Q3.

MASTER BUDGET FOR MANUFACTURING PROBLEM 3

I. Master Budget:
Grand Company produces and sells a single product with budgeted or standard unit costs as
follows:
Inputs Standards Cost Per Unit
Direct materials    3 lbs at $10.00 $30
Direct labor    2 hours at 12.00 $24
Factory overhead: Variable    2 hours at 20.00 $40
                             Fixed    2 hours at 40.00 $80
Total Unit Cost $174
Overhead rates are based on a capacity level of 1,200 units per month, i.e., this is the master
budget denominator activity level.
Desired ending inventories of materials are based on 4% of the next months materials needed.
Desired ending finished goods are based on 10% of next periods budgeted unit sales.
Unit Sales are budgeted as follows:
January February March April
800 1,000 1,200 1,400
The budgeted sales price is $300 per unit. Sales are budgeted as 60% credit sales and 40% cash
sales. Past experience indicates that 40% of credit sales are collected during the month of sale,
58% are collected in the following month, and 2% are uncollectible. A 1% cash discount is
allowed to all customers (cash or credit) who pay within the month the sale takes place. Selling
and administrative expenses are budgeted as follows: Variable expenses are 10% of sales dollars,
budgeted expenses are $50,000.
REQUIRED: A Partial Master Budget for February as follows.
1. Sales budget for February, including net sales dollars.
2. Calculate collections for February.
3. Production Budget, i.e., units to be produced for February.
4. Direct Material quantity needed for production for February.
5. Direct Material quantity to be purchased for February.
6. Budgeted cost of direct material purchases for February.
7. Budgeted cost of direct material used for February.
8. Direct labor needed for production for February.
9. Budgeted cost of direct labor used for February.
10. Budgeted factory overhead costs for February.
11. Budgeted cost of goods sold for February.
12. The amount and status (i.e., favorable or unfavorable) of the planned production
      volume variance for February.
13. Budgeted selling and administrative expenses for February.
14. The amount of Bad debts which should appear on the February Income Statement
Solution
1. Sales 1000*300=300,000
Cash discount= (300,000*0.6*0.4+300,000*0.4)0.01=1,920
Net sales =300,000-1,920=298,080
2. From January 300*800*0.6*0.58=83,520
From February Cash =300,000*0.4*0.99=118,800
Credit=300,000*0.6*0.4*0.99=71,200
Total = $273,600
3. 1,000+0.1*1,200-0.1*1000=1,020 units
4. 1,020*3=3,060 lbs
5. Material needed for March= (1,200+0.1*1400-0.1*1,200)*3 =3,660lbs
Material needed for February =3,060+0.04*3,660-0,04*3,060=3,084lbs
6. 3,084*10=$30,840
7.30,060*10=$30,600
8. 1,020*2=2,040 hours
9.2,040*12=$24,480
10. Variable overhead= 20*2,040= 40,800
Fixed overhead =80*1,200=96,000
Total : 40,800+96,000=$136,800
11. Budgeted total manufacturing cost : 30,600+24,480+136,800 =$191,880
Add beginning finished goods :1,000*0.1*174 =17,400
Less ending finished goods : 1,200*0.1*174 =20,880
Budgeted COGS: = $188,400
12.Planned production variance= (1200-1020)80=$14,400 U
13. Budgeted selling and administrative expense=0.1*300,000+50,000= $80,000
14. Amount of bad debt=300,000*0.6*0.02= $3,600