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Horngren'S Financial And Managerial Accounting
Found in: Page 1247

Short Answer

Question: Preparing an operating budget—sales, production, direct materials, direct labor, overhead, COGS, and S&A expense budgets

The Langley Batting Company manufactures wood baseball bats. Langley’s two primary products are a youth bat, designed for children and young teens, and an adult bat, designed for high school and college-aged players. Langley sells the bats to sporting goods stores, and all sales are on account. The youth bat sells for $40; the adult bat sells for $65. Langley’s highest sales volume is in the first three months of the year as retailers prepare for the spring baseball season. Langley’s balance sheet for December 31, 2018, follows:

Other data for Langley Batting Company for the first quarter of 2019:

a. Budgeted sales are 1,200 youth bats and 2,600 adult bats.

b. Finished Goods Inventory on December 31, 2018, consists of 300 youth bats at $14 each and 950 adult bats at $18 each.

c. Desired ending Finished Goods Inventory is 350 youth bats and 300 adult bats; FIFO inventory costing method is used.

d. Direct materials requirements are 48 ounces of wood per youth bat and 56 ounces of wood per adult bat. The cost of wood is $0.25 per ounce.

e. Raw Materials Inventory of December 31, 2018, consists of 24,000 ounces of wood at $0.25 per ounce.

f. Desired ending Raw Materials Inventory is 24,000 ounces (indirect materials are insignificant and not considered for budgeting purposes).

g. Each bat requires 0.7 hours of direct labor; direct labor costs average $18 per hour. h. Variable manufacturing overhead is $0.30 per bat.

i. Fixed manufacturing overhead includes $1,300 per quarter in depreciation and $20,140 per quarter for other costs, such as insurance and property taxes.

j. Fixed selling and administrative expenses include $9,000 per quarter for salaries; $2,500 per quarter for rent; $1,000 per quarter for insurance; and $200 per quarter for depreciation.

k. Variable selling and administrative expenses include supplies at 2% of sales.

Requirements

1. Prepare Langley’s sales budget for the first quarter of 2019.

2. Prepare Langley’s production budget for the first quarter of 2019.

3. Prepare Langley’s direct materials budget, direct labor budget, and manufacturing overhead budget for the first quarter of 2019. Round the predetermined overhead allocation rate to two decimal places. The overhead allocation base is direct labor hours.

4. Prepare Langley’s cost of goods sold budget for the first quarter of 2019.

5. Prepare Langley’s selling and administrative expense budget for the first quarter of 2019.

Answer

Holly should choose option 2.

See the step by step solution

Step by Step Solution

Step 1: Preparation of sales budget

Langley Batting Company

Sales Budget

For the first quarter, 2019

Youth Bats

Adult Bats

Budgeted bats to be sold

1,200

2,600

Sales price per unit

X $40

X $65

Total budgeted sales

$48,000

$169,000

Step 2: Preparation of production budget

Langley Batting Company

Production Budget

For the first quarter, 2019

Youth Bats

Adult Bats

Budgeted bats to be sold

1,200

2,600

Plus: Desired bats in ending inventory

350

300

Total bats needed

1,550

2,900

Less: Bats in beginning inventory

300

950

Bats to be produced

1,250

1,950

Step 3: Preparation of direct materials budget

Langley Batting Company

Direct Materials Budget

For the first quarter, 2019

Youth Bats

Adult Bats

Total

Budgeted bats to be produced

1,250

1,950

3,200

Direct material required (ounces) per bat

48

56

104

Direct material needed for production

60,000

109,200

169,200

Plus: Desired direct materials in ending inventory (Ounces)

24,000

Total direct material needed

193,200

Less: Direct materials in the beginning inventory

24,000

Budgeted purchase of the raw material

169,200

Direct material cost per ounce

X $0.25

Budgeted cost of direct material purchases

$42,300

Step 4: Preparation of direct labor budget

Langley Batting Company

Direct Labor Budget

For the first quarter, 2019

Youth Bats

Adult Bats

Total

Budgeted bats to be produced

1,250

1,950

3,200

Direct labor hours needed for production

0.7

0.7

0.7

Direct labor hours needed for production

875

1,365

2,240

Direct labor cost per hour

$18

$18

$18

Budgeted direct labor cost

$15,750

$24,570

$40,320

Step 5: Preparation of manufacturing overhead budget

Langley Batting Company

Direct Materials Budget

For the first quarter, 2019

Youth Bats

Adult Bats

Total

Budgeted bats to be produced

1,250

1,950

3,200

VOH per bat

$0.30

$0.30

$0.30

Budgeted variable overhead

$375

$585

$960

Budgeted FOH Cost:

Depreciation

$1,300

Other FOH

$24,140

Budgeted manufacturing overhead cost

$25,440

Direct labor hours

2,240

Predetermined overhead allocation rate

($25,440/2,240)

$11.36

Step 6: Preparation of cost of goods sold budget

Langley Batting Company

Cost of goods sold Budget

For the first quarter, 2019

Youth Bats

Adult Bats

Total

Beginning inventory

$4,200

$17,100

$21,300

Bats produced and sold in 2019 Ist quarter@$29.61

1,200 x $29.61=$35,532

2,600 x $29.61=$76,986

$112,518

Total budgeted cost of goods sold

$39,732

$94,086

$133,818

Step 7: Preparation of selling and administrative budget

Langley Batting Company

Selling and administrative Budget

For the first quarter, 2019

Amount

Salaries

$9,000

Rent

$2,500

Insurance

$1,000

Depreciation

$200

Variable selling and administrative expenses

$8,450

Total

$21,150

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