Question

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Iguana, Inc., manufactures bamboo picture frames that sell for $25 each. Each frame requires 4 linear feet of bamboo, which costs $3.00 per foot. Each frame takes approximately 30 minutes to build, and the labor rate averages $15 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	375
April	450
May	500
June	600
July	575
August	625

Variable manufacturing overhead is incurred at a rate of $0.50 per unit produced. Annual fixed manufacturing overhead is estimated to be $6,000 ($500 per month) for expected production of 5,000 units for the year. Selling and administrative expenses are estimated at $550 per month plus $0.70 per unit sold.

Iguana, Inc., had $11,100 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 sale, and 50 percent is collected during the month following the sale.

Of direct materials purchases, 80 percent is paid for during the month purchased and 20 percent is paid in the following month. Direct materials purchases for March 1 totaled $5,500. All other operating costs are paid during the month incurred. Monthly fixed manufacturing overhead includes $350 in depreciation. During April, Iguana plans to pay $2,000 for a piece of equipment.

Required:
Complete Iguana's budgeted income statement for quarter 2. (Round cost per unit in intermediate calculations and final answers to 2 decimal places.)

Answer 1

Computation of the following for lguana, Inc., for the second quarter (April, May, June)
		April	May	June	2nd Quarter Total
1	Budgeted Sales Revenue	11,250	12,500	15,000	38,750
2	Budgeted Production in Units	470	540	590	1,600
3	Budgeted Cost of Raw Materials Purchases	5,640	6,480	7,080	19,200
4	Budgeted Direct Labor Cost	3,525	4,050	4,425	12,000
5	Budgeted Manufacturing Overhead	735	770	795	2,300
6	Budgeted Cost of Goods Sold	9,900	11,300	12,300	33,500
7	Total Budgeted Selling and Adm. Expenses	865	900	970	2,735

Computation of lguana's budgeted income statement for quarter 2
lGUANA, INC.
Budgeted Income Statement
For the Quarter Ending June
	April	May	June	2nd Quarter Total
Budgeted Sales Revenue	11,250	12,500	15,000	38,750
Less:
Budgeted Cost of Goods Sold	9,900	11,300	12,300	33,500
Budgeted Gross Margin	1,350.00	1,200.00	2,700.00	5,250.00
Less:
Budgeted Selling and Adm, Expenses	865	900	970	2,735
Budgeted Net Operating Income	485.00	300.00	1,730.00	2,515.00

Computation of Budgeted cash receipts for lguana.
	April	May	June	2nd Quarter Total
Budgeted Sales Revenue	11,250	12,500	15,000
Cash Sales (80%)	9,000	10,000	12,000	31,000
Credit sale collection:
50% of Current month	1,125	1,250	1,500	3,875
50% of Previous month	938	1,125	1,250	3,313
Budgeted Cash Receipts	11,063	12,375	14,750	38,188

Computation of Budgeted cash payments for lguana.
	April	May	June	2nd Quarter Total
Budgeted Raw material Purchases:	5,640	6,480	7,080
80%	4,512	5,184	5,664	15,360
20%	1,100	1,128	1,296	3,524
Budgeted Direct Labor Cost	3,525	4,050	4,425	12,000
Budgeted Manufacturing Overhead	735	770	795	2,300
Total Budgeted Selling and Adm. Expenses	865	900	970	2,735
Purchase of Equipment	2,000	-	-	2,000
Less: Monthly Depreciation	(350)	(350)	(350)	(1,050)
Budgeted Cash Payments	12,387	11,682	12,800	36,869

Preparation of cash budget for lguana
	April	May	June	2nd Quarter Total
Beginning Cash Balance	11,100	10,776	10,469	11,100
Plus: Budgeted Cash Receipts	11,063	12,375	14,750	38,188
Less: Budgeted Cash Payments	12,387	11,682	12,800	36,869
Preliminary Cash Balance	9,776	11,469	12,419	12,419
Cash borrowed / Repaid	1,000	(1,000)	-	-
Ending Cash Balance	10,776	10,469	12,419	12,419