Wesley Power Tools manufactures a wide variety of tools and accessories. One of

Question

Wesley Power Tools manufactures a wide variety of tools and accessories. One of its more popular items is a cordless power handisaw. Each handisaw sells for $50. Wesley expects the following unit sales:

Wesley’s ending finished goods inventory policy is 20 percent of the next month’s sales.
      Suppose each handisaw takes approximately .25 hours to manufacture, and Wesley pays an average labor wage of $14.50 per hour.
      Each handisaw requires a plastic housing that Wesley purchases from a supplier at a cost of $5.00 each. The company has an ending raw materials inventory policy of 10 percent of the following month’s production requirements. Materials other than the housing unit total $3.50 per handisaw.
      Manufacturing overhead for this product includes $60,000 annual fixed overhead (based on production of 21,000 units) and $.80 per unit variable manufacturing overhead. Wesley’s selling expenses are 5 percent of sales dollars, and administrative expenses are fixed at $17,000 per month.

Required:
1. Compute the budgeted cost of goods sold for the first quarter. (Round direct material, direct labor and overhead costs per unit to 2 decimal places. Round final answers to the nearest dollar amount.)



2. Compute the budgeted selling and administrative expenses.



3. Complete the budgeted income statement for the handisaw product for the first quarter. (Round direct material, direct labor and overhead costs per unit to 2 decimal places. Round final answers to the nearest dollar amount.)

January 2,300 February 2,600 March 2,800 April 2,700 May 2,200

Explanation / Answer

1)Unit cost =Direct material +direct labor +overhead

          = [5+3.5 ]+[.25*14.5]+[.80 variable +2.86 fixed]

             = 8+3.63+ 3.66

            = 15.29

**fixed overhead per unit = 60000/21000=2.86

Total unit sold in 1 Quarter = 2300+2600+2800=7700

Cost of good sold : 2.86 *7700 = $ 22022

2)Total fixed selling and administrative: 17000*3 = 51000

Total sales for first quarter : 7700*50 = 385000

Variable selling and administrative = 385000*.05 = 19250

budgeted selling and administrative expenses.= 51000+19250= 70250

3)

Budgeted Income statement sales 385000 less:cost of goods sold (22022) Gross margin 362978 less: budgeted selling and administrative expenses. (70250) Net income 292728

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