The following information applies to the questions displayed below Iguana, Inc.,
ID: 2520072 • Letter: T
Question
The following information applies to the questions displayed below Iguana, Inc., manufactures bamboo picture frames that sell for $30 each. Each frame requires 4 linear feet of bamboo, which costs $2.50 per foot. Each frame takes approximately 30 minutes to build, and the labor rate averages $15 per hour lguana has the following inventory policies: Ending finished goods inventory should be 40 percent of next month's sales. Ending raw materials inventory should be 30 percent of next month's production. Expected unit sales (frames) for the upcoming months follow: March April May June July August 335 370 420 520 495 545 Variable manufacturing overhead is incurred at a rate of $0.50 per unit produced. Annual fixed manufacturing overhead is estimated to be $9,000 ($750 per month) for expected production of 4,500 units for the year. Selling and administrative expenses are estimated at $850 per month plus $0.50 per unit sold. guana, Inc had $11,000 cash on hand on April ? its sales, 80 percent is n cash Of the credit sales, 50 percent is collected during he month o the sale and O pe cent is lected durin he month llo win the sale. Of raw materials purchases, 80 percent is paid for during the month purchased and 20 percent is paid in the following month. Raw materials purchases for March 1 totaled $3,700. All other operating costs are paid during the month incurred. Monthly fixed manufacturing overhead includes $270 in depreciation. During April, Iguana plans to pay $4,200 for a piece of equipmentExplanation / Answer
1) Budgeted Sales Revenue
Expected sales units × Selling price per unit
April
= 370 units × $ 30 p.u = $11100
Of 11100 , 80% cash sales , 20 % credit sales 50 % collected this month and 50% collected next month)
= 8800 + 1005( cash for previous month sales) + 1060
= $10865
May
= 420 units × $ 30 p.u = $12600
Of 12600 80 % cash sales balance credit sales
= 10080 + 1260 ( 50% of credit sales) + 1060 ( 50 % of credit sales of last month)
=$12400
June
= 520 units × $ 30 p.u = $15600
Of 15600 80% cash sales balance credit sales
= 12480 + 1560 ( 50% of credit sales) + 1260( 50% of credit sales of last month)
= $ 15300
Total = $ 38565
2) Budgeted Production in Units
Budgeted Sales + Closing stock of finished goods - Opeaning
Stock of finished goods
Closing stock of finished goods = 40% of next month sales
Opening stock = Previous month closing stock ( I.e 40% of this month sales)
April
= 370 + (420 × 40%) - (370 × 40%) = 370 + 168 - 148 = 390 units
May
= 420 + (520 × 40%) - (420 × 40%) = 420 + 208 - 168 = 460 units
June
= 520 + (495 × 40%) - ( 520 × 40%) = 520 + 198 - 208 = 510 units
Total = 1360 units
3) Budgeted Raw material(RM) purchase cost
= Budgeted RM purchases × RM price p.u
Budgeted RM purchase = Budgeted RM usage + Closing stock of RM - Opeaning Stock of RM
{ Working note: Budgeted RM usage = Budgeted production( as calculate above) × RM usage per unit of output
April = 390 × 4 = 1560
May = 460 × 4 = 1840
June = 510 × 4 = 2040}
{ Working note: Opeaning stock of RM = 30 % of this month production, Closing stock of RM = 30% of next month production}
{ Raw material cost p.u = 4 × 2.5 = 10 per unit}
April
= [1560 + (460 × 30%) - (390 × 30%)] × 10
= (1560 + 138 -117) × 10
= $15810
May
= [1840 + (510 ×30%) - (460 ×30%)] × 10
= ( 1840 +153 - 138) × 10
= 1855×10
= 18550
June
=[ 2040 + 515 × 30% - 510×30%] × 10
= (2040 + 154.5 - 153) × 10
= 2041.5 × 10
= 20415
Total = $54775
4) Budgeted Direct Labour Cost
= Budgeted Production × No of Hours require per unit × Rate per hour
April
= 390 × 30/60 ×15
= $2925
May
= 460 × 30/60 × 15
= $ 3450
June
= 510 × 30/60 × 15
= $ 3825
Total = $ 10200
5) Budgeted Manufacturing Overheads
= Production units × VOH p.u + FOH
April
= 390×0.5 +750
= $ 945
May
= 460×.50+750
= $980
June
= 510×.5+750
= $1005
Total = $ 2930
7) Total Budgeted selling and Admin expenses
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