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Preparing a budget - Dollie Inc

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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
Indirect factory wages: $95,000
Depreciation of plant and equipment: $20,000
Utilities: $14,000
Insurance and property tax: $4,000
h. Estimated operating expenses for January
Sales salaries expense: $223,600
Advertising expense: $127,000
Office salaries expense: $63,800
Depreciation expense ? office equipment: $7,200
Telephone expense ? selling: $2,100
Telephone expense ? administrative: $550
Travel expense ? selling: $40,900
Office supplies expense: $3,500
Miscellaneous administrative expense: $4,600
i. Estimated tax rate: 30%

14. Prepare a sales budget for January.
15. Prepare a production budget for January.
16. Prepare a direct material budget for January.
17. Prepare a direct labor budget for January.
18. Prepare a factory overhead budget for January.
19. 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.
20. Prepare a selling and administrative expenses budget for January.
21. Prepare a budgeted income statement for January.
Analysis: Provide a substantive analysis of Dollie?s January budgeted income statement.
? What do the results indicate?
? Is this budgeted amount a feasible goal?
? In what areas could Dollie Inc. cut back on costs?
? How will management use this budget?
? Endorse the effective use of budgeting techniques in relation to solvent business practices.

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Solution Summary

Your discussion of the budget is 486 words. Your tutorial showing the master budget with the sales budget, production budget, materials budget, labor budget, overhead budget, administrative and selling expense budget and the budgeted income statement is in Excel, attached. Please click in cells to see how I computed the amounts.

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Analysis of Budgeted Income Statement

â?¢ What do the results indicate?

The results indicate that Dollie should make a handsome profits, 18.93% after taxes. This is more than triple the typical firm on Wall Street! Of course, this is presuming that all the sales demand and cost assumptions end up being at budget levels, the standard cost formula is still current, and there are no variances from standard cost quantities or prices.

â?¢ Is this budgeted amount a feasible goal?

The feasibility is completely contingent on whether the assumptions are feasible. If the Budget Director is experienced and has viewed past activity and expected demand and prices, the goal may be feasible. If Dollie's sales have never been close to the current forecast levels, then the budget may not be feasible because they are operating ...

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