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Budgets and income statement

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LaRussa Inc. is preparing its annual budgets for the year ending December 31, 2009. Accounting assistants furnish the data shown below.

Product JB 50 Product JB 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 accounting 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 JB 50 and $360,000 for product JB 60, and administrative expenses of $540,000 for product JB 50 and $340,000 for product JB 60. Income taxes are expected to be 30%.

Hint:
Prepare sales, production, direct materials, direct labor, and income statement budgets.

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 required budgets and the income statement

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Budgeted Income Statement

Using the attached excel worksheet (attached), Budgeted Income Statement and data below:

Data:

Use the following data to analyze the Budgeted Income Statement's Cost of Goods Sold (assume 40% of the COGS total amount is from direct material costs and 40% is from direct labor costs. The other 20% is from manufacturing overhead):

- Budgeted Production Volume for the first quarter of 2010 = 150,000 units (standard quantity) (assume all units were sold)

- Budgeted Production Volume is recorded based on Standard Per Unit Cost

- Assume Actual Production Volume for the first quarter in 2010 = 200,000 units

- Assume Actual Cost of Goods Sold (COGS) for the first quarter in 2010 = $1,100,000 (40% direct material, 40% direct labor, 20% manufacturing overhead)

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1. Using the information above, calculate the Direct Material Price and Quantity Variances. 2. Are they favorable of unfavorable?

3. Using the information above, calculate the Direct Labor Rate and Efficiency Variances, and Direct Labor Variance. 4. Are they favorable of unfavorable?

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6 Discuss an analysis of the numerical data. 7. Discuss the strengths and/or weaknesses of the BFBS variance analyses. 8. Evaluate the data, discuss your recommendations?

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