## 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 January 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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