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Budgeting, Dollie Inc.

The budget director of Dollie Inc., with the help of the finance department, has compiled the following information for use in creating the budgeted income statement for January 20xx:

a. Estimated sales for January
Luxury dollhouse: 2,000 units at $200 per unit
Standard dollhouse: 3,500 units at $150 per unit

b. Estimated inventories at January 1

Direct materials
Finished products

Plastic: 400 pounds
Luxury dollhouse: 200 units at $98 per unit

Wood: 1,000 pounds
Standard dollhouse: 300 units at $70 per unit

c. Desired inventories at January 31

Direct materials
Finished products

Plastic: 740 pounds
Luxury dollhouse: 170 units at $100 per unit

Wood: 980 pounds
Standard dollhouse: 260 units at $73 per unit

d. Direct materials used in production

To manufacture Luxury dollhouse:
Plastic: 0.8 pounds per unit of product
Wood: 2 pounds per unit of product

To manufacture Standard dollhouse:
Plastic: 0.6 pounds per unit of product
Wood: 1.5 pounds per unit of product

e. Anticipated cost of purchases and beginning and ending inventory of direct materials
Plastic: $5 per pound
Wood: $7 per pound

f. Direct labor requirements

Luxury dollhouse
Molding Department: 0.3 hours at $12 per hour
Assembly Department: 0.5 hours at $10 per hour

Standard dollhouse
Molding Department: 0.2 hours at $12 per hour
Assembly Department: 0.4 hours at $10 per hour

g. Estimated factory overhead costs for January

â?¢Indirect factory wages: $95,000
â?¢Depreciation of plant and equipment: $20,000
â?¢Utilities: $14,000
â?¢Insurance and property tax: $4,000

h. Estimated operating expenses for January

â?¢Sales salaries expense: $223,600
â?¢Advertising expense: $127,000
â?¢Office salaries expense: $63,800
â?¢Depreciation expense - office equipment: $7,200
â?¢Telephone expense - selling: $2,100
â?¢Telephone expense - administrative: $550
â?¢Travel expense - selling: $40,900
â?¢Office supplies expense: $3,500
â?¢Miscellaneous administrative expense: $4,600
i. Estimated tax rate: 30%

Documents: Using Excel, prepare a separate tab for each of the following deliverables:

1.Prepare a sales budget for January.
2.Prepare a production budget for January.
3.Prepare a direct material budget for January.
4.Prepare a direct labor budget for January.
5.Prepare a factory overhead budget for January.
6.Prepare a cost of goods sold (COGS) budget for January. WIP at the beginning of January is estimated to be $25,300 and WIP at the end of January is desired to be $26,800.
7.Prepare a selling and administrative expenses budget for January.
8.Prepare a budgeted income statement for January.

Analysis: Provide a substantive analysis of Dollie's January budgeted income statement.

â?¢What do the results indicate?
â?¢Is this budgeted amount a feasible goal?
â?¢In what areas could Dollie Inc. cut back on costs?
â?¢How will management use this budget?
â?¢Endorse the effective use of budgeting techniques in relation to solvent business practices.

Solution Preview

â?¢What do the results indicate?
The venture looks profitable. The net margin is 19% (net income / sales) which is remarkable.

â?¢Is this budgeted amount a feasible goal?
It is not possible to know if this budgeted profit is feasible since it depends entirely on the feasibility of the assumptions for sales units (market demand), sales price, material costs, labor costs, overhead costs, selling and admin costs and tax rate. If all these assumptions are reasonably accurate, then the profits will likely be close to this ...

Solution Summary

Your tutorial includes a master budget in Excel (click in cells to see computations), with each budget on a separate tab. Your discussion is 300 words and gives a general idea how businesses might use budgets.