Question

You have been hired as the new budget controller for Goldhouse Inc. The firm has been in business for two years and currently makes one product, the Supreme house. Using the information below, make a master budget to present to company executives for quarter 1. It will consist of the operating budget and the financial budget with the following components:

1. Sales budget
2. Production budget
3. Direct materials purchase budget
4. Direct labor budget
5. Overhead budget
6. Selling and administrative expenses budget
7. Ending finished goods inventory budget
8. Cost of goods sold budget
9. Budgeted income statement
10. Cash budget

All budgets should be in table format. An explanatory narrative should be included to describe computations made in each budget. Each narrative should be placed next to its corresponding budget table.

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Pertinent Information

Unit selling price $235

Projected sales in units for the first quarter

Month	Sales
January	50,000
February	60,000
March	70,000
April	70,000
May	70,000

Direct labor usage data:

Direct labor per unit	direct labor per hour
3 hours	$12.50

Direct material usage data:

Direct Material Usage	Per Unit	Unit Cost
Plastic pellets	10 lbs	$7
Insulation	5 lbs	$3

Inventory policy requires that there are sufficient materials on hand at the beginning of the month to produce 50% of that months estimated sales. This was the case on January 1.

Monthly overhead data:

	Fixed Cost	Variable Cost
Power		$1.00
Supplies		.40
Maintenance	25,000	.50
Supervision	16,000
Depreciation	100,000
Taxes	15,000
Other	10,000	1.40

Monthly overhead is estimated using a flexible budget formula and is measured in direct labor hours.

Monthly selling and administrative data:

	Fixed Cost	Variable Cost
Salaries	$20,000
Depreciation	10,000
Shipping		1.00
Other	10,000	.50

Monthly selling and administrative expenses are estimated using a flexible budget formula and are measured in units sold.

Finished goods inventory:

Month	Units	Unit Cost
January 1	40,000	$166

Desired ending inventory for each month is 80 percent of next month's sales.

All sales and purchases are for cash. The cash balance on January 1 was $500,000. Goldhouse Inc. requires a minimum month cash balance of $1000. If there is a cash shortage, money is borrowed at a rate of 10 percent and is repaid at the end of the quarter along with the interest due. Cash borrowed at the end of the quarter is repaid at the end of the following quarter. On January 1, there were no loans.

Answer 1

1. Sales Budget:

	January	February	March	Quarter
Budgeted Sales in Units	50,000	60,000	70,000	180,000
Unit Selling Price	$ 235	$ 235	$ 235	$ 235
Budgeted Sales Revenue	$ 11,750,000	$ 14,100,000	$ 16,450,000	$ 42,300,000

2. Production Budget:

	January	February	March	Quarter	April
Budgeted Sales in Units	50,000	60,000	70,000	180,000	70,000
Desired Ending Inventory	48,000	56,000	56,000	56,000	56,000
Total Inventory Needs	98,000	116,000	126,000	236,000	126,000
Less: Beginning Inventory	40,000	48,000	56,000	40,000	56,000
Production Required in Units	58,000	68,000	70,000	196,000	70,000

3. Direct Materials Purchases Budget: Plastic Pellets

	January	February	March	Quarter	April
Materials Required in Production ( lbs)	580,000	680,000	700,000	1,960,000	700,000
Add: Desired Ending Inventory	340,000	350,000	350,000	350,000
Total Inventory Needs	920,000	1,030,000	1,050,000	2,310,000
Less: Beginning Inventory	290,000	340,000	350,000	290,000
Unit Purchases Required	630,000	690,000	700,000	2,020,000
Cost per Unit	$ 7	$ 7	$ 7	$ 7
Budgeted Cost of Purchases	$ 4,410,000	$ 4,830,000	$ 4,900,000	$ 14,140,000

Direct Materials Purchases Budget : Insulation

	January	February	March	Quarter	April
Materials Required in Production	290,000	340,000	350,000	980,000	350,000
Desired Ending Inventory	170,000	175,000	175,000	175,000
Total Inventory Needs	460,000	515,000	525,000	1,155,000
Less: Beginning Inventory	145,000	170,000	175,000	145,000
Budgeted Purchases in units	315,000	345,000	350,000	1,010,000
Cost per Unit	$ 3	$ 3	$ 3	$ 3
Budgeted Cost of Purchases	$ 945,000	$ 1,035,000	$ 1,050,000	$ 3,030,000

4. Direct Labor Budget:

	January	February	March	Quarter
Budgeted Production in Units	58,000	68,000	70,000	196,000
Direct Labor per Unit	3 hrs	3 hrs	3 hrs	3 hrs
Budgeted Labor Hours	174,000	204,000	210,000	588,000
Labor Hour Rate	$ 12.50	$ 12.50	$ 12.50	$ 12.50
Budgeted Cost of Direct Labor	$ 2,175,000	$ 2,550,000	$ 2,625,000	$ 7,350,000