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Chapter 22: 7SE (page 1229)

Preparing an operating budget—manufacturing overhead budget Bennett Company expects to produce 2,030 units in January that will require 8,120 hours of direct labor and 2,210 units in February that will require 8,840 hours of direct labor. Bennett budgets \(10 per unit for variable manufacturing overhead; \)2,100 per month for depre000ciation; and $78,460 per month for other fixed manufacturing overhead costs. Prepare Bennett’s manufacturing overhead budget for January and February, including the predetermined overhead allocation rate using direct labor hours as the allocation base.

Short Answer

Expert verified

The predetermined overhead allocation rate is $12 direct labor per hour.

Step by step solution

01

Preparation of manufacturing overhead for January and February

Particulars

January

February

Budgeted units to be produced

2,030

2,210

VOH* Budgeted units to be produced

x 10

x 10

Total Budgeted VOH

$20,300

$22,100

Budgeted FOH

-Depreciation

$2,100

$2,100

-Other fixed manufacturing overheads

$78,460

$78,460

Total Budgeted FOH

$80,560

$80,560

Budgeted manufacturing overhead costs

$100,860

$102,660

02

Calculation of predetermined overhead allocation rate using direct labor hours as the allocation base

Particulars

January

February

Total

Budgeted manufacturing overhead costs

$100,860

$102,660

$203,520

Direct labor hours

8,120

8,840

16,960

Predetermined overhead allocation rate ($203,520/16,960)

$12/DLHr

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Most popular questions from this chapter

Match the budget types to the definitions.

Budget Types Definitions

5. Financial a. Includes sales, production, and cost of goods sold budgets

6. Flexible b. Long-term budgets

7. Operating c. Includes only one level of sales volume

8. Operational d. Includes various levels of sales volumes

9. Static e. Short-term budgets

10. Strategic f. Includes the budgeted financial statements

Preparing a financial budget—budgeted income statement and balance sheet Ball Company has the following post-closing trial balance on December 31, 2018:

The company’s accounting department has gathered the following budgeting information for the first quarter of 2019:

Budgeted total sales, all on account $ 121,800 Budgeted purchases of merchandise inventory, all on account 60,400 Budgeted cost of goods sold 60,900 Budgeted selling and administrative expenses:

Commissions expense 6,090 Salaries expense 7,000 Rent expense 4,100 Depreciation expense 600 Insurance expense 400 Budgeted cash receipts from customers 125,840 Budgeted cash payments for merchandise inventory 67,775 Budgeted cash payments for salaries and commissions 14,822 Budgeted income tax expense 5,400 Additional information: Rent and income tax expenses are paid as incurred. Insurance expense is an expiration of the prepaid amount.

Requirements

  1. Prepare a budgeted income statement for the quarter ended March 31, 2019.
  2. 2. Prepare a budgeted balance sheet as of March 31, 2019.

Preparing a financial budget—schedule of cash receipts

Berry expects total sales of \(359,000 in January and \)405,000 in February. Assume that Berry’s sales are collected as follows:

80% in the month of the sale

10% in the month after the sale

6% two months after the sales

4% never collected

November sales totaled \(350,000, and December sales were \)325,000. Prepare a schedule of cash receipts from customers for January and February. Round answers to the nearest dollar.

Preparing a financial budget—schedule of cash payments

Marcel Company has the following projected costs for manufacturing and selling and administrative expenses:

January February March Direct materials purchases \( 3,100 \) 3,500 $ 4,800 Direct labor costs 3,300 3,500 3,600 Depreciation on plant 550 550 550 Utilities for plant 650 650 650 Property taxes on plant 200 200 200 Depreciation on office 550 550 550 Utilities for office 250 250 250 Property taxes on office 170 170 170 Office salaries 3,500 3,500 3,500

All costs are paid in month incurred except: direct materials, which are paid in the month following the purchase; utilities, which are paid in the month after incurred; and property taxes, which are prepaid for the year on January 2. The Accounts Payable and Utilities Payable accounts have a zero balance on January 1. Prepare a schedule of cash payments for Marcel for January, February, and March. Determine the balances in Prepaid Property Taxes, Accounts Payable, and Utilities Payable as of March 31.

What budgets are included in the financial budget for a merchandising company?
See all solutions

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