Preparation of Individual Budgets

During the first calendar quarter of the year, Clinton Corporation is planning to manufacture a new product and introduce it in two regions. Market research indicates that sales will be $7,000$ units in the urban region at a unit price of $$53$ and $6,000$ units in the rural region at $$48$ each. Because the sales manager expects the product to catch on$,$ he has asked for production sufficient to generate a $5,000-$unit ending inventory. The production manager has furnished the following estimates related to manufacturing costs and operating expenses:

Manufacturing Costs:

Direct materials:

A $(4$ lb$.$ @ $$3\mathrm{.}15/$lb$.)=$ $$12\mathrm{.}60($per unit$)$

B $(2$ lb$.$ @ $$4\mathrm{.}65/$lb$.)=$ $$9\mathrm{.}30($per unit$)$

Direct labor: $(0\mathrm{.}5$ hours per unit$)=$ $$7\mathrm{.}50($per unit$)$

Manufacturing overhead:

Depreciation: $$7,650($total$)$

Factory supplies: $$0\mathrm{.}90($per unit$)+$ $$4,500($total$)$

Supervisory salaries: $$28,800($total$)$

Other: $$0\mathrm{.}75($per unit$)+$ $$22,950($total$)$

Operating Expenses:

Selling:

Advertising: $$22,500($total$)$

Sales salaries & commissions$*$: $$1\mathrm{.}50($per unit sold$)+$ $$15,000($total$)$

Other$*$: $$0\mathrm{.}90($per unit sold$)+$ $$3,000($total$)$

Administrative:

Office salaries: $$2,700($total$)$

Supplies: $$0\mathrm{.}15($per unit$)+$ $$1,050($total$)$

Other: $$0\mathrm{.}08($per unit$)+$ $$1,950($total$)$

$*$Varies per unit sold, not per unit produced.

a$.$ Assuming that the desired ending inventories of materials A and B are $5,000$ and $7,000$ pounds, respectively, and that work$-$in$-$process inventories are immaterial, prepare budgets for the calendar quarter in which the new product will be introduced for each of the following operating factors:

Do not use negative signs with any of your answers below.

Total sales

Production

Material purchase cost

Material A Material B

Total pounds $($lbs$.)$ required for production

Desired ending materials inventory

Total pounds to be available

Beginning materials inventory

Total material to be purchased $($lbs$.)$

Total material purchases $($$$)$

Direct labor costs

Manufacturing overhead costs

Fixed Variable Total

Depreciation

Factory supplies

Supervisory salaries

Other

Total manufacturing overhead

Selling and administrative expenses

Fixed Variable Total

Selling expenses:

Advertising

Sales salaries and commissions

Other

Total selling expenses

Administrative expenses:

Office salaries

Supplies

Other

Total administrative expenses

Total selling and administrative expenses

b$.$ Using data generated in requirement $($a$),$ prepare a budgeted income statement for the calendar quarter. Assume an overall effective income tax rate of $30\%.$

Round answers to the nearest whole number.

Do not use negative signs with your answers.

Clinton Corporation

Budgeted Income Statement

For the Quarter Ended March $31$

Sales

Cost of Goods Sold:

Beginning Inventory $-$ Finished Goods

Material:

Beginning Inventory $-$ Material

Material Purchases

Material Available

Ending Inventory $-$ Material

Direct Material

Direct Labor

Manufacturing Overhead

Total Manufacturing Cost

Cost of Goods Available for Sale

Ending Inventory $-$ Finished Goods

Cost of Goods Sold

Gross Profit

Operating Expenses:

Selling Expenses

Administrative Expenses

Total Operating Expenses

Income before Income Taxes

Income Tax Expense

Net Income