Connor Company began operations on January 1 and has projected the following selling and administrative expenses:
Rent Expense $ 1,000 per month, paid as incurred
Utilities Expense 500 per month, paid in month after incurred
Depreciation Expense 300 per month
Insurance Expense 100 per month, 6 months prepaid on January 1
Determine the cash payments for selling and administrative expenses for the first three months of operations.
The total selling and administrative expenses for January, February, and Marchare $2,400, $1,800, and $1,800, respectively.
The selling and administrative expense budget is prepared to estimate the company’s selling and administrative expenses needed for projected sales.
Insurance expense ($100*6)
Total selling and administration expenses
Budgeting types Consider the following budgets and budget types.
Cash Cost of Goods Sold
Which budget or budget type should be used to meet the following needs?
a. Upper management is planning for the next five years.
b. A store manager wants to plan for different levels of sales.
c. The accountant wants to determine if the company will have sufficient funds to pay expenses.
d. The CEO wants to make companywide plans for the next year.
Preparing an operating budget—sales and production budgets
Lugo Company manufactures drinking glasses. One unit is a package of eight glasses, which sells for $30. Lugo projects sales for April will be 2,000 packages, with sales increasing by 250 packages per month for May, June, and July. On April 1, Lugo has 325 packages on hand but desires to maintain an ending inventory of 20% of the next month’s sales. Prepare a sales budget and a production budget for Lugo for April, May, and June.
Using Excel for to prepare an operating budeget (manufacturing company)
Thunder Creek Company is preparing budgets for the first quarter of 2018. All relevant information is presented on the Excel template.
1. Prepare a Sales Budget.
2. Prepare a Production Budget.
3. Prepare a Direct Materials Budget.
4. Prepare a Direct Labor Budget.
5. Prepare a Manufacturing Overhead Budget.
6. Prepare a Cost of Goods Sold Budget
7. Prepare a Selling and Administrative Expense Budget.
Preparing a financial budget—schedule of cash receipts, sensitivity analysis
Marcel Company projects the following sales for the first three months of the year: $11,200 in January; $12,300 in February; and $11,100 in March. The company expects 60% of the sales to be cash and the remainder on account. Sales on account are collected 50% in the month of the sale and 50% in the following month. The Accounts Receivable account has a zero balance on January 1. Round to the nearest dollar.
1. Prepare a schedule of cash receipts for Marcel for January, February, and March. What is the balance in Accounts Receivable on March 31?
2. Prepare a revised schedule of cash receipts if receipts from sales on account are 60% in the month of the sale, 30% in the month following the sale, and 10% in the second month following the sale. What is the balance in Accounts Receivable on March 31?
Preparing an operating budget—sales, production, direct materials, direct labor, overhead, COGS, and S&A expense budgets The Irwin Batting Company manufactures wood baseball bats. Irwin’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. Irwin sells the bats to sporting goods stores, and all sales are on account. The youth bat sells for $35; the adult bat sells for $50. Irwin’s highest sales volume is in the first three months of the year as retailers prepare for the spring baseball season. Irwin’s balance sheet for December 31, 2018, follows:
Other data for Irwin Batting Company for the first quarter of 2019:
a. Budgeted sales are 1,400 youth bats and 3,300 adult bats.
b. Finished Goods Inventory on December 31, 2018, consists of 700 youth bats at $15 each and 550 adult bats at $10 each.
c. Desired ending Finished Goods Inventory is 220 youth bats and 300 adult bats; FIFO inventory costing method is used.
d. Direct materials requirements are 40 ounces of wood for youth bats and 70 ounces of wood for adult bats. The cost of wood is $0.10 per ounce.
e. Raw Materials Inventory on December 31, 2018, consists of 90,000 ounces of wood at $0.10 per ounce.
f. Desired ending Raw Materials Inventory is 90,000 ounces (indirect materials are insignificant and not considered for budgeting purposes).
g. Each bat requires 0.4 hours of direct labor; direct labor costs average $26 per hour.
h. Variable manufacturing overhead is $0.30 per bat.
i. Fixed manufacturing overhead includes $1,300 per quarter in depreciation and $14,977 per quarter for other costs, such as insurance and property taxes.
j. Fixed selling and administrative expenses include $13,000 per quarter for salaries; $3,500 per quarter for rent; $1,400 per quarter for insurance; and $450 per quarter for depreciation. k. Variable selling and administrative expenses include supplies at 1% of sales.
1. Prepare Irwin’s sales budget for the first quarter of 2019.
2. Prepare Irwin’s production budget for the first quarter of 2019.
3. Prepare Irwin’s direct materials, 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 Irwin’s cost of goods sold budget for the first quarter of 2019.
5. Prepare Irwin’s selling and administrative expense budget for the first quarter of 2019.
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