The board of directors of North American Manufacturing Company recently approved
ID: 2491489 • Letter: T
Question
The board of directors of North American Manufacturing Company recently approved the company’s budget and production plan for its coming fiscal year, 20X5. Budgeted units of production equal budgeted unit sales for the company’s single product. Using the information below, included in the budget and production plan:
Compute the amount of required sales – number of units and dollars – necessary to achieve the company’s budgeted net income for its fiscal year ended (FYE) December 31, 20X5
Prepare the company’s budgeted income statement for its FYE December 31, 20X5 using the Variable Costing Method (Contribution Margin Format).
Show all computations in good form and label properly all amounts presented.
Budgeted amounts:
Budgeted amounts:
Per unit
Sales units
?
Product selling price (SP)
$210.00
Sales dollars
?
Variable manufacturing costs:
Fixed costs:
Direct materials (DM)
$47.25
Manufacturing overhead (MOH) costs
$2,100,000
Direct labor (DL)
$39.75
Selling and administrative (S&A) costs
$2,250,000
Manufacturing overhead (MOH) costs
$55.50
Research and development (R&D) costs
$1,500,000
Variable selling and admin. (S&A) costs
$22.50
Net income
$1,890,000
Estimated combined effective tax rate
40.0% (i.e., 0.40)
Amount of required sales – number of units and dollars – necessary to achieve the company’s budgeted net income for its fiscal year ended (FYE) December 31, 20X5:
Prepare the company’s budgeted income statement for its FYE December 31, 20X5 using the Variable Costing Method (Contribution Margin Format)
North American Manufacturing Company
Budgeted Income Statement
Fiscal year ended December 31, 20X5
Units:
Per unit:
Total:
Sales
$
$
Variable expenses:
Cost of goods sold
$
$
Total variable expenses
$
$
$
Budgeted amounts:
Budgeted amounts:
Per unit
Sales units
?
Product selling price (SP)
$210.00
Sales dollars
?
Variable manufacturing costs:
Fixed costs:
Direct materials (DM)
$47.25
Manufacturing overhead (MOH) costs
$2,100,000
Direct labor (DL)
$39.75
Selling and administrative (S&A) costs
$2,250,000
Manufacturing overhead (MOH) costs
$55.50
Research and development (R&D) costs
$1,500,000
Variable selling and admin. (S&A) costs
$22.50
Net income
$1,890,000
Estimated combined effective tax rate
40.0% (i.e., 0.40)
Explanation / Answer
North American Manufacturing Company Budgeted Income Statement Fiscal Year Ended December 31, 2015 Units Per Unit Total Sales 172000 210 36120000 Variable Expenses Direct Material 47.25 8127000 Direct Labor 39.75 6837000 Manufacturing Overhead 55.5 9546000 Variable Selling & Admin 22.5 3870000 Contribution 45 7740000 Fixed Costs Manufacturing Overheads 2100000 Selling & Admin 2250000 Research & Development 1500000 Total Fixed 5850000 Net Income 1890000 Let the no of units be x It is assumed that the net income is before Tax 45x-5850000 = 1890000 45x= 7740000 X = 172000
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