Thomas Inc. has gathered the following budgeting information for next year and h
ID: 2572737 • Letter: T
Question
Thomas Inc. has gathered the following budgeting information for next year and has asked you to prepare their master budget. Sales for the final quarter of the prior year total 900 units. Expected sales (in units) for the current year are: 810 (Quarter 1), 540 (Quarter 2), 720 (Quarter 3), and 720 (Quarter 4). Sales for the first quarter of the following year total 1,080 units. The selling price is $670 per unit in the first three quarters of the year, and $700 per unit in the final quarter. a. b. Company policy calls for a given quarter's ending finished goods inventory to equal 90% of the next quarter's expected unit sales. The finished goods inventory at the end of the prior year is 729 units, which complies with the policy. The product's manufacturing cost is $129 per unit, including per unit costs of $60 for materials (4 lbs. at $15 per lb.), $44 for direct labor (2 hours $22 direct labor rate per hour), $17 for variable overhead, and $8 for fixed overhead. Annual fixed overhead consists, incurred evenly throughout the year, consist of depreciation on production equipment, $9,700; factory utilities, $12,100, and other factory overhead of $2,464. Company policy also calls for a given quarter's ending raw materials inventory to equal 50% of next quarter's expected materials needed for production. The prior year-end inventory is 1,134 lbs of materials, which complies with the policy. The company expects to have 2,160 lbs. of materials in inventory at year-end. The company has no work in process inventory at the end of any quarter. c. Sales representatives' commissions are 18% of sales and are paid in the quarter of the sales. The sales manager's quarterly salary will be $67,000 in the first three quarters of the year, and $71,000 in the final quarter. Quarterly general and administrative expenses include $28,000 administrative salaries, rent expense of $17,000 per quarter, insurance expense of $14,000 per quarter, straight- line depreciation of $14,000 per quarter, and 1% monthly interest on the $100,000 long-term note payable (12% annually). e. f. Income taxes will be assessed at 35%, and are paid in the quarter incurred.Explanation / Answer
Thomas Inc.
Sales Budget
2018
First Qtr
Second Qtr
Third Qtr
Fourth Qtr
Total
Budgeted sales (Units)
810
540
720
720
2790
Selling price per unit
$670
$670
$670
$700
$670
Total Budgeted sales (dollars)
$5,42,700
$3,61,800
$4,82,400
$5,04,000
$18,69,300
Thomas Inc.
Production Budget
For the year ended December 31, 2018
First Qtr
Second Qtr
Third Qtr
Fourth Qtr
Total
Next Qtr budgeted sales (Units)
540
720
720
1080
Ratio of inventory to future sales
90%
90%
90%
90%
Budgeted ending inventory (Units)
486
648
648
972
972
Budgeted sales (Units)
810
540
720
720
2790
Required units of available production
1296
1188
1368
1692
3762
Budgeted beginning inventory
729
486
648
648
729
Units to be produced
567
702
720
1044
3033
Thomas Inc.
Direct Materials Budget
For the year ended December 31, 2018
First Qtr
Second Qtr
Third Qtr
Fourth Qtr
Total
Units to be produced
567
702
720
1044
Material - per unit (pounds)
4
4
4
4
Materials needed for production (pounds)
2268
2808
2880
4176
Add: Desired ending Inventory
1404
1440
2088
2160
Total materials requirements (pounds)
3672
4248
4968
6336
Less: Beginning Balance
1134
1404
1440
2088
Materials to be purchased (pounds)
2538
2844
3528
4248
13158
Material Price - per pound
$15
$15
$15
$15
Total cost of direct materials purchases
$38,070
$42,660
$52,920
$63,720
$1,97,370
Thomas Inc.
Direct Labor Budget
For the year ended December 31, 2018
First Qtr
Second Qtr
Third Qtr
Fourth Qtr
Total
Units to be produced
567
702
720
1044
Labor hours - per unit
2
2
2
2
Total direct labor hours needed
1134
1404
1440
2088
Labour hour rate
$22
$22
$22
$22
Total cost of direct materials purchases
$24,948
$30,888
$31,680
$45,936
$1,33,452
Thomas Inc.
Factory Overhead Budget
For the year ended December 31, 2018
First Qtr
Second Qtr
Third Qtr
Fourth Qtr
Total
Units to be produced
567
702
720
1044
Variable overhead per unit
17
17
17
17
Budgeted variable overhead
9639
11934
12240
17748
Fixed Overhead
$6,066
$6,066
$6,066
$6,066
Budgeted Total Overhead
$15,705
$18,000
$18,306
$23,814
$75,825
Thomas Inc.
Sales Budget
2018
First Qtr
Second Qtr
Third Qtr
Fourth Qtr
Total
Budgeted sales (Units)
810
540
720
720
2790
Selling price per unit
$670
$670
$670
$700
$670
Total Budgeted sales (dollars)
$5,42,700
$3,61,800
$4,82,400
$5,04,000
$18,69,300
Thomas Inc.
Production Budget
For the year ended December 31, 2018
First Qtr
Second Qtr
Third Qtr
Fourth Qtr
Total
Next Qtr budgeted sales (Units)
540
720
720
1080
Ratio of inventory to future sales
90%
90%
90%
90%
Budgeted ending inventory (Units)
486
648
648
972
972
Budgeted sales (Units)
810
540
720
720
2790
Required units of available production
1296
1188
1368
1692
3762
Budgeted beginning inventory
729
486
648
648
729
Units to be produced
567
702
720
1044
3033
Thomas Inc.
Direct Materials Budget
For the year ended December 31, 2018
First Qtr
Second Qtr
Third Qtr
Fourth Qtr
Total
Units to be produced
567
702
720
1044
Material - per unit (pounds)
4
4
4
4
Materials needed for production (pounds)
2268
2808
2880
4176
Add: Desired ending Inventory
1404
1440
2088
2160
Total materials requirements (pounds)
3672
4248
4968
6336
Less: Beginning Balance
1134
1404
1440
2088
Materials to be purchased (pounds)
2538
2844
3528
4248
13158
Material Price - per pound
$15
$15
$15
$15
Total cost of direct materials purchases
$38,070
$42,660
$52,920
$63,720
$1,97,370
Thomas Inc.
Direct Labor Budget
For the year ended December 31, 2018
First Qtr
Second Qtr
Third Qtr
Fourth Qtr
Total
Units to be produced
567
702
720
1044
Labor hours - per unit
2
2
2
2
Total direct labor hours needed
1134
1404
1440
2088
Labour hour rate
$22
$22
$22
$22
Total cost of direct materials purchases
$24,948
$30,888
$31,680
$45,936
$1,33,452
Thomas Inc.
Factory Overhead Budget
For the year ended December 31, 2018
First Qtr
Second Qtr
Third Qtr
Fourth Qtr
Total
Units to be produced
567
702
720
1044
Variable overhead per unit
17
17
17
17
Budgeted variable overhead
9639
11934
12240
17748
Fixed Overhead
$6,066
$6,066
$6,066
$6,066
Budgeted Total Overhead
$15,705
$18,000
$18,306
$23,814
$75,825
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