[The following information applies to the questions displayed below.] Iguana, In

Question

[The following information applies to the questions displayed below.]

Iguana, Inc., manufactures bamboo picture frames that sell for $25 each. Each frame requires 4 linear feet of bamboo, which costs $2.00 per foot. Each frame takes approximately 30 minutes to build, and the labor rate averages $12.00 per hour. Iguana 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:

Variable manufacturing overhead is incurred at a rate of $0.30 per unit produced. Annual fixed manufacturing overhead is estimated to be $7,200 ($600 per month) for expected production of 4,000 units for the year. Selling and administrative expenses are estimated at $650 per month plus $0.60 per unit sold.

     Iguana, Inc., had $10,800 cash on hand on April 1. Of its sales, 80 percent is in cash. Of the credit sales, 50 percent is collected during the month of the sale, and 50 percent is collected during the month following 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 $2,000. All other operating costs are paid during the month incurred. Monthly fixed manufacturing overhead includes $150 in depreciation. During April, Iguana plans to pay $3,000 for a piece of equipment.

Options:

March 275 April 250 May 300 June 400 July 375 August 425 Required: Compute the following for Iguana, Inc., for the second quarter (April, May, and June). (Do not round your intermediate calculations.) May 2nd Quarter Total April June 1. Budgeted Sales Revenue 2. Budgeted Production in Units 3. Budgeted Cost of Raw Material Purchases 4. Budgeted Direct Labor Cost 5. Budgeted Manufacturing Overhead 6. Budgeted Cost of Goods Sold. 7. Total Budgeted Selling and Adm. Expenses

Explanation / Answer

S.NO

April

May

June

Second Quarter Total

1

Budgeted Sales Revenue

April = 250units x $25

May = 300units x $25

June = 400units x $25

$6,250

$7,500

$10,000

$23,750

2

Budgeted Production (See Note 1)

270units

340units

390units

1,000 units

3

Budgeted Cost of Raw Material Purchases (See Note 2)

$2,202

$2,750

$3,123

$8,075

4

Budgeted Direct Labor Cost

April = 270units x 30 /60 x $12per hour

May = 340units x 30/60 x $12 per hour

June = 390units x 30/60 x $12 per hour

$1,620

$2,040

$2,340

$6,000

Note 1: Budgeted Production = Goods Sold + Closing inventory of Finished goods – opening inventory of finished goods.

Closing Inventory = 40% of next month sale

Opening Inventory= 40% of current month sale

Production in April = 250 units + 40% of May Sale (300units) – 40% of April month sale (250 units)

                                  = 250 + 120 – 100 = 270 units

Production in May = 300 units + 40% x 400 – 40% x 300 = 300 + 160 – 120 = 340 units.

Production in June = 400 units + 40% x 375 – 40% x 400 = 400 +150 – 160 = 390 units.

Production in July = 375 units + 40% x 425 – 40% x 375 = 375 + 170 – 150 = 395 units.

Note 2: Calculation of Raw material purchases

Total Budgeted Production = April = 270 units, May = 340 units, June = 390 units, July = 395 units

Calculation of opening and closing balance of Inventories of Raw Materials.

April

May

June

Opening Inventory of Raw Materials:

30% of the Current Month Production

30% x 270 = 81 units

30% x 340= 102 units

30% x 390 = 117 units

Closing Inventory of Raw Materials:

30% of the next month production

30% x 340 = 102 units

30% x 390 = 117 units

30% x 395 = 118.5 units

Materials required for Budgeted Production

4 feet x 270 = 1080 feet

4 feet x 340= 1360 feet

4 feet x 390= 1560 feet

Purchase of Raw Material

1080 + 102 – 81 = 1101 feet

1360 +117 – 102 = 1375 feet

1560 + 118.5 – 117 = 1561.5 feet

Budgeted Cost of Raw Material Purchases ($2 per foot)

1101 feet x $2 = $2,202

1375 feet x $2 = $2,750

1561.5 feet x $2 = $3,123

S.NO

April

May

June

Second Quarter Total

1

Budgeted Sales Revenue

April = 250units x $25

May = 300units x $25

June = 400units x $25

$6,250

$7,500

$10,000

$23,750

2

Budgeted Production (See Note 1)

270units

340units

390units

1,000 units

3

Budgeted Cost of Raw Material Purchases (See Note 2)

$2,202

$2,750

$3,123

$8,075

4

Budgeted Direct Labor Cost

April = 270units x 30 /60 x $12per hour

May = 340units x 30/60 x $12 per hour

June = 390units x 30/60 x $12 per hour

$1,620

$2,040

$2,340

$6,000

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