Developing a Master Budget for a Manufacturing Organization

Jacobs Incorporated manufactures a product with a selling price of $50 per unit. Units and monthly cost data follow:

Variable:Selling and administrative$ 4 per unit soldDirect materials$ 10 per unit manufacturedDirect labor$ 10 per unit manufacturedVariable manufacturing overhead$ 5 per unit manufacturedFixed:Selling and administrative$15,000 per monthManufacturing (including depreciation of $ 10,000)30,000 per month

Jacobs pays all bills in the month incurred. All sales are on account with 50 percent collected the month of sale and the balance collected the following month. There are no sales discounts or bad debts. Jacobs desires to maintain an ending finished goods inventory equal to 20 percent of the following month's sales and a raw materials inventory equal to 10 percent of the following month's production. January 1, 2014, inventories are in line with these policies. Actual unit sales for December and budgeted unit sales for January, February, and March of 2014 are as follows:

JACOBS INCORPORATED

Sales Budget

For the Months of January, February, and March 2014MonthDecemberJanuaryFebruaryMarchSales - Units6,2505,00010,0008,000Sales - Dollars$312,500$250,000$500,000$400,000

Additional information:

• The January 1 beginning cash is projected as $5,000.
• For the purpose of operational budgeting, units in the January 1 inventory of finished goods are valued at variable manufacturing cost.
• Each unit of finished product requires one unit of raw materials.
• Jacobs intends to pay a cash dividend of $10,000 in January.

NOTE: For the entire problem - do not use any negative signs with your answers unless appropriate for net income(loss) or ending balance.

• Part A
• Part B
• Part C
• Part D
• Part E

(a) A production budget for January and February.

Jacobs Incorporated

Production Budget

For the Months of January and February 2014JanuaryFebruaryMarchRequirements for current salesDesired ending inventoryTotal requirementsLess beginning inventoryProduction requirements

(b) A purchases budget in units for January.

Jacobs Incorporated

Purchases Budget

For the Month of January 2014JanuaryFebruaryCurrent requirements (units)Desired ending inventoryTotal requirementsLess beginning inventoryPurchases (units)Purchases (dollars)

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(c) A manufacturing cost budget for January.

Jacobs Incorporated

Manufacturing Cost Budget

For the Month of January 2014Variable costsDirect materialsDirect laborVariable manufacturing overheadTotal variable costsFixed manufacturing overheadTotal manufacturing costs

(d) A cash budget for January.

Jacobs Incorporated

Cash Budget

For the Month of January 2014Beginning balanceReceipts:December salesJanuary salesTotal cash availableDisbursements:PurchasesDirect laborVariable manufacturing overheadFixed manufacturing overhead (exclude depreciation)Variable selling and administrativeFixed selling and administrativeDividendEnding Balance

(e) A budgeted contribution income statement for January.

Jacobs Incorporated

Budgeted Contribution Income Statement

For the Month of January 2014SalesLess variable costs:Cost of goods soldSelling and administrativeContributionLess fixed costs:Manufacturing overheadSelling and administrativeNet income