Question

Spring Manufacturing Company makes two components identified as C12 and D57. Selected budgetary data for 2019 follow: Finished Components c12 D57 Requirements for each finished component: RM 1 RM 2 10 pounds 0 2 pounds 2 hours 8 pounds 4 pounds 1 pound 3 hours RM 3 Direct labor Product information: Sales price Sales (units) Estimated beginning inventory (units) Desired ending inventory (units) $ 150 12,000 $ 220 9,000 150 200 400 300 Cost per pound Estimated beginning inventory in pounds Desired ending inventory in pounds Direct Materials Information RM1 RM2 RM3 $ 2.00 $ 2.50 $ 0.50 3,000 1,500 1,000 4,000 1,000 1,500 The firm expects the average wage rate to be $25 per hour in 2019. Spring Manufacturing uses direct labor hours to apply overhead. Each year the firm determines the overhead application rate for the year based on budgeted direct labor hours for the year. The firm maintains negligible Work-in- Process Inventory and expects the cost per unit for both beginning and ending inventories of finished products to be identical. Indirect materials-variable Miscellaneous supplies and tools-variable Indirect labor-variable Supervision-fixed Payroll taxes and fringe benefits-variable Maintenance costs-fixed Maintenance costs-variable Depreciation-fixed Heat, light, and power-fixed Heat light and nower-variable Factory Overhead Information $ 10,000 5,000 40,000 120,000 250,000 20,000 10,080 71,330 43, 420 11 000

Answer 1

Sales budget For the year 2019 C12 12,000 $150 $1,800,000 Total 21,000 Sales (in units) Selling price per unit Total Sales revenue D57 9,000 $220 $1,980,000 $3,780,000 2 Production budget For the year 2019 Budgeted sales (in units) Closing inventory Total units needed Opening inventory Budgeted production (in units) C12 12,000 300 12,300 400 11,900 D57 9,000 2001 9,200 150 9,050 3 Total Direct Material Purchase Budget (units and dollars) For the year 2019 Raw Material (RM) 1: C12 D57 Budgeted production 11,900 9,050 Pounds per unit 10 8 RM1 needed for production 119,000 72,400 Add: Closing inventory Total RM1 needed Less: Opening inventory Required purchase of RM 1 Cost per pound Budgeted purchase RM 1 191,400 4,000 195,400 3,000 192,400 $2 $384,800 11,900 0 9,050 4 36,200 0 Raw Material (RM) 2: Budgeted production Pounds per unit RM2 needed for production Add: Closing inventory Total RM2 needed Less: Opening inventory Required purchase of RM 2 Cost per pound Budgeted purchase RM 3 36,200 1,500 37,700 1,000 36,700 $2.50 $91,750 9,050 11,900 2 23,800 9,050 Raw Material (RM) 3: Budgeted production Pounds per unit RM3 needed for production Add: Closing inventory RM3 needed for production Less: Opening inventory Required purchase of RM 3 Cost per pound Budgeted purchase RM 3 32,850 1,500 34,350 1,000 33,350 $0.50 $16,675 4 Direct Labor Cost Budget For the year 2019 C12 Total D57 9,0501 11,900 Direct Labor budget Production units Direct labor hour per unit Total direct labor hours Direct labor hour rate Direct labor cost 23,800 $25 $595,000 27,150 $25 $678,750 50,950 $25 $1,273,750 5 Factory Overhead Budget For the year 2019 Variable factory overheads: Indirect material- variable Indirect labor -variable Payroll taxes and fringe benefits- variable Maintenance cost- variable Miscellaneous supplies and tools-variable Heat, light and power- variable $10,000 $40,000 $250,000 $10,080 $5,000 $11,000 $326,080 Fixed factory overheads: Supervision-fixed Maintenance cost-fixed Heat, light and power-fixed Total cash Fixed overheads Add: Depreciation Total Fixed factory overheads Total Factory overhead budget $120,000 $20,000 $43,420 $183,4201 $71,330 $254,750 $580,830 6 D57 Total 21,000 9,000 Sales volume Cost per unit Cost of goods sold C12 12,000 $93.80 $1,125,600 $135.70| $1,221,300 $2,346,900 Ending finished goods Cost per unit Budgeted ending inventories 300 $93.80 $28,1401 200 $135.70 $27,140 $55,280 Working notes: D57 $16.00 Cost per unit RM1 RM2 RM3 Direct labor Variable manufacturing overhead Fixed manufacturing overhead Manufacturing cost per unit C12 $20.00 $0.00 $1.00 $50.00 $12.80 $10.00 $93.80 $10.00 $0.50 $75.00 $19.20 $15.00 $135.70 Variable overhead rate per direct labor hour Total variable overheads Total Direct labor hours $326,080 50,950 $6.40 Fixed overhead rate per direct labor hour Total fixed overheads Total Direct labor hours $254,750 50,950 $5.00 7 Selling and administrative expense budget For the year 2019 Selling expenses: Advertising $60,000 Sales Salaries $200,000 Travel and Entertainment $60,000 Depreciation - Warehouse $5,000 Total selling expenses $325,000 Administrative expenses: Office salaries Executive salaries Supplies Depreciation -office Total Administrative expenses $60,000 $250,000 $4,000 $6,000 $320,000 Total selling and administrative expenses $645,000 SPRING MANUFACTURING COMPANY Budgeted Income Statement For the year ended 2019 C12 D57 Sales $1,800,000 $1,980,000 Cost of goods sold $1,125,600 $1,221,300 Gross profit $674,400 $758,700 Less: Operating expenses Selling and administrative expenses Operating Income Less: Income tax at 40% Operating Income after tax Total $3,780,000 $2,346,900 $1,433,100 $645,000 $788,100 $315,240 $472,860