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Chapter 22: Q32E (page 1237)

Preparing an operating budget—selling and administrative expense budget

Consider the sales budget presented in Exercise E22-31. Slate’s selling and administrative expenses include the following:

Rent, \(2,000 per month

Salaries, \)4,000 per month

Commissions, 5% of sales

Depreciation, $1,000 per month

Miscellaneous expenses, 2% of sales

Prepare a selling and administrative expense budget for each of the three quarters of 2018 and totals for the nine-month period.

Short Answer

Expert verified

Answer

The total budget S & A spending is $ 97,650.

Step by step solution

01

Preparation of selling and administrative budget


March 31

June 30

September 30

Total

Salaries

$6,000

$6,000

$6,000

$18,000

Rent

$12,000

$12,000

$12,000

$36,000

Commissions

$7,000

$9,500

$8,250

$24,750

Depreciation

$3,000

$3,000

$3,000

$9,000

Miscellaneous expense

$2,800

$3,800

$3,300

$9,900

Total budgeted S&A Expenses

$30,800

$34,300

$32,550

$97,650

02

Statement showing commissions


March 31

June 30

September 30

Total

Budgeted sales

$140,000

$190,000

$165,000

$495,000

Commission

X 5%

X 5%

X 5%

X 5%

Commissions

$7,000

$9,500

$8,250

$24,750

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Most popular questions from this chapter

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.

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.

Using sensitivity analysis Holly Company prepared the following budgeted income statement for the first quarter of 2018:

Holly Company is considering two options. Option 1 is to increase advertising by \(700 per month. Option 2 is to use better-quality materials in the manufacturing process. The better materials will increase the cost of goods sold to 45% but will provide a better product at the same sales price. The marketing manager projects either option will result in sales increases of 30% per month rather than 20%.

Requirements

1. Prepare budgeted income statements for both options, assuming both options begin in January and January sales remain \)8,000. Round all calculations to the nearest dollar.

2. Which option should Holly choose? Explain your reasoning.

Using sensitivity analysis Caputo Company prepared the following budgeted income statement for the first quarter of 2018:

Caputo Company is considering two options. Option 1 is to increase advertising by \(1,100 per month. Option 2 is to use better-quality materials in the manufacturing process. The better materials will increase the cost of goods sold to 55% but will provide a better product at the same sales price. The marketing manager projects either option will result in sales increases of 25% per month rather than 20%.

Requirements

1. Prepare budgeted income statements for both options, assuming both options begin in January and January sales remain \)10,000. Round all calculations to the nearest dollar.

2. Which option should Caputo choose? Explain your reasoning.

Preparing an operating budget—sales, production, direct materials, direct labor, overhead, COGS, and S&A expense budgets The Irwin Batting Company manufactures wood baseball bats. Irwin’s two primary products are a youth bat, designed for children and young teens, and an adult bat, designed for high school and college-aged players. Irwin sells the bats to sporting goods stores, and all sales are on account. The youth bat sells for \(35; the adult bat sells for \)50. Irwin’s highest sales volume is in the first three months of the year as retailers prepare for the spring baseball season. Irwin’s balance sheet for December 31, 2018, follows:

Other data for Irwin Batting Company for the first quarter of 2019:

a. Budgeted sales are 1,400 youth bats and 3,300 adult bats.

b. Finished Goods Inventory on December 31, 2018, consists of 700 youth bats at \(15 each and 550 adult bats at \)10 each.

c. Desired ending Finished Goods Inventory is 220 youth bats and 300 adult bats; FIFO inventory costing method is used.

d. Direct materials requirements are 40 ounces of wood for youth bats and 70 ounces of wood for adult bats. The cost of wood is \(0.10 per ounce.

e. Raw Materials Inventory on December 31, 2018, consists of 90,000 ounces of wood at \)0.10 per ounce.

f. Desired ending Raw Materials Inventory is 90,000 ounces (indirect materials are insignificant and not considered for budgeting purposes).

g. Each bat requires 0.4 hours of direct labor; direct labor costs average \(26 per hour.

h. Variable manufacturing overhead is \)0.30 per bat.

i. Fixed manufacturing overhead includes \(1,300 per quarter in depreciation and \)14,977 per quarter for other costs, such as insurance and property taxes.

j. Fixed selling and administrative expenses include \(13,000 per quarter for salaries; \)3,500 per quarter for rent; \(1,400 per quarter for insurance; and \)450 per quarter for depreciation. k. Variable selling and administrative expenses include supplies at 1% of sales.

Requirements

1. Prepare Irwin’s sales budget for the first quarter of 2019.

2. Prepare Irwin’s production budget for the first quarter of 2019.

3. Prepare Irwin’s direct materials, direct labor budget, and manufacturing overhead budget for the first quarter of 2019. Round the predetermined overhead allocation rate to two decimal places. The overhead allocation base is direct labor hours.

4. Prepare Irwin’s cost of goods sold budget for the first quarter of 2019.

5. Prepare Irwin’s selling and administrative expense budget for the first quarter of 2019.
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