Budgeted Income Statement and Supporting Budgets

The budget director of Gold Medal Athletic Co., with the assistance of the controller, treasurer, production manager, and sales manager, has gathered the following data for use in developing the budgeted income statement for March 2016:

Estimated sales for March:

Batting helmet	1,200 units at $40 per unit
Football helmet	6,500 units at $160 per unit

Estimated inventories at March 1:

Direct materials:
Plastic	90 lbs.
Foam lining	80 lbs.
Finished products:
Batting helmet	40 units at $25 per unit
Football helmet	240 units at $77 per unit

Desired inventories at March 31:

Direct materials:
Plastic	50 lbs.
Foam lining	65 lbs.
Finished products:
Batting helmet	50 units at $25 per unit
Football helmet	220 units at $78 per unit

Direct materials used in production:

In manufacture of batting helmet:
Plastic	1.20 lbs. per unit of product
Foam lining	0.50 lb. per unit of product
In manufacture of football helmet:
Plastic	3.50 lbs. per unit of product
Foam lining	1.50 lbs. per unit of product

Anticipated cost of purchases and beginning and ending inventory of direct materials:

Plastic	$6.00 per lb.
Foam lining	$4.00 per lb.

Direct labor requirements:

Batting helmet:
Molding Department	0.20 hr. at $20 per hr.
Assembly Department	0.50 hr. at $14 per hr.
Football helmet:
Molding Department	0.50 hr. at $20 per hr.
Assembly Department	1.80 hrs. at $14 per hr.

Estimated factory overhead costs for March:

Indirect factory wages	$86,000
Depreciation of plant and equipment	12,000
Power and light	$4,000
Insurance and property tax	2,300

Estimated operating expenses for March:

Sales salaries expense	$184,300
Advertising expense	87,200
Office salaries expense	32,400
Depreciation expenseoffice equipment	3,800
Telephone expenseselling	5,800
Telephone expenseadministrative	1,200
Travel expenseselling	9,000
Office supplies expense	1,100
Miscellaneous administrative expense	1,000

Estimated other income and expense for March:

Interest revenue	$940
Interest expense	872

Estimated tax rate: 30%

Required:

1. Prepare a sales budget for March. Enter all amounts as positive numbers.

Gold Medal Athletic Co. Sales Budget For the Month Ending March 31, 2016
	Unit Sales Volume	Unit Selling Price			Total Sales
Batting helmet		$			$
Football helmet
Total revenue from sales					$

2. Prepare a production budget for March. Enter all amounts as positive numbers.

Gold Medal Athletic Co. Production Budget For the Month Ending March 31, 2016
	Units
	Batting helmet	Football helmet
Expected units to be sold
Plus desired inventory, March 31, 2016
Total
Less estimated inventory, March 1, 2016
Total units to be produced

3. Prepare a direct materials purchases budget for March. Enter all amounts as positive numbers.

Gold Medal Athletic Co. Direct Materials Purchases Budget For the Month Ending March 31, 2016
		Plastic		Foam Lining		Total
Units required for production:
Batting helmet
Football helmet
Plus desired units of inventory, March 31, 2016
Total
Less estimated units of inventory, March 1, 2016
Total units to be purchased
Unit price	$		$
Total direct materials to be purchased	$		$		$

4. Prepare a direct labor cost budget for March. Enter all amounts as positive numbers.

Gold Medal Athletic Co. Direct Labor Cost Budget For the Month Ending March 31, 2016
		Molding Department		Assembly Department		Total
Hours required for production:
Batting helmet
Football helmet
Total
Hourly rate	$		$
Total direct labor cost	$		$		$

5. Prepare a factory overhead cost budget for March. Enter all amounts as positive numbers.

Gold Medal Athletic Co. Factory Overhead Cost Budget For the Month Ending March 31, 2016
Indirect factory wages	$
Depreciation of plant and equipment
Power and light
Insurance and property tax
Total	$

6. Prepare a cost of goods sold budget for March. Work in process at the beginning of March is estimated to be $15,300, and work in process at the end of March is desired to be $14,800. Enter all amounts as positive numbers.

Gold Medal Athletic Co. Cost of Goods Sold Budget For the Month Ending March 31, 2016
Finished goods inventory, March 1, 2016
Work in process inventory, March 1, 2016
Direct materials:
Direct materials inventory, March 1, 2016
Direct materials purchases
Cost of direct materials available for use
Less: Direct materials inventory, March 31, 2016
Cost of direct materials placed in production
Direct labor
Factory overhead
Total manufacturing costs
Total work in process during the period
Less: Work in process inventory, March 31, 2016
Cost of goods manufactured
Cost of finished goods available for sale
Less: Finished goods inventory, March 31, 2016
Cost of goods sold

7. Prepare a selling and administrative expenses budget for March. Enter all amounts as positive numbers.

Gold Medal Athletic Co. Selling and Administrative Expenses Budget For the Month Ending March 31, 2016
Selling expenses:
Sales salaries expense
Advertising expense
Telephone expenseselling
Travel expenseselling
Total selling expenses
Administrative expenses:
Office salaries expense
Depreciation expenseoffice equipment
Telephone expenseadministrative
Office supplies expense
Miscellaneous administrative expense
Total administrative expenses
Total operating expenses

8. Prepare a budgeted income statement for March. Enter all amounts as positive numbers.

Gold Medal Athletic Co. Budgeted Income Statement For the Month Ending March 31, 2016
Revenue from sales
Cost of goods sold
Gross profit
Operating expenses:
Selling expenses
Administrative expenses
Total operating expenses
Income from operations
Other income:
Interest revenue
Other expenses:
Interest expense
Income before income tax
Income tax expense (30% rate)
Net income

Feedback

The direct materials cost budget, the direct labor cost budget, and the factory overhead budget each use the level of production from the production budget to estimate costs.

The cost of goods sold budget combines the budgeted costs from the direct labor, direct materials, and factory overhead budgets with estimated beginning and ending inventory to estimate a total cost of goods sold.

Estimated sales from the sales budget, estimated cost of goods sold from the cost of goods sold budget, and estimated selling and administrative expenses from the selling and administrative expense budget are used to prepare a budgeted income statement.

Learning Objective 4.