Case Study - Budgeting

ABC Corporation has the following data to be used in budgeting:

MonthUnit Sales

July20,000

August35,000

September25,000

October30,000

• Sales price per unit is P180
• Plans are to have an inventory of finished product equal to 20% of the unit sales for the next month. There was 4,000 units in beginning inventory on July 1st.
• Three pounds of materials are required for each unit produced. Each pound of material
• costs P20. Inventory levels for materials equal 30% of the needs for the next month.
• Desired ending inventory for September is 25,200 pounds of material. Beginning inventory
• for July was 20,700 pounds of material.
• Each unit requires 0.6 hours of direct labor and the average wage rate is P16 per hour.
• Variable overhead rate is P3.50 per direct labor hour. There is also fixed overhead of
• P22,000 per month.
• The company pays a 3% commission on sales.
• Company has fixed selling and administrative expenses as follows:
• Rent P6,000/month
• Utilities P1,200/month
• Advertising P400/month
• Office Salaries P35,000/month

Requirements:

A. Make a sales budget for July, August, and September and in total for the quarter.

B. Make production budgets for July, August, and September and in total for the quarter.

C. Make a direct materials purchases budget in pounds and dollars for July, August, and

September and in total for the quarter.

D. Make a direct labor budget in hours and total cost for July, August and September and

in total for the quarter.

E. Make an overhead budget for July, August and September and in total for the quarter.

F. Make a selling and administrative expenses budget for July, August and September and

in total for the quarter.

G. Make an ending finished goods inventory budget for the quarter (Hint: You have

already calculated the desired ending finished goods inventory quantity. Assume a stable

per unit rate and round the per unit fixed factory overhead rate to two decimal places.)

H. Make a cost of goods sold budget for the quarter

I. Make a budged income statement for the quarter-the company falls into the 35% tax

bracket for income taxes.