Problem
1 Junction Ltd has the following budgeted sales for the selected four-month period:
Month Unit Sales
July 20,000
August 35,000
September 25,000
October 30,000
Sales price per unit is $180
Plans are to have an inventory of finished product equal to 20% of the unit sales for thenext month. There was 4,000 units in beginning inventory on July 1st.Three kilograms of materials are required for each unit produced. Each kilogram ofmaterial costs $20. Inventory levels for materials equal 30% of the needs for the nextmonth.Desired ending inventory for September is 25,200 kilograms of material. Beginning inventory for July was 20,700 kilograms of material.
Each unit requires 0.6 hours of direct labour and the average wage rate is $16 per hour.Variable overhead rate is $3.50 per direct labour hour. There is also fixed overhead of$22,000 per month.The company pays a 3% commission on sales.
Company has fixed selling and administrative expenses as follows:
Rent $6,000/month
Utilities $1,200/month
Advertising $400/month
Office Salaries $35,000/month
Required:
A.Prepare a sales budget for July, August, and September and in total for the quarter.
B.Prepare production budgets for July, August, and September and in total for the quarter.
C.Prepare a direct materials purchases budget in kilograms and dollars for July, August, andSeptember and in total for the quarter.
D.Prepare a direct labour budget in hours and total cost for July, August and September and in totalfor the quarter.
E.Prepare an overhead budget for July, August and September and in total for the quarter.
F.Prepare a selling and administrative expenses budget for July, August and September and in totalfor the quarter.
G.Prepare an ending finished goods inventory budget for the quarter.
(Hint: You have alreadycalculated the desired ending finished goods inventory amount. Assume a stable per unit rate and roundthe per unit fixed factory overhead rate to two decimal places.)H.Prepare a cost of goods sold budget for the quarterI.Prepare a budged income statement for the quarter-the company falls into the 35% tax bracket forincome taxes.