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.

NOTE: For the entire problem - do not use any negative signs with your answers unless appropriate for net income(loss) or ending balance.

(a) A production budget for January and February.

JACOBS INCORPORATED Production Budget For the Months of January and February 2011
	January	February	March
Requirements for current sales	Answer	Answer	Answer
Desired ending inventory	Answer	Answer
Total requirements	Answer	Answer
Less beginning inventory	Answer	Answer
Production requirements	Answer	Answer

(b) A purchases budget in units for January.

JACOBS INCORPORATED Purchases Budget For the Month of January 2011
	January	February
Current requirements (units)	Answer	Answer
Desired ending inventory	Answer
Total requirements	Answer
Less beginning inventory	Answer
Purchases (units)	Answer
Purchases (dollars at $10 each)	Answer

(c) A manufacturing cost budget for January.

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

(d) A cash budget for January.

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

(e) A budgeted contribution income statement for January.

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

Answer 1

(a) A production budget for January and February.
JACOBS INCORPORATED
Production Budget
For the Months of January and February 2011
	January	February	March
Requirements for current sales	3000	10000	7000
Desired ending inventory	2000	1400		10000*20%
Total requirements	5000	11400
Less beginning inventory	600	2000		3000*20%
Production requirements	4400	9400
JACOBS INCORPORATED
Purchases Budget
For the Month of January 2011
	January	February
Current requirements (units)	4400	9400
Desired ending inventory	940		9400*10%
Total requirements	5340
Less beginning inventory	440		4400*10%
Purchases (units)	4900
Purchases (dollars at $10 each)	49000
(c) A manufacturing cost budget for January.
JACOBS INCORPORATED
Manufacturing Cost Budget
For the Month of January 2011
Variable costs
Direct materials	49000
Direct labor	49000
Variable manufacturing overhead	24500
Total variable costs	122500
Fixed manufacturing overhead	30000
Total manufacturing overhead	30000
(d) A cash budget for January.
JACOBS INCORPORATED
Cash Budget
For the Month of January 2011
Beginning balance		7000
Receipts:
December sales	143750
January sales	75000	218750
Total cash available		225750
Disbursements:
Purchases	49000
Direct labor	49000
Variable manufacturing overhead	24500
Fixed manufacturing overhead (exclude depreciation)	20000
Variable selling and administrative	15000
Fixed selling and administrative	20000
Dividend	6000	183500
Ending Balance		42250
(e) A budgeted contribution income statement for January.
JACOBS INCORPORATED
Budgeted Contribution Income Statement
For the Month of January 2011
Sales		150000
Less variable costs:
Cost of goods sold	65454.545
Selling and administrative	15000	80454.5455
Contribution		69545.4545
Less fixed costs:
Manufacturing overhead	30000
Selling and administrative	20000	50000
Net income		19545.4545
Working Note:
Cost of goods sold
Opening Inventory of Materials	4400	440*10
Add:Purchase of materials	49000
Less: Closing Inventory of Materials	9400	940*10
Direct Materials Consumed	44000
Direct Labour	49000
Variable Manufacturing Overheads	24500
Prime Cost	117500
Add: Opening Inventory of Finished Goods	15000	600*25	Given
Less: Closing Inventory of Finished Goods	67045.455	2000*33.52	Computed
Cost of Goods Sold	65454.545
Working Note: Cost per unit for Value of Closing Stock
Prime Cost	117500
Add: Fixed Manufacturing Overheads	30000
Cost of Production	147500
Production in Units	4400
Cost of Production per unit (For Valuation of Closing Inventory)	33.522727
(147500/4400)