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Betty’s Beautiful Baskets
Betty’s Beautiful Baskets, a manufacturing business that sells baskets, wants a master budget prepared for the first three months of this year (January, February and March).
The managers of the different departments have provided the following information:
The Sales Manager has projected the following sales:
o January 5,000 units
o February 4,000 units
o March 6,000 units
o April 5,000 units
o May 11,250 units
o Projected selling price is $35.00/unit
Your Production Manager gave the following information:
o Ending Inventory is to be 20% of next month’s production needs
o April’s Projected Sales 5,000 units
o December 20X5 Ending Inventory was 1,000 units and December unit cost was $23.50.
The Manufacturing Manager has estimated the following:
o Each unit will require 4 grams of material
o Material in Ending Inventory is 20% of next month’s needs
o December’s Ending Material Inventory was 4,800 g
o Projected cost of material: $2.50/gram
The Personnel Manager has estimated that Direct Labor will be projected at:
o 0.75 hours of Direct Labor per unit
o Direct Labor Cost: $8.50/hour
The Facilities Manager has estimated that the Manufacturing Overhead will be projected at:
o Variable Overhead Rate to be $8 per Direct Labor hours
o Fixed Overhead Rate to be $3,000 per month
The Accounting Department Manager has provided the following information:
• Selling and Administrative Expenses are projected to be a monthly cost of:
o Salaries $6,000
o Rent $1,500
o Advertising $1,100
o Telephone $300
o Other $500
Betty’s Beautiful Baskets Page 2
• Cash Receivable:
o December’s Sales were $150,000
o 80% of sales is collected in the month in which they were made
o 20% of sales collected in the following month in which they were made
o Bad Debts is negligible
• Accounts Payable:
o 80% of Payables is paid for in the current month
o 20% of Payables is paid for in the following month
o December’s purchases were $50,000
• Federal Income Tax is estimated at 22% average.
• Betty’s Beautiful Baskets
o has a $20,000 cash balance for the beginning of January
o pays Dividends of $8,000 to be paid in March
o pays projected Federal Income tax in March
o depreciation on the building is $150 per month
o does not carry any WIP inventory
o uses FIFO inventory costing
• From the beginning Balance Sheet:
o Land = $150,000
o Building = $45,000
o Depreciation (Building) = $11,250
o Retained Earnings = $58,780
o Capital Stock = $200,470
For the Master Budget, you are expected to prepare the following:
• Sales budget plus schedule of accounts receivable collections
• Production budget
• Direct materials budget and schedule of cash payments for purchases
• Direct labor budget
• Manufacturing overhead budget
• Cost of Goods Sold Budget
• Selling & Administrative Expenses Budget
• Budgeted income statements
• Cash budget
• Budgeted balance sheet for each month plus a beginning balance sheet
When you prepare the cost of goods sold budget, you must calculate a unit cost for each month. You must also calculate cost of goods manufactured. Remember, there is no Work in Process inventory but you must calculate direct materials used.
