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Chapter 22: Q38PGA (page 1247)

Question: Preparing an operating budget—sales, production, direct materials, direct labor, overhead, COGS, and S&A expense budgets

The Langley Batting Company manufactures wood baseball bats. Langley’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. Langley sells the bats to sporting goods stores, and all sales are on account. The youth bat sells for \(40; the adult bat sells for \)65. Langley’s highest sales volume is in the first three months of the year as retailers prepare for the spring baseball season. Langley’s balance sheet for December 31, 2018, follows:

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

a. Budgeted sales are 1,200 youth bats and 2,600 adult bats.

b. Finished Goods Inventory on December 31, 2018, consists of 300 youth bats at \(14 each and 950 adult bats at \)18 each.

c. Desired ending Finished Goods Inventory is 350 youth bats and 300 adult bats; FIFO inventory costing method is used.

d. Direct materials requirements are 48 ounces of wood per youth bat and 56 ounces of wood per adult bat. The cost of wood is \(0.25 per ounce.

e. Raw Materials Inventory of December 31, 2018, consists of 24,000 ounces of wood at \)0.25 per ounce.

f. Desired ending Raw Materials Inventory is 24,000 ounces (indirect materials are insignificant and not considered for budgeting purposes).

g. Each bat requires 0.7 hours of direct labor; direct labor costs average \(18 per hour. h. Variable manufacturing overhead is \)0.30 per bat.

i. Fixed manufacturing overhead includes \(1,300 per quarter in depreciation and \)20,140 per quarter for other costs, such as insurance and property taxes.

j. Fixed selling and administrative expenses include \(9,000 per quarter for salaries; \)2,500 per quarter for rent; \(1,000 per quarter for insurance; and \)200 per quarter for depreciation.

k. Variable selling and administrative expenses include supplies at 2% of sales.

Requirements

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

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

3. Prepare Langley’s direct materials budget, 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 Langley’s cost of goods sold budget for the first quarter of 2019.

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

Short Answer

Expert verified

Answer

Holly should choose option 2.

Step by step solution

01

Preparation of sales budget


Langley Batting Company

Sales Budget

For the first quarter, 2019

Youth Bats

Adult Bats

Budgeted bats to be sold

1,200

2,600

Sales price per unit

X $40

X $65

Total budgeted sales

$48,000

$169,000

02

Preparation of production budget


Langley Batting Company

Production Budget

For the first quarter, 2019

Youth Bats

Adult Bats

Budgeted bats to be sold

1,200

2,600

Plus: Desired bats in ending inventory

350

300

Total bats needed

1,550

2,900

Less: Bats in beginning inventory

300

950

Bats to be produced

1,250

1,950

03

Preparation of direct materials budget


Langley Batting Company

Direct Materials Budget

For the first quarter, 2019

Youth Bats

Adult Bats

Total

Budgeted bats to be produced

1,250

1,950

3,200

Direct material required (ounces) per bat

48

56

104

Direct material needed for production

60,000

109,200

169,200

Plus: Desired direct materials in ending inventory (Ounces)

24,000

Total direct material needed

193,200

Less: Direct materials in the beginning inventory

24,000

Budgeted purchase of the raw material

169,200

Direct material cost per ounce

X $0.25

Budgeted cost of direct material purchases

$42,300

04

Preparation of direct labor budget


Langley Batting Company

Direct Labor Budget

For the first quarter, 2019

Youth Bats

Adult Bats

Total

Budgeted bats to be produced

1,250

1,950

3,200

Direct labor hours needed for production

0.7

0.7

0.7

Direct labor hours needed for production

875

1,365

2,240

Direct labor cost per hour

$18

$18

$18

Budgeted direct labor cost

$15,750

$24,570

$40,320

05

Preparation of manufacturing overhead budget


Langley Batting Company

Direct Materials Budget

For the first quarter, 2019

Youth Bats

Adult Bats

Total

Budgeted bats to be produced

1,250

1,950

3,200

VOH per bat

$0.30

$0.30

$0.30

Budgeted variable overhead

$375

$585

$960

Budgeted FOH Cost:

Depreciation

$1,300

Other FOH

$24,140

Budgeted manufacturing overhead cost

$25,440

Direct labor hours

2,240

Predetermined overhead allocation rate

($25,440/2,240)

$11.36

06

Preparation of cost of goods sold budget


Langley Batting Company

Cost of goods sold Budget

For the first quarter, 2019

Youth Bats

Adult Bats

Total

Beginning inventory

$4,200

$17,100

$21,300

Bats produced and sold in 2019 Istquarter@$29.61

1,200 x $29.61=$35,532

2,600 x $29.61=$76,986

$112,518

Total budgeted cost of goods sold

$39,732

$94,086

$133,818

07

Preparation of selling and administrative budget


Langley Batting Company

Selling and administrative Budget

For the first quarter, 2019

Amount

Salaries

$9,000

Rent

$2,500

Insurance

$1,000

Depreciation

$200

Variable selling and administrative expenses

$8,450

Total

$21,150

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Most popular questions from this chapter

Question: Preparing a financial budget—schedule of cash receipts, schedule cash payments, cash budget

Baxter Company’s budget committee provides the following information: December 31, 2017, account balances:

1. Prepare the schedule of cash receipts from customers for January and February 2018. Assume cash receipts are 80% in the month of the sale and 20% in the month following the sale.

2. Prepare the schedule of cash payments for purchases for January and February 2018. Assume purchases are paid 60% in the month of purchase and 40% in the month following the purchase.

3. Prepare the schedule of cash payments for selling and administrative expenses for January and February 2018. Assume 40% of the accrual for Salaries and Commissions Payable is for commissions and 60% is for salaries. The December 31 balance will be paid in January. Salaries and commissions are paid 30% in the month incurred and 70% in the following month. Rent and income tax expenses are paid as incurred. Insurance expense is an expiration of the prepaid amount.

4. Prepare the cash budget for January and February 2018. Assume no financing took place.

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.

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.

Budgeting benefits List the three key benefits companies get from preparing a budget.

Preparing a financial budget—cash budget

You recently began a job as an accounting intern at Reilly Golf Park. Your first task was to help prepare the cash budget for April and May. Unfortunately, the computer with the budget file crashed, and you did not have a backup or even a paper copy. You ran a program to salvage bits of data from the budget file. After entering the following data in the budget, you may have just enough information to reconstruct the budget.

Reilly Golf Park eliminates any cash deficiency by borrowing the exact amount needed from First Street Bank, where the current interest rate is 6% per year. Reilly Golf Park first pays interest on its outstanding debt at the end of each month. The company then repays all borrowed amounts at the end of the month with any excess cash above the minimum required but after paying monthly interest expenses. Reilly does not have any outstanding debt on April 1.

Complete the cash budget. Round interest expense to the nearest whole dollar.
See all solutions

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