Preparing Operating Budget Components
Black&Decker (B D) manufactures a wide variety of tools and accessories. One of its more popular craft-related items is the cord free glue gun. Use the following fictitious information about this product to complete the problem requirements. Each glue gun sells for $25. B D expects the following unit sales.
January | 8,000 |
February | 7,400 |
March | 8,700 |
April | 9,500 |
May | 9,150 |
B D’s ending finished goods inventory policy is 30 percent of the following month’s budgeted sales.
Suppose each glue gun takes approximately 0.5 hours to manufacture, and B D pays an average labor wage of $16.50 per hour.
Each glue gun requires a heating element that B D purchases from a supplier at a cost of $1.25 each. The company has an ending raw materials inventory policy of 40 percent of the following month’s production requirements. Materials other than the heating elements total $3.25 per glue gun.
Manufacturing overhead for this product includes $96,900 annual fixed overhead (based on production of 102,000 units) and variable manufacturing overhead of $0.80 per unit. B D’s selling expenses are 5 percent of sales dollars, and administrative expenses for this product are fixed at $17,500 per month.
Required:
Prepare the following for the first quarter.
1. Sales budget.
2. Production budget.
3. Raw materials purchases budget for the heating element.
4. Direct labor budget.
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