be 10 percent more than in August, and it expects all ingredient costs (e.g., flour, butter, and so on) to be 10 percent higher in October than in August. Management expects “other” labor costs to be 20 percent higher in October than in August, partly because more labor will be required in October and partly because employees will receive a pay raise. The manager will receive a pay raise that will increase his salary from $6,200 in August to $6,870 in October. Rent, utilities, and marketing costs are not expected to change.

Required:

Prepare a budget for The AM Bakery for October.

	THE AM BAKERY Bakery Sales Budgeted Costs For the Month Ending October 31 Actual Budgeted (August) (October) Ingredients Flour $5,600 Butter 5,200 Oil 3,400    Fruit 3,000 Nuts 2,600 Chocolate 1,650 Other 1,250 Total ingredients $22,700 Labor Channel manager $6,200 Other 12,400 Utilities 4,100 Rent 5,300 Marketing 1050 Total bakery cost $51,750 Revenues 69,200

Answer 1

THE AM BAKERY
Bakery Sales
Budgeted Costs
For the Month Ending October 31
	Actual	Budgeted
	(August)	(October)
Ingredients
Flour	5600	6160	=5600*1.1
Butter	5200	5720	=5200*1.1
Oil	3400	3740	=3400*1.1
Fruit	3000	3300	=3000*1.1
Nuts	2600	2860	=2600*1.1
Chocolate	1650	1815	=1650*1.1
Other	1250	1375	=1250*1.1
Total ingredients	22700	24970
Labor
Channel manager	6200	6870
Other	12400	14880	=12400*1.2
Utilities	4100	4100
Rent	5300	5300
Marketing	1050	1050
Total bakery cost	51750	57170
Revenues	69200	76120	=69200*1.1