Al-Nada Company is preparing its master budget for 2016. Relevant data pertaining to its sales, production, and direct materials budgets are as follows: Sales: 1. Sales for the year are expected to total 1,500,000 units. Quarterly sales are 20%, 25%, 25%, and 30% respectively. The sales price is expected to be $60 per unit for the first three quarters and $65 per unit beginning in the fourth quarter. Sales in the first quarter of 2010 are expected to be 10% higher than the budgeted sales for the first quarter of 2011. Production: Management desires to maintain ending finished goods inventories at 25% of next quarter's budgeted sales volume. 2. 3. Direct materials: Each unit requires 4 pounds of raw materials at a cost of S6 per pound. Management desires to maintain raw materials inventories at 5% of the next quarter's production requirements. Assume the production requirements for the first quarter of 2010 are 950,000 pounds. 4. Direct labor hours are determined from the production budget. Al-Kamal Company, two hours of direct labor are required to produce each unit of finished goods. The anticipated hourly wage rate is $15. 5. Al-Kamal Company expects variable costs to fluctuate with production volume on the basis of the following rates per direct labor hour: indirect materials $1.50, indirect labor $2.00, utilities $0.50, and maintenance $0.40. Thus, for the 6,500 direct labor hours to produce 3,100 units, budgeted indirect materials are $6,200 (6,500 x $1.50), and budgeted indirect labor is $7,600 (6,500 x $2.00). Al-Kamal also recognizes that some maintenance is fixed. The amounts reported for fixed costs are assumed 6. Variable expense rates per unit of sales are sales commissions $2.50 and freight-out $1. Variable expenses per quarter are based on the unit sales from the sales budget. Al-Kamal expects sales in the first quarter to be 4,000 units. Fixed expenses are based on assumed data. 7. Al-Nada company has the following information Company sold 15,000 units of product. Sales price is $60 per unit. Interest expense is expected to be $100, and Income taxes are estimated to be $12,000. Cost Element direct materials Cost of One Right-ride Illustration 20-7 Direct labor Manufacturing Overhead Total Unit Cost Cost of Goods Sold 15000X $60-$660.00 20-9 20-10 Quantity 2 Pounds 2 Hours 2 Hours Unit Cost $ 4.00 $ 10.00 $ 8.00 Requirements 5. Prepare the Manufacturing Overhead budget by quarters for 2016 6. Prepare a selling and administrative expense budget by quarters for 2016 7. Prepare income statement budget Total $ 8.00 $ 20.00 $ 16.00 $ 44.00 Al-Nada Company E. Manufacturing Overhead budget for the Year Ending December 31,2016 Variable costs Indirect material (1.50/hour) Indirect labor (2.00/hour) Utilities ($0.50/hour) Maintenance ($0.40/hour). Total variable costs Fixed cost Supervisory salaries Depreciation 1 Quarters 2 Taxes and Insurance Maintenance Total fixed cost Total manufacturing overhead Direct labor hours manufacturing overhead rate per direct hour = 3 4 Year Al-Nada Company F. selling and administrative expense budget for the Year Ending December 31,2016 Bandaged sales in units Variable expense sales commissions ($2.50 per unit) freight-out ($1per unit) Total variable expenses Fixed expenses Advertising Sales salaries Office salaries Depreciation Taxes and Insurance Total fixed expenses Total selling and administrative expense 1 Quarters 2 3 4 Year Al-Nada Company G. Prepare income statement budget for the Year Ending December 31,2016 Sales Cost of goods sold Gross profit Selling and administrative expense Income from operating Interest expense Income before taxes Taxes Net income