Question

Iguana, Inc., manufactures bamboo picture frames that sell for $25 each. Each frame requires 4 linear feet of bamboo, which costs $2.50 per foot. Each frame takes approximately 30 minutes to build, and the labor rate averages $14 per hour. Iguana has the following inventory policies:

• Ending finished goods inventory should be 40% of next month’s sales
• Ending direct materials inventory should be 30% of next month’s production.

Expected unit sales (frames) for the upcoming months follow:

Expected unit sales (frames) for the upcoming months follow:

March	350
April	400
May	450
June	550
July	525
August	575

Variable manufacturing overhead is incurred at a rate of $0.40 per unit produced. Annual fixed manufacturing overhead is estimated to be $10,800 ($900 per month) for expected production of 4,000 units for the year. Selling and administrative expenses are estimated at $950 per month plus $0.60 per unit sold

Iguana inc., had $11,900 cash on hand on April 1. Of its sales, 80% is in cash. Of the credit sales, 50% is collected during the month of the sale, and 50% is collected during the month following the sale.

Of direct materials purchases, 80% is paid for during the month purchased and 20% is paid in the following month. Direct materials purchases for March 1 totaled $4,000. All other operating costs are paid during the month incurred. Monthly fixed manufacturing overhead includes $300 in depreciation. During April, Iguana plans to pay $2,000 for a piece of equipment.

1. Compute the following for Iguana., Inc. for the second quarter. (April, May, June)

	April	May	June	1st Quarter Total
Budgeted Sales Revenue
Budgeted Production In Units
Budgeted Cost of direct Material Purchases
Budgeted Direct Labor Cost
Budgeted Manufacturing Overhead
Budgeted Cost of Goods Sold
Total Budgeted Selling and Administrative Expenses

Answer 1

	April	May	June	1st Quarter Total
Budgeted Sales Revenue	$ 10,000	$ 11,250	$ 13,750	$ 35,000
Budgeted Production in Units	420	490	540	1,450
Budgeted Cost of Direct Materials Purchases	$ 4,410	$ 5,050	$ 5,415	$ 14,875
Budgeted Direct Labor Cost	$ 2,940	$ 3,430	$ 3,780	$ 10,150
Budgeted Manufacturing Overhead	$ 1,068	$ 1,096	$ 1,116	$ 3,280
Budgeted Cost of Goods Sold	$ 7,860	$ 8,730	$ 10,470	$ 27,060
Total Budgeted Selling and Administrative Expenses	$ 1,190	$ 1,220	$ 1,280	$ 3,690

Computations:

1.

Production Budget
	April	May	June	Quarter	July
Busgeted Sales in Units	400	450	550	1,400	525
Add: Desired Ending Inventory	180	220	210	210	230
Total Inventory Required	580	670	760	1,610	755
Less: Beginning Inventory	160	180	220	160	210
Budgeted Production in Units	420	490	540	1,450	545

2.

Direct Materials Purchases Budget
	April	May	June	Quarter
Materials needed in production	1,680	1,960	2,160	5,800
Add: Desired ending inventory	588	648	654	654
Total materials needed	2,268	2,608	2,814	6,454
Less: Beginning inventory	504	588	648	504
Required purchases in ft.	1,764	2,020	2,166	5,950
Cost per foot	$ 2.50	$ 2.50	$ 2.50	$ 2.50
Budgeted Cost of Materials Purchases	$ 4,410	$ 5,050	$ 5,415	$ 14,875