Barker Company produces and sells a single product with budgeted or standard cos

Question

Barker Company produces and sells a single product with budgeted or standard costs as follows:

Inputs

Standards

Direct materials

10 lbs at $10.00 per pound

Direct labor

8 hours at $12.50 per hour

Variable factory overhead

8 hours at $20.00 per hour

Fixed factory overhead

8 hours at $40.00 per hour

Overhead rates are based on 8,000 standard direct labor hours per month, i.e., this is the master budget denominator activity level.

Desired ending inventories of materials are based on 10% of the next months materials needed. Desired ending finished goods are based on 5% of next periods budgeted unit sales.

Unit Sales are budgeted as follows:

January

February

March

April

1,000

1,200

1,600

1,400

The budgeted sales price is $1000 per unit. Sales are budgeted as 80% credit sales and 20% cash sales. Past experience indicates that 60% of credit sales are collected during the month of sale, 38% are collected in the following month, and 2% are uncollectible. A 1% cash discount is allowed to all customers (cash or credit) who pay within the month the sale takes place. Selling and administrative expenses are: Variable = 20% of sales dollars, Fixed = $250,000 per month.

The budget assumption concerning cash payment proportions is that all current purchases of direct material, direct labor, factory overhead and selling and administrative items will be paid for during the current period. The beginning cash balance for February is $10,000. Depreciation and other non-cash fixed costs are: manufacturing = $100,000, selling and administrative = $75,000.

Required:

A Partial Master Budget for February as follows.

Sales budget for February, including net sales dollars.

Production Budget, i.e., units to be produced for February.

Direct Material quantity needed for production for February.

Direct Material quantity to be purchased for February.

Budgeted cost of direct material purchases for February.

Budgeted cost of direct material used for February.

Direct labor needed for production for February.

Budgeted cost of direct labor used for February.

Budgeted factory overhead costs for February.

Prepare a cash budget for February (including the cash collections and cash disbursements supporting schedules).

Inputs

Standards

Direct materials

10 lbs at $10.00 per pound

Direct labor

8 hours at $12.50 per hour

Variable factory overhead

8 hours at $20.00 per hour

Fixed factory overhead

8 hours at $40.00 per hour

Explanation / Answer

Ans) Barker Company Sales Budget for February Sales(1200*$1000) $                       1,200,000.00 Cash Discount $                                8,160.00 Net Sales $                       1,191,840.00 Cash Collection for February From January Sales $                           304,000.00 From February Sales Cash Sales $                           237,600.00 Credit Sales $                           570,240.00 Total Cash collection $                       1,111,840.00 Working Discount $                                2,400.00 $                                5,760.00 $                                8,160.00 Budget Units to be Produced during February Units Sales For February 1200 Units Ending Finished goods 80 Units Beginning Finished goods 60 Units 1220 Units Direct Material Quantity needed for Production of february Units to be Produced Material Required per unit 1220 10 Ibs Per unit 12200 lbs Direct Material quantity Purchased during february Direct material needed for Production 12200 lbs Ending Raw material 1590 lbs Beginning Raw material 1220 lbs 12570 lbs March Units to be Produced 1590 lbs March material needed for Production 15900 lbs Budgeted cost of Direct material Purchase for February $                           125,700.00 lbs Budgeted cost of Direct material used for February $                           122,000.00 lbs Direct Labor needed for Production for February Units Hours 1220 8 hrs 9760 Direct Labour Hour Budgeted cost of Direct Labor needed for Production for Febuary Hours Rate Per hour 9760 12.5 Per hour $     122,000.00 Budgeted Factory cost for February Variable Overhead 195200 Fixed Factory Overhead 320000 Budgeted Factory Overhead Cost 515200 Cash Budget for February Opening Cash Balance $       10,000.00 Add: Receipts Cash collection $ 1,111,840.00 Total Cash available $ 1,121,840.00 Less: Payments Direct Material $                           125,700.00 Direct Labor $                           122,000.00 Factory Overhead $                           415,200.00 Selling & Administrative Expenses $                           415,000.00 Total Cash Payments $ 1,077,900.00 Excess or deficiency $       43,940.00 Closing Cash Balance $       43,940.00

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