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                Module 6 – Budget Problem                                                               Country   Cookin’ Inc. begins the budgeting   process for the following year in the 1st quarter of the current year. With the information provided below,   prepare the sales, production and direct materials budgets for the 1st   quarter of next year. Also determine   the budgeted manufacturing cost per unit and prepare the budgeted income   statement for January of next year.                                         Country   Cookin’ Inc. sells the cooker/smokers   they manufacture to various retailers for $130 each. Each cooker/smoker requires 11 ounces of   raw material, which is purchased by Country Cookin’ Inc. for $8.00 per   ounce. To prepare for next month’s   production, Country Cookin’ Inc. likes to maintain an ending stock of raw   material equal to 10% of the production requirements for the current month. The company would also like to maintain an   ending stock of finished cooker/smokers equal to 20% of next month’s   sales.                          Sales are projected to be   6,000 for January, 8,000 for February and 14,000 for March.                                                         Your Company expects to   sell 12,000 cooker/smokers in April and needs 132,000 ounces of direct   materials for production.                                                     15% of sales from   Country Cookin’ Inc. to retailers are cash sales, while the remaining 85% are   sold on account.                                                        Additional budgeted information includes:                                 Month     1st
    Quarter                       Projections For Next Year January February March                       Direct labor  $ 24,000   $ 34,500   $ 51,000   $ 1,09,500                        Manufacturing overhead:                               Variable  $ 28,800   $ 41,400   $ 61,200   $ 1,31,400                        Fixed 1  $ 41,000   $ 41,000   $ 41,000   $ 1,23,000                        Total operating expenses 2  $ 71,000   $ 74,000   $ 95,000   $ 2,40,000                                                        Each cooker/smoker   requires 0.25 of an hour of direct labor at the rate of $15.00 per hour.                                                         Country Cookin’ Inc.   estimated at the beginning of the year that it would produce 307,500   cooker/smokers next year.                                                       Interest expense is   budgeted at zero since the company has no outstanding debt.                                                           Income tax expense is   budgeted at 35% of income before taxes.                                                             Based on the above   information, the accountant has prepared the following budget for the first   quarter of the coming year.                                                   1 Next year’s 1st quarter   sales budget for Country Cookin’ Inc.                                                                                             Country   Cookin’ Inc.                       Sales   Budget                       For the   Quarter Ended March 31                                                         Month 1st
    Quarter                         January February March                       Unit sales  6,000   8,000   14,000   28,000                        Unit selling price $130  $130  $130  $130                        Total sales revenue  $ 7,80,000   $ 10,40,000   $ 18,20,000   $ 36,40,000                                                        Type of Sale                               Cash sales  $ 1,17,000   $ 1,56,000   $ 2,73,000   $ 5,46,000                        Credit sales  6,63,000   8,84,000   15,47,000   30,94,000                        Total sales revenue  $ 7,80,000   $ 10,40,000   $ 18,20,000   $ 36,40,000                                                                                      2 Next year’s 1st quarter   production budget for Country Cookin’ Inc.                                                                                           Country   Cookin’ Inc.                       Production   Budget                       For the   Quarter Ended March 31                                                         Month 1st
    Quarter                         January February March                       Unit sales  6,000   8,000   14,000     28,000                        Plus: Desired ending inventory  1,600   2,800   2,400     6,800                        Total needed  7,600   10,800   16,400     34,800                        Less: Beginning inventory  1,200   1,600   2,800     5,600                        Units to produce  6,400   9,200   13,600     29,200                                                                                      3 Next year’s 1st quarter   direct materials budget for Country   Cookin’.                                                                                           Country   Cookin’ Inc.                       Direct   Materials Budget                       For the   Quarter Ended March 31                                                         Month 1st
    Quarter                         January February March                       Units to be produced  6,400   9,200   13,600   29,200                        x Ounces of direct materials needed per unit  11   11   11   11                        Ounces needed for production  70,400   1,01,200   1,49,600   3,21,200                        Plus: Desired ending inventory of direct materials  7,040   10,120   14,960   32,120                        Total ounces needed  77,440   1,11,320   1,64,560   3,53,320                        Less: Beginning inventory of direct materials  7,744   7,040   10,120   24,904                        Ounces to purchase  69,696   1,04,280   1,54,440   3,28,416                        x Cost per ounce $8.00  $8.00  $8.00  $8.00                        Total cost of direct materials purchases  $ 5,57,568   $ 8,34,240   $ 12,35,520   $ 26,27,328                                                                                      4 Next year’s budgeted   manufacturing cost per unit for Country Cookin’ Inc.                                                                                           Country   Cookin’ Inc.                             Budgeted   Manufacturing Cost per Unit                             January                                                              Direct materials $88.00                              Direct labor 3.75                             Manufacturing overhead:                               Variable 4.50                             Fixed 1.60 hint: you must take into   account total annualized fixed costs in relation to total expected units for   the year                 Cost of manufacturing each widget $97.85                                                                                            5 Next year’s budgeted   income statement for the month ended January 31 for Country Cookin’ Inc.                                                                                       Country   Cookin’ Inc.                             Budgeted   Income Statement                             For the   month ended January 31                                                             Sales Revenue  $ 7,80,000                              Less: Cost of goods sold 5,87,100                             Gross profit 1,92,900                             Less: Operating expenses 71,000                             Operating income $1,21,900                              Less: Interest expense 0                             Less: Income tax expense 42,665                             Net income $79,235