Manufacturing overhead direct labour

Module 6 CC Budget

Module 6 – Budget Problem
Country Cookin’ Inc. begins the budgeting process for the following year in the 1st quarter of the current year. With the information provided below, prepare the sales, production and direct materials budgets for the 1st quarter of next year. Also determine the budgeted manufacturing cost per unit and prepare the budgeted income statement for January of next year.
Country Cookin’ Inc. sells the cooker/smokers they manufacture to various retailers for $130 each. Each cooker/smoker requires 11 ounces of raw material, which is purchased by Country Cookin’ Inc. for $8.00 per ounce. To prepare for next month’s production, Country Cookin’ Inc. likes to maintain an ending stock of raw material equal to 10% of the production requirements for the current month. The company would also like to maintain an ending stock of finished cooker/smokers equal to 20% of next month’s sales.
Sales are projected to be 6,000 for January, 8,000 for February and 14,000 for March.
Your Company expects to sell 12,000 cooker/smokers in April and needs 132,000 ounces of direct materials for production.
15% of sales from Country Cookin’ Inc. to retailers are cash sales, while the remaining 85% are sold on account.
Additional budgeted information includes:
Month 1st Quarter
Projections For Next Year January February March
Direct labor $ 24,000 $ 34,500 $ 51,000 $ 109,500
Manufacturing overhead:
Variable $ 28,800 $ 41,400 $ 61,200 $ 131,400
Fixed 1 $ 41,000 $ 41,000 $ 41,000 $ 123,000
Total operating expenses 2 $ 71,000 $ 74,000 $ 95,000 $ 240,000
Each cooker/smoker requires 0.25 of an hour of direct labor at the rate of $15.00 per hour.
Country Cookin’ Inc. estimated at the beginning of the year that it would produce 307,500 cooker/smokers next year.
Interest expense is budgeted at zero since the company has no outstanding debt.
Income tax expense is budgeted at 35% of income before taxes.
Based on the above information, the accountant has prepared the following budget for the first quarter of the coming year.
1 Next year’s 1st quarter sales budget for Country Cookin’ Inc.
Country Cookin’ Inc.
Sales Budget
For the Quarter Ended March 31
Month 1st Quarter
January February March
Unit sales 6,000 8,000 14,000 28,000
Unit selling price $130 $130 $130 $130
Total sales revenue $ 780,000 $ 1,040,000 $ 1,820,000 $ 3,640,000
Type of Sale
Cash sales $ 117,000 $ 156,000 $ 273,000 $ 546,000
Credit sales 663,000 884,000 1,547,000 3,094,000
Total sales revenue $ 780,000 $ 1,040,000 $ 1,820,000 $ 3,640,000
2 Next year’s 1st quarter production budget for Country Cookin’ Inc.
Country Cookin’ Inc.
Production Budget
For the Quarter Ended March 31
Month 1st Quarter
January February March
Unit sales 6,000 8,000 14,000 28,000
Plus: Desired ending inventory 1,600 2,800 2,400 6,800
Total needed 7,600 10,800 16,400 34,800
Less: Beginning inventory 1,200 1,600 2,800 5,600
Units to produce 6,400 9,200 13,600 29,200
3 Next year’s 1st quarter direct materials budget for Country Cookin’.
Country Cookin’ Inc.
Direct Materials Budget
For the Quarter Ended March 31
Month 1st Quarter
January February March
Units to be produced 6,400 9,200 13,600 29,200
x Ounces of direct materials needed per unit 11 11 11 11
Ounces needed for production 70,400 101,200 149,600 321,200
Plus: Desired ending inventory of direct materials 7,040 10,120 14,960 32,120
Total ounces needed 77,440 111,320 164,560 353,320
Less: Beginning inventory of direct materials 7,744 7,040 10,120 24,904
Ounces to purchase 69,696 104,280 154,440 328,416
x Cost per ounce $8.00 $8.00 $8.00 $8.00
Total cost of direct materials purchases $ 557,568 $ 834,240 $ 1,235,520 $ 2,627,328
4 Next year’s budgeted manufacturing cost per unit for Country Cookin’ Inc.
Country Cookin’ Inc.
Budgeted Manufacturing Cost per Unit
Direct materials $88.00
Direct labor 3.75
Manufacturing overhead:
Variable 4.50
Fixed 1.60 hint: you must take into account total annualized fixed costs in relation to total expected units for the year
Cost of manufacturing each widget $97.85
5 Next year’s budgeted income statement for the month ended January 31 for Country Cookin’ Inc.
Country Cookin’ Inc.
Budgeted Income Statement
For the month ended January 31
Sales Revenue $ 780,000
Less: Cost of goods sold 587,100
Gross profit 192,900
Less: Operating expenses 71,000
Operating income $121,900
Less: Interest expense 0
Less: Income tax expense 42,665
Net income $79,235

Module 6 budget problem

It is now the end of April and as Country Cookin’s management you are ready to evaluate its first quarter performance. Prepare a flexible budget for sales levels of 26,000, 28,000, and 30,000 smokers.
Next prepare a performance report based on the following actual results, flexible budget, and master budget.
Evaluate the first quarter performance of Country Cookin’.
Country Cookin’ Inc. Country Cookin’ Inc.
Flexible Budget Performance Report
For the Quarter Ended March 31 For the Quarter Ended March 31
Units Sold Actual Variance Flexible Variance Master
26,000 28,000 30,000 Units Sold 27,000 0 27,000 (1,000) 28000
Sales Revenue $130 Sales 130 $ 3,830,000
Direct Materials 88 Direct Materials 88 2,476,000
Direct Labor 3.75 Direct Labor 3.75 98,000
VOH 4.5 VOH 4.5 125,600
Total VC $96 V S&A 3.12 83,000
FOH Contribution Margin 31 $ 1,047,400
Total Costs FOH 41,000 41,000 41,000
Gross Profit F S&A 50,923 50,923 50,923
Operating Income $ 955,477
Evaluation of the first quarter performance.

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