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.

Step by step solution

01

Preparation of sales budget

Irwin Batting Company Sales Budget For the first quarter, 2019
	Youth Bats	Adult Bats
Budgeted bats to be sold	1,400	3,300
Sales price per unit	X $35	X $50
Total budgeted sales	$49,000	$165,000

02

Preparation of production budget

Langley Batting Company Production Budget For the first quarter, 2019
	Youth Bats	Adult Bats
Budgeted bats to be sold	1,400	3,300
Plus: Desired bats in ending inventory	220	300
Total bats needed	1,620	3,600
Less: Bats in beginning inventory	700	550
Bats to be produced	920	3,050

03

 Step 3: 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	920	3,050	3,970
Direct material required (ounces) per bat	40	70	110
Direct material needed for production	36,800	213,500	250,300
Plus: Desired direct materials in ending inventory (Ounces)			90,000
Total direct material needed			340,300
Less: Direct materials in the beginning inventory			90,000
Budgeted purchase of the raw material			250,300
Direct material cost per ounce			x .10
Budgeted cost of direct material purchases			$25,030

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	920	3,050	3,970
Direct labor hours needed for production	0.4	0.4	0.4
Direct labor hours needed for production	368	1,220	1,588
Direct labor cost per hour	$26	$26	$26
Budgeted direct labor cost	$9,558	$31,720	$41,278

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	920	3,050	3,970
VOH per bat	$0.30	$0.30	$0.30
Budgeted variable overhead	$276	$915	$1,191
Budgeted FOH Cost:
Depreciation			$1,300
Other FOH			$14,977
Budgeted manufacturing overhead cost			$17,468
Direct labor hours			1,588
Predetermined overhead allocation rate ($25,440/2,240)			$11

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	$10,500	$5,500	$16,000
Bats produced and sold in 2019 Ist quarter at $37/1	$25,970	$102,025	$127,995
Total budgeted cost of goods sold	$36,470	$107,525	$143,995

07

Preparation of selling and administrative budget

Langley Batting Company Selling and administrative Budget For the first quarter, 2019
	Amount
Salaries	$13,000
ADD: Rent	$3,500
Insurance	$1,400
Depreciation	$450
Variable selling and administrative expenses	$1,650
Total	$20,000

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