Problem 9-39 Preparation of Master Budget (LO 9-3, 9-4, 9-5, 9-6) Edgeworth Box
ID: 2451018 • Letter: P
Question
Problem 9-39 Preparation of Master Budget (LO 9-3, 9-4, 9-5, 9-6)
Edgeworth Box Corporation manufactures two types of cardboard boxes used in shipping canned food, fruit, and vegetables. The canned food box (type C) and the perishable food box (type P) have the following material and labor requirements.
The following production-overhead costs are anticipated for the next year. The predetermined overhead rate is based on a production volume of 395,000 units for each type of box. Production overhead is applied on the basis of direct-labor hours.
The following inventory information is available for the next year.
Prepare a master budget for Edgeworth Box Corporation for the next year. Assume an income tax rate of 30 percent. Include the following schedules.
[The following information applies to the questions displayed below.]Explanation / Answer
Number of units to be produced = closing stock + sales - Opening stock
Box C = 6000 + 400,000 - 11000 = 395,000 units
Box P = 16,000 + 400,000 - 21,000 = 395,000 units
Cost of Production for 395,000 units of each type of box
Box C Box P Total
Direct Material
Corrugating medium (25/100*395,000)*$0.14 (35/100*395,000)*$0.14
$13,825 $19,355 $33,180
Paperboard (35/100*395,000)*$ 0.28 (75/100*395,000)*$0.28
$38,710 $82,950 $121,660
Direct Labour cost (0.20/100*395,000)*$14 (0.40/100*395,000)*14
$11,060 $22,120 $33,180
Production overheads split
Labour hours required for each box (0.20/100*395,000) =790 hours (0.40/100*395,000)=1580 hours 2,370 hours
Amount of production overheads ($154,050/2370)*790 = $51,350 ($154,050/2370)*1580 = $102,700 = $154,050
Total cost of production
Direct material cost $13,825 + $38,710 =$52,535 $19,355 + $82,950 = $102,305 $154,840
Direct labour cost $11,060 $22,120 $33,180
Production overheads $51,350 $102,700 $154,050
Total $114,945 $ 227,125 $342,070
Per unit production cost $114,945 / 395,000 = $0.29 $ 227,125 / 395,000 = $0.58
Value of closing stock $0.29* 6,000 boxes= $ 1,740 $0.58*16000 = $9,280 $11,020
Value of Opening stock $0.29* 11,000 boxes= $3,190 $0.58*21000= $ 12,180 $15,370
Budget
Sales revenue (units sold * selling price) $480,000 $720,000 $1,200,000
Closing stock
Finished goods $1,740 $9,280 $11,020
Raw material (10,500*$0.14), (5500*%0.28) $3,010
Total (A) $481,740 $729,280 $1,214,030
Less
Production cost of 395,000 units $114,945 $ 227,125 $342,070
Opening stock
Finished goods $3,190 $ 12,180 $15,370
Raw material (5500*$0.14), (15500*$0.28) $5,110
Selling and Administrative expneses $318,600 Total (B) $681,150
Profit before tax (A-B) $532,880
Tax @ 30% $159,864
Profit after tax $373,016
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