Assume the firm can attain the expected operating level as prescribed by the kaizen program:
1-e. Prepare the Factory overhead budget for 2019.
1-f. Prepare the Cost of goods sold and ending finished goods inventory budgets for 2019.
1-g. Prepare the Selling and administrative expense budget for 2019.
1-h. Prepare the income statement, the last item of which is labeled After-tax Operating Income for 2019.
Answers for 1-a through 1-d are:
Spring Manufacturing Company makes two components identified as C12 and D57. Selected budgetary data for 2019 follow: Finished Components c12 D57 10 pounds 8 pounds 0 4 pounds 2 pounds 1 pound 2 hours 3 hours Requirements for each finished component: RM 1 RM 2 RM 3 Direct labor Product information: Sales price Sales (units) Estimated beginning inventory (units) Desired ending inventory (units) $150 12,000 400 300 $220 9,000 150 200 Cost per pound Estimated beginning inventory in pounds Desired ending inventory in pounds Direct Materials Information RM1 RM2 RM3 $ 2.00 $ 2.50 $ 0.50 3,000 1,500 1,000 4,000 1,000 1,500 The firm expects the average wage rate to be $25 per hour in 2019. Spring Manufacturing uses direct labor hours to apply overhead. Each year the firm determines the overhead application rate for the year based on budgeted direct labor hours for the year. The firm maintains negligible Work-in- Process Inventory and expects the cost per unit for both beginning and ending inventories of finished products to be identical. Indirect materials-variable Miscellaneous supplies and tools-variable Indirect labor-variable Supervision-fixed Payroll taxes and fringe benefits-variable Maintenance costs-fixed Maintenance costs-variable Depreciation-fixed Heat, light, and power-fixed Heat, light, and power-variable Total Factory Overhead Information $ 10,000 5,000 40,000 120,000 250,000 20,000 10,080 71,330 43, 420 11,000 $ 580,830 Advertising Sales salaries Travel and entertainment Depreciation-warehouse office salaries Executive salaries Supplies Depreciation-office Total Selling and Administrative Expense Information $ 60,000 200,000 60,000 5,000 60,000 250,000 4,000 6,000 $ 645,000 The effective income tax rate for the company is 40%. Spring Manufacturing Company has had a continuous improvement (kaizen) program for the last two years. According to the kaizen program, the firm is expected to manufacture C12 and D57 with the following specifications: Cost Element Raw material i Raw material 2 Raw material 3 Direct labor C12 9 lbs. 0 1.8 lbs. 1.5 hrs. D57 7 lbs. 3.6 lbs. 0.8 lb. 2 hrs. The company specifies that the variable factory overhead is to decrease by 10% while the fixed factory overhead is to decrease by 5%, except for depreciation expenses. The company does not expect the price of the raw materials to change. However, the hourly wage rate is likely to be $30. SPRING MANUFACTURING COMPANY Sales Budget For the Year 2019 C12 D57 Total 12,000 9,000 21,000 $ 150 $ 220 $ 1,800,000 $ 1,980,000 $ 3,780,000 Sales (in units) Selling price per unit Total revenue SPRING MANUFACTURING COMPANY Production Budget For the Year 2019 C12 D57 12,000 9,000 300 200 Budgeted sales (in units) Add: Desired finished goods ending inventory Total units needed Less: Beginning finished goods inventory Budgeted production (in units) 9,200 12,300 400 150 11,900 9,050 Total SPRING MANUFACTURING COMPANY Direct Materials Purchases Budget (units and dollars) For the Year 2019 C12 D57 Raw material (RM) 1: Budgeted production 11,900 9,050 Pounds per unit 9.0 7.0 RM 1 needed for production 107.100 63,350 Add: Desired ending inventory (lbs.) Total RM 1 needed (lbs.) Less: Beginning inventory (lbs.) Required purchases of RM 1 (lbs.) Cost per pound Budgeted purchases, RM 1 170,450 4,000 174,450 3,000 171.450 2.00 $ $ 342.900 11.900 0.0 9,050 3.6 32,580 0 32,580 Raw material (RM) 2. Budgeted production Pounds per unit RM 2 needed for production Add: Desired ending inventory (lbs.) Total RM 2 needed (lbs.) Less: Beginning inventory (lbs.) Required purchases of RM 2 (lbs.) Cost per pound Budgeted purchases, RM 2 1,000 33,580 1,500 $ 32.000 2.50 80,200 $ 11.900 1.8 21.420 9,050 0.8 7,240 Raw material (RM) 3 Budgeted production Pounds per unit RM 3 needed for production Add: Desired ending inventory (lbs.) Total RM 3 needed (lbs.) Less: Beginning inventory (lbs.) Required purchases of RM 3 (lbs.) Cost per pound Budgeted purchases, RM 3 28,660 1,500 30,160 1,000 29,160 $ 0.50 $ 14.580 Total SPRING MANUFACTURING COMPANY Direct Labor Budget For the Year 2019 C12 Budgeted production 11,900 Direct labor hours per unit 1.5 Total direct labor hours needed 17.850 Hourly wage rate Budgeted direct labor costs D57 9,050 2.00 18,100 35.950 $ 30 $ 1,078,500
