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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

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 $5 per unit sold
Direct materials 10 per unit manufactured
Direct labor 10 per unit manufactured
Variable manufacturing overhead 5 per unit manufactured
Fixed:
Selling and administrative $20,000 per month
Manufacturing (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, 2011, inventories are in line with these policies. Actual unit sales for December and budgeted unit sales for January, February, and March of 2011 are as follows:

JACOBS INCORPORATED Sales Budget For the Months of January, February, and March 2011
Month December January February March
Sales - Units 5,250 7,000 7,000 8,000
Sales - Dollars $262,500 $350,000 $350,000 $400,000

Additional information:

The January 1 beginning cash is projected as $4,000.

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 $6,000 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.

(a) A production budget for January and February.

JACOBS INCORPORATED Production Budget For the Months of January and February 2011
January February March
Requirements for current sales Answerimage text in transcribed

Answerimage text in transcribed

Answerimage text in transcribed

Desired ending inventory Answerimage text in transcribed

Answerimage text in transcribed

Total requirements Answerimage text in transcribed

Answerimage text in transcribed

Less beginning inventory Answerimage text in transcribed

Answerimage text in transcribed

Production requirements Answerimage text in transcribed

Answerimage text in transcribed

(b) A purchases budget in units for January.

JACOBS INCORPORATED Purchases Budget For the Month of January 2011
January February
Current requirements (units) Answerimage text in transcribed

Answerimage text in transcribed

Desired ending inventory Answerimage text in transcribed

Total requirements Answerimage text in transcribed

Less beginning inventory Answerimage text in transcribed

Purchases (units) Answerimage text in transcribed

Purchases (dollars at $10 each) $Answerimage text in transcribed

(c) A manufacturing cost budget for January.

JACOBS INCORPORATED Manufacturing Cost Budget For the Month of January 2011
Variable costs
Direct materials $Answerimage text in transcribed

Direct labor Answerimage text in transcribed

Variable manufacturing overhead Answerimage text in transcribed

Total variable costs Answerimage text in transcribed

Fixed manufacturing overhead Answerimage text in transcribed

Total manufacturing overhead $Answerimage text in transcribed

(d) A cash budget for January.

JACOBS INCORPORATED Cash Budget For the Month of January 2011
Beginning balance $Answerimage text in transcribed

Receipts:
December sales $Answerimage text in transcribed

January sales Answerimage text in transcribed

Answerimage text in transcribed

Total cash available Answerimage text in transcribed

Disbursements:
Purchases Answerimage text in transcribed

Direct labor Answerimage text in transcribed

Variable manufacturing overhead Answerimage text in transcribed

Fixed manufacturing overhead (exclude depreciation) Answerimage text in transcribed

Variable selling and administrative Answerimage text in transcribed

Fixed selling and administrative Answerimage text in transcribed

Dividend Answerimage text in transcribed

Answerimage text in transcribed

Ending Balance $Answerimage text in transcribed

(e) A budgeted contribution income statement for January.

JACOBS INCORPORATED Budgeted Contribution Income Statement For the Month of January 2011
Sales $Answerimage text in transcribed

Less variable costs:
Cost of goods sold $Answerimage text in transcribed

Selling and administrative Answerimage text in transcribed

Answerimage text in transcribed

Contribution Answerimage text in transcribed

Less fixed costs:
Manufacturing overhead Answerimage text in transcribed

Selling and administrative Answerimage text in transcribed

Answerimage text in transcribed

Net income $Answerimage text in transcribed

(f) Prepare a cash budget for January assuming management plans to increase the January end raw materials inventory to 100 percent of February's production needs.

JACOBS INCORPORATED Cash Budget with Additional Purchases of Raw Materials For the Month of January 2011
Beginning balance $Answerimage text in transcribed

Receipts:
December sales $Answerimage text in transcribed

January sales Answerimage text in transcribed

Answerimage text in transcribed

Total cash available Answerimage text in transcribed

Disbursements:
Purchases Answerimage text in transcribed

Direct labor Answerimage text in transcribed

Variable manufacturing overhead Answerimage text in transcribed

Fixed manufacturing overhead (exclude depreciation) Answerimage text in transcribed

Variable selling and administrative Answerimage text in transcribed

Fixed selling and administrative Answerimage text in transcribed

Dividend Answerimage text in transcribed

Answerimage text in transcribed

Ending Balance $Answerimage text in transcribed

(g) Actions management might consider to resolve the problem indicated in the revised cash budget in part (f) include:

Delaying the cash dividend.

If possible, pay for fifty percent of each month's purchases in during the month and pay for the other fifty percent in the following month, an average of fifteen to sixteen days after receipt.

Obtain a line of credit with a financial institution.

All of the above.image text in transcribed

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