ACCT 001 Lecture Notes - Lecture 25: Direct Labor Cost, Accounts Receivable, Income Statement
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Preparing a Comprehensive Budget
Ginnie Springs Company has been bottling and selling water since1940. The company’s current owner would like to know how a newproduct would affect the company’s rent income in the comingyear.
Required
Calculate Ginnie Springs net income for the new product in thecoming year by completing the operating budgets and budgeted incomestatement that follow. Assume that the selling price will remainconstant.
Sales budget
Ginnie Springs Company
Sales Budget
Forthe year Ended December 31
Quarter
1 | 2 | 3 | 4 | Year | |
Sales in Units | 40,000 | 30,000 | 50,000 | 55,000 | 175,000 |
Selling price per unit | X $1 | X ? | X ? | X ? | X ? |
Totals Sales | 40,000 | $ ? | X ? | X ? | X ? |
2. Production Budget:
Ginnie SpringsCompany
ProductionBudget
For the year Ended December31_____________
Quarter
1 | 2 | 3 | 4 | Year | |
Sales in Units | 40,000 | ? | ? | ? | ? |
Plus desired units of ending finished goods inventory* | 30,000 | ? | ? | 6000 | 6000 |
Desired total Units | 43000 | ? | ? | ? | ? |
Less desired units of ending finished goods inventory* | 4000 | ? | ? | ? | 4000 |
Total Production units | 39,000 | ? | ? | ? | ? |
*Desired units of ending finished goods inventory = 10% of nextquarter’s budgeted production needs in ounces. Desired ounces ofbeginning direct materials inventory = 20% of current quartersbudgeted production needs in ounces.
3.DirectMaterials Purchases budget
Ginnie SpringsCompany
Direct Materials PurchaseBudget
For the year Ended December31_____________
Quarter
1 | 2 | 3 | 4 | Year | |
Total production units | 39,000 | 32,000 | 50,500 | 55,500 | ? |
Ounces per unit | X 20 | X 20 | X 20 | X 20 | X 20 |
Total production needs in ounces | 780,000 | ? | ? | ? | ? |
Plus desired ounces of ending direct materials inventory* | 128,000 908,000 | ? ? | ? ? | 240,000 ? | 240,000 ? |
Less desired ounces of ending direct materials inventory* | 156,000 | ? | ? | ? | 156,000 |
Total ounces of direct material to be purchased | 752,000 | ? | ? | ? | ? |
Cost per ounce | X $0.01 | X ? | X ? | X ? | X ? |
Total cost of direct materials purchases | $7520 | ? | ? | ? | ? |
Desired ounces of ending direct material inventory =20% of nextquarters budgeted production needs in ounces.
Desired ounces of beginning direct materials inventory = 20% ofcurrent quarters budgeted production needs in ounces.
4.Directlabor budget:
Ginnie SpringsCompany
Direct LaborBudget
For the year EndedDecember 31_____________
Quarter
1 | 2 | 3 | 4 | Year | |
Total production units | 39,000 | ? | ? | ? | ? |
Direct labor hours per units | X 0.001 | X ? | X ? | X ? | X ? |
Total direct labor hours | 39.0 | ? | ? | ? | ? |
Direct labor cost per hour | X $8 | X ? | X ? | X ? | X ? |
Total direct labor cost | $312 | $ ? | $ ? | $ ? | $ ? |
5.Overheadbudget
Ginnie SpringsCompany
Overhead Budget
For the year EndedDecember 31_____________
Quarter
1 | 2 | 3 | 4 | Year | |
Variable overhead costs: | |||||
Factory supplies ($0.01) | $ 390 | $ ? | $ ? | $ ? | $ ? |
Employee benefits ($0.05) | 1,950 | ? | ? | ? | ? |
Inspection ($0.01) | 390 | ? | ? | ? | ? |
Maintenance and repairs($0.02) | 780 | ? | ? | ? | ? |
Utilities ($0.01) | 390 | ? | ? | ? | ? |
Total Variable overheadcosts | $3900 | $ ? | $ ? | $ ? | $ ? |
Total fixed overhead costs | 1416 | ? | ? | ? | ? |
Total overhead costs | $5,316 | $ ? | $ ? | $ ? | $ ? |
Note: The figures in parentheses are variable costs perunit.
6.Sellingand administrative expenses budget:
Ginnie SpringsCompany
Selling and Administrative Expenses Budget
For the year EndedDecember 31_____________
Quarter
1 | 2 | 3 | 4 | Year | |
Variable Selling and Administrative expenses | |||||
Delivery expenses ($0.01) | $ 400 | $ ? | $ ? | $ ? | $ ? |
Sales Commission ($0.02) | 800 | ? | ? | ? | ? |
Accounting ($0.01) | 400 | ? | ? | ? | ? |
Other administrative expenses($0.01) | 400 | ? | ? | ? | ? |
Total Variable selling and administrative exp. | $2,000 | $ ? | $ ? | $? | $? |
Total fixed selling and administrative exp. | 5000 | ? | ? | $? | ? |
Total selling and administrative expenses | $ 7,000 | $ ? | $ ? | $ ? | $ ? |
Note: The figures in parentheses arevariable costs per unit
7. Cost of goods manufactured budget:
Ginnie SpringsCompany
Cost of Goods Manufactured Budget
For the year EndedDecember 31_____________
Direct Material Used:
Direct Material Inventory,Beginning
Purchases
Cost of Direct materials available foruse
Less: Direct materials Inventory,ending
Cost of Direct Materialsused
Direct laborcosts:
Overhead costs:
Total manufacturing costs
Work in Process Inventory,beginning*
Less: work in process inventory,ending*
Cost of Goods Manufactured
Units produced
Manufactured cost perunit
It is the company’s policy to have no units in process at theend of theyear.
8. Budgeted income statement
Ginnie Springs Company
Selling and Administrative Expenses Budget
For the year EndedDecember 31_____________
Sales
Cost of goods sold
Finished goods inventory beginning
Cost of goods manufactured
Cost of Goods available for sale
Less finished goods inventory, ending
Cost of good sold
Gross margin
Selling and administrative expenses
Income from operations
Income taxes expenses (30% tax rate)
Net Income
Vinning Office Supply | ||
Balance Sheet | ||
31-Mar-16 | ||
Assets | ||
Current Assets: | ||
Cash | $23,000 | |
Accounts Receivable | 22,000 | |
MerchandiseInventory | 30,500 | |
Prepaid Insurance | 1,400 | |
Total Current Assets | $76,900 | |
Property, Plant, andEquipment: | ||
Equipment andFixtures | 42,000 | |
Less: Accumulated Depreciation | -20,000 | 22,000 |
Total Assets | $98,900 |
a. | Sales in April are expectedto be $180,000. Vinning forecasts that monthly sales willincrease​2% over April sales in May. June​'s sales will increaseby​ 4% over April sales. July sales will increase​ 20% over Aprilsales. Cash receipts are 60​% in the month of the sale and 40​% inthe month following the sale. |
b. | Vinning maintains inventory of $8,000 plus​ 25% of thecost of goods sold budgeted for the following month. Cost of goodssold equal​ 50% of sales revenue. Purchases are paid 70​% in themonth of purchase and 30​% in the month following thepurchase. |
c. | Monthly salaries amount to$8,000. Sales commissions equal​ 5% of sales for that month.Salaries and commissions are paid 40​% in the month incurred and60​% in the following month. |
d. | Other monthly expenses are as​ follows: • Rent: $3,000​,paid as incurred • ​Depreciation: $500 • ​Insurance: $100​,expiration of prepaid amount • Income​ tax: $2,400​, paid asincurred |
Vinning Office​ Supply's March 31​, 2016​,
balance sheet​ follows: The budget committee of VinningOffice Supply has assembled the following​ data:
Requirement 1. Prepare Vinning​'s sales budget forApril and May 2016.
Round all amounts to the nearest dollar.
Vinning Office Supply | |||
Sales Budget | |||
April and May, 2016 | |||
April | May | ||
Total budgeted sales | $180,000 | $183,600 |
Requirement 2. Prepare
VinningVinning​'s
​inventory, purchases, and cost of goods sold budget for
AprilApril
and
MayMay.
Vinning Supply Company | |||
Inventory, Purchases, and Cost of Goods SoldBudget | |||
April and May, 2016 | |||
April | May | ||
Cost of goods sold | $90,000 | $91,800 | |
Plus: | Desired ending merchandise inventory | 30,950 | 31,400 |
Total merchandise inventory required | 120,950 | 123,200 | |
Less: | Beginning merchandise inventory | 30,500 | 30,950 |
Budgeted Purchases | $90,450 | $92,250 |
Requirement 3. Prepare
VinningVinning​'s
selling and administrative expense budget for
AprilApril
and
MayMay.
Vinning Office Supply | |||
Selling and Administrative Expense Budget | |||
April and May, 2016 | |||
April | May | ||
Variable expenses: | |||
Commissions Expense | |||
Fixed expenses: | |||
Salaries Expense | |||
Rent Expense | |||
Depreciation Expense | |||
Insurance Expense | |||
Total fixed expenses | |||
Total selling and administrative expenses |