Comprehensive Operating Budgets &

Budgeted Income Statement An Example:

J.K. Wood Company manufactures and sells snowboards. In the
summer of 2015 its Accountant gathered the following data to
prepare budgets for 2016:

You are required to prepare 1) Revenues Budget (Rs.)

J.K.s CEO expects to sell 1,000 snowboards during 2016 at an
estimated retail price of Rs.1,000 per snowboard.

You are required to prepare 2) Production Budget (in units)

Further, he expects 2016s beginning inventory of 100 snowboards
and would like to end 2016 with 200 snowboards in stock.

Prepared by: Prof. Ranjan Dasgupta for: BM ADM 2016

You are required to prepare

3) Direct Materials Usage and Purchases Budget (Units & Rs.)
4) Direct Manufacturing Labour Budget (Hours & Rs.)
Data given:
Direct materials
Beginning Inventory
Ending Inventory
inventories
(1.1.16)
(31.12.16)
Wood
2,000
1,500
Fiberglass
1,000
2,000
Materials and labour requirements:
Wood
Fiberglass
Direct manufacturing labour
Other data includes:

5 board feet (b.f.) per snowboard

6 yards per snowboard
5 hours per snowboard
2015 unit price

Wood
Fiberglass
Direct
labour

manufacturing

Rs.56 per b.f.

Rs.9.60 per yard
Rs.24 per hour

2016 unit price

Rs.60 per b.f.
Rs.10 per yard
Rs.25 per hour

Prepared by: Prof. Ranjan Dasgupta for: BM ADM 2016

You are required to prepare/calculate

5) Manufacturing Overhead Budget (Rs.).
6) What is the budgeted manufacturing overhead rate?
7) What is the budgeted manufacturing overhead cost per output unit?
Variable manufacturing overhead is allocated at the rate of Rs.14
per direct manufacturing labour hour. There are also Rs.1,32,000 in
fixed manufacturing overhead costs budgeted for 2016. J.K.
combines both variable and fixed manufacturing overhead into a
single rate based on direct manufacturing labour hours.

You are required to calculate

8) The cost (Rs.) of a snowboard manufactured in 2016.

You are required to prepare

9) Ending Inventory Budget for both direct materials and finished
goods (Rs.).

Prepared by: Prof. Ranjan Dasgupta for: BM ADM 2016

You are required to prepare

10) Cost of Goods Sold (COGS) Budget (Rs.)
The inventoriable unit cost for ending finished goods inventory on
st

Dec. 31 2015 is Rs.647.60. Assume J.K. uses a FIFO inventory

method for both direct materials and finished goods. Ignore WIP in
your calculations.

You are required to prepare

11) Budgeted Income Statement for J.K. for 2016.
Variable marketing costs are allocated at the rate of Rs.2,500 per
sales visit. The marketing plan calls for 30 sales visits during 2016.
Finally, there are Rs.60,000 in fixed non-manufacturing costs
budgeted for 2016.

Prepared by: Prof. Ranjan Dasgupta for: BM ADM 2016