Budgeted Income Statement and Supporting Budgets

The budget director of Feathered Friends Inc., with the assistance of the controller, treasurer, production manager, and sales manager, has gathered the following data for use in developing the budgeted income statement for December 2014:

Estimated sales for December:

Estimated inventories at December 1:

Desired inventories at December 31:

Direct materials used in production:

Anticipated cost of purchases and beginning and ending inventory of direct materials:

Direct labor requirements:

Estimated factory overhead costs for December:

Estimated operating expenses for December:

Estimated other income and expense for December:

Estimated tax rate: 30%

Required:

1. Prepare a sales budget for December.

Feathered Friends Inc. Sales Budget For the Month Ending December 31, 2014
Â	Unit Sales Volume	Unit Selling Price	Total Sales
Bird house	Â	Â	Â
Bird feeder	Â	Â	Â
Total revenue from sales	Â	Â	Â

2. Prepare a production budget for December.

Feathered Friends Inc. Production Budget For the Month Ending December 31, 2014
Â	Units
Â	Â	Bird House	Â	Bird Feeder
Expected units to be sold	Â	Â	Â	Â
Plus desired inventory, December 31, 2014	Â	Â	Â	Â
Total	Â	Â	Â	Â
Less estimated inventory, December 1, 2014	Â	Â	Â	Â
Total units to be produced	Â	Â	Â	Â

3. Prepare a direct materials purchases budget for December.

Feathered Friends Inc. Direct Materials Purchases Budget For the Month Ending December 31, 2014
Â	Wood	Plastic	Total
Required units for production:	Â	Â	Â
Bird house	Â	Â	Â
Bird feeder	Â	Â	Â
Plus desired units of inventory, December 31, 2014	Â	Â	Â
Total	Â	Â	Â
Less estimated units of inventory, December 1, 2014	Â	Â	Â
Total units to be purchased	Â	Â	Â
Unit price	Â	Â	Â
Total direct materials to be purchased	Â	Â	Â

4. Prepare a direct labor cost budget for December.

Feathered Friends Inc. Direct Labor Cost Budget For the Month Ending December 31, 2014
Â		Â	Fabrication Department	Â	Assembly Department	Total
Hours required for production:		Â	Â	Â	Â	Â
Â	Bird house	Â	Â	Â	Â	Â
Â	Bird feeder	Â	Â	Â	Â	Â
Â	Total	Â	Â	Â	Â	Â
Hourly rate		Â	Â	Â	Â	Â
Total direct labor cost		Â	Â	Â	Â	Â

5. Prepare a factory overhead cost budget for December.

Feathered Friends Inc. Factory Overhead Cost Budget For the Month Ending December 31, 2014
Â	Indirect factory wages	Â
Â	Depreciation of plant and equipment	Â
Â	Power and light	Â
Â	Insurance and property tax	Â
Â	Total	Â

6. Prepare a cost of goods sold budget for December. Work in process at the beginning of December is estimated to be $29,000, and work in process at the end of December is estimated to be $35,400.

Feathered Friends Inc. Cost of Goods Sold Budget For the Month Ending December 31, 2014
SelectDirect materials inventory, December 1, 2014Direct materials inventory, December 31, 2014Direct materials purchasesFactory OverheadFinished goods inventory, December 1, 2014Finished goods inventory, December 31, 2014Item 51	Â	Â	Â
SelectDirect materials inventory, December 1, 2014Direct materials inventory, December 31, 2014Direct materials purchasesFactory OverheadWork in process inventory, December 1, 2014Work in process inventory, December 31, 2014Item 53	Â	Â	Â
Direct materials:	Â	Â	Â
SelectDirect materials inventory, December 1, 2014Direct materials inventory, December 31, 2014Finished goods inventory, December 1, 2014Finished goods inventory, December 31, 2014Work in process inventory, December 1, 2014Work in process inventory, December 31, 2014Item 55	Â	Â	Â
SelectDirect laborDirect materials purchasesFactory overheadFinished goods inventory, December 31, 2014Work in process inventory, December 1, 2014Work in process inventory, December 31, 2014Item 57	Â	Â	Â
Cost of direct materials available for use	Â	Â	Â
SelectLess: Direct materials inventory, December 1, 2014Less: Direct materials inventory, December 31, 2014Less: Finished goods inventory, December 1, 2014Less: Finished goods inventory, December 31, 2014Less: Work in process inventory, December 1, 2014Less: Work in process inventory, December 31, 2014Item 60	Â	Â	Â
Cost of direct materials placed in production	Â	Â	Â
SelectDirect laborDirect materials purchasesFinished goods inventory, December 1, 2014Finished goods inventory, December 31, 2014Work in process inventory, December 1, 2014Work in process inventory, December 31, 2014Item 63	Â	Â	Â
SelectDirect materials purchasesFactory overheadFinished goods inventory, December 1, 2014Finished goods inventory, December 31, 2014Work in process inventory, December 1, 2014Work in process inventory, December 31, 2014Item 65	Â	Â	Â
Total manufacturing costs	Â	Â	Â
Total work in process during the period	Â	Â	Â
SelectLess: Direct materials inventory, December 1, 2014Less: Direct materials inventory, December 31, 2014Less: Finished goods inventory, December 1, 2014Less: Finished goods inventory, December 31, 2014Less: Work in process inventory, December 1, 2014Less: Work in process inventory, December 31, 2014Item 69	Â	Â	Â
Cost of goods manufactured	Â	Â	Â
Cost of finished goods available for sale	Â	Â	Â
SelectLess: Direct materials inventory, December 1, 2014Less: Direct materials inventory, December 31, 2014Less: Finished goods inventory, December 1, 2014Less: Finished goods inventory, December 31, 2014Less: Work in process inventory, December 1, 2014Less: Work in process inventory, December 31, 2014Item 73	Â	Â	Â
Cost of goods sold	Â	Â	Â

7. Prepare a selling and administrative expenses budget for December.

Feathered Friends Inc. Selling and Administrative Expenses Budget For the Month Ending December 31, 2014
Selling expenses:
Â	Sales salaries expense	Â	Â
Â	Advertising expense	Â	Â
Â	Telephone expenseAc€??selling	Â	Â
Â	Travel expenseAc€??selling	Â	Â
Â	Total selling expenses	Â	Â
Administrative expenses:
Â	Office salaries expense	Â	Â
Â	Depreciation expenseAc€??office equipment	Â	Â
Â	Telephone expenseAc€??administrative	Â	Â
Â	Office supplies expense	Â	Â
Â	Miscellaneous administrative expense	Â	Â
Â	Total administrative expenses	Â	Â
Total operating expenses		Â	Â

8. Prepare a budgeted income statement for December.

Feathered Friends Inc. Budgeted Income Statement For the Month Ending December 31, 2014
SelectGross profitIncome before income taxInterest expenseInterest revenueRevenue from salesItem 88		Â	Â
SelectAdministrative expensesCost of goods soldIncome tax expenseInterest expenseSelling expensesItem 90		Â	Â
SelectGross profitInterest revenueNet incomeNet lossRevenue from salesItem 92		Â	Â
Operating expenses:		Â	Â
Â	SelectCost of goods soldIncome tax expenseInterest expenseNet lossSelling expensesItem 94	Â	Â
Â	SelectAdministrative expensesGross profitIncome tax expenseInterest expenseInterest revenueItem 96	Â	Â
Â	Total operating expenses	Â	Â
SelectIncome from operationsLoss from operationsItem 99		Â	Â
Other income:		Â	Â
Â	SelectGross profitInterest revenueInterest expenseNet incomeRevenue from salesItem 101	Â	Â
Other expenses:		Â	Â
Â	SelectCost of goods soldIncome tax expenseInterest expenseNet lossSelling expensesItem 103	Â	Â
SelectIncome before income taxLoss before income taxItem 106		Â	Â
SelectCost of goods soldIncome tax expense (30% rate)Interest expenseItem 108		Â	Â
SelectGross profitNet lossNet incomeItem 110		Â	Â

Hide Feedback

Partially Correct

Check My Work Feedback

The direct materials cost budget, the direct labor cost budget, and the factory overhead budget each use the level of production from the production budget to estimate costs.

The cost of goods sold budget combines the budgeted costs from the direct labor, direct materials, and factory overhead budgets with estimated beginning and ending inventory to estimate a total cost of goods sold.

Estimated sales from the sales budget, estimated cost of goods sold from the cost of goods sold budget, and estimated selling and administrative expenses from the selling and administrative expense budget are used to prepare a budgeted income statement.

Learning Objective 4.