Problem - Batter Up 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 2011. Also determine the budgeted manufacturing cost per unit and prepare the budgeted income statement for January 2011.
Batter Up sells the softball bats they manufacture to various retailers for $130 each. Each bat requires 11 ounces of aluminum, which is purchased by Batter Up for $8.00 per ounce. To prepare for next month's production, Batter Up likes to maintain an ending stock of cotton equal to 10% of the production requirements. The company would also like to maintain an ending stock of finished bats 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.
Batter Up expects to sell 12,000 bats in April and needs 308,000 ounces of aluminum for production.
15% of sales from Batter Up to retailers are cash sales, while the remaining 85% are sold on account.
Additional budgeted information includes:
|
|
Month
|
1st
Quarter
|
|
2011
|
January
|
February
|
March
|
|
Direct labor
|
$22,500
|
$30,000
|
$52,500
|
$105,000
|
|
Manufacturing overhead:
|
|
|
|
|
|
Variable
|
$27,000
|
$36,000
|
$63,000
|
$126,000
|
|
Fixed 1
|
$41,000
|
$41,000
|
$41,000
|
$123,000
|
|
Total operating expenses 2
|
$71,000
|
$74,000
|
$95,000
|
$240,000
|
1 Fixed manufacturing overhead includes depreciation on the plant & equipment at $10,000 per month and insurance and property taxes on the plant at $3,000 per month.
2 Total operating expenses include depreciation on the office equipment at $6,000 per month and bad debt expense at 1% of credit sales each month.
Each softball bat requires 0.25 of an hour of direct labor at the rate of $15.00.
Batter Up estimated at the beginning of the year that it would manufacture 307,500 bats.
Interest expense is budgeted at zero since the company has no outstanding debt.
Income tax expense is budgeted at 35% of income before taxes.
Required - Prepare the 2011 sales budget for the 1st quarter for Batter Up.