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    Budgets

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    I) Chapter 20 - problems P20-2A and P20-4A pg. 1039

    ii) Chapter 21 - problem P21-2A pg. 1092

    Big Top Co. is preparing its annual budgets for the year ending December 31, 2008; the data is shown below.

    Product CZ 50 Product CZ 60
    Sales budget:
    Anticipated volume in units 400,000 200,000
    Unit selling price $20 $25
    Production budget:
    Desired ending finished goods units 25,000 15,000
    Beginning finished goods units 30,000 10,000
    Direct materials budget:
    Direct materials per unit (pounds) 2 3
    Desired ending direct materials pounds 30,000 15,000
    Beginning direct materials pounds 40,000 10,000
    Cost per pound $3 $4
    Direct labor budget:
    Direct labor time per unit 0.4 0.6
    Direct labor rate per hour $12 $12
    Budgeted income statement:
    Total unit cost $12 $21

    An assistant has prepared the detailed manufacturing overhead budget and the selling and administrative
    expense budget. The latter shows selling expenses of $660,000 for product CZ 50 and $360,000 for
    product CZ 60, and administrative expenses of $540,000 for product CZ 50 and $340,000 for product
    CZ 60. Income taxes are expected to be 30%.

    Instructions:
    Prepare the following budgets for the year. Show data for each product. Quarterly budgets should not be prepared.
    A) Sales
    B) Production
    C) Direct materials
    D) Direct labor
    E) Income statement (Note: Income taxes are not allocated to the products)

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    Solution Summary

    The solution explains the preparation of Sales, Production, Direct materials, Direct labor budgets and the budgeted
    income statement

    $2.19

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