DATE: July 16, 2013
TO: R. Kiani
FROM: Jingyi Yu, Xiao Tong, Eleni Makri (Group 6)
RE: Preparing Budget schedules for Spring Manufacturing Company
Per your request, we have prepared the budget schedules for 2013 which includes the sales budget, production budget, direct matereial purcases budget, direct labor budget, factory overhaed budget, oost of goods sold an ending finished goods inventory budget, selling and administrative expenses budget, and budgeted income satement.
If you need any additional information, please feel free to conduct us.
Jingyi Yu: Xiao Tong: Eleni Makri:
The purpose of this report was to prepare Spring Manufacturing Company’s budget schedules for 2013.
Spring Manufacturing Company Budgeting Schedules for 2013
This report illustrates all schedules and statements for 2013, including sales budget, production budget, direct materials purchase budget (units and dollars), and direct labor budget. It also demonstrates factory overhead budget, cost of goods sold and ending finished goods inventory budgets, selling and administrative expense budget, and budgeted income statements. All schedules are prepared and included in the appendixes.
The sales budget is usually the first budget the company prepares for the master budget. It shows the sales in units and dollars. The expected gross sales revenue of C12 and D57 are $1.8 million and $1.98 million respectively.
The production budget shows the planned production for a given period. The key to find the budgeted production in units is using the formula (in units): Budgeted production = Budgeted sales + Desired ending inventory – Beginning inventory. As a result, the production budget of Spring Manufacturing Company is very straight by applying this formula. The budgeted productions in units are 11,900 for C12 and 9,050 for D57.
Direct Materials Purchase Budget
Based on the planned production, the direct materials purchase budget is developed to show the amount of raw materials or component parts to be purchased for producing different items. From the production budget, we know how many units we need for C12 and D57. Consequently, we need to convert the units into pounds to see how many materials will be needed for these two components. To calculate the amount of materials to be purchased, we apply the following equation: Total amount of direct materials needed I production + Required direct materials inventory at the end of the month – Direct materials on hand at the beginning of the month = Direct materials to be purchased during the month. For RM1, as it is used for both C12 and D57, we grouped these two components together. Each unit of C12 needs 10 pounds of RM1 and each unit of D57 needs 8 pounds of RM1. We multiply the number of units by pounds per unit of these two different components and we get the pounds totaled 191.400 needed for production of RM1. As the beginning and ending inventory of direct materials are given, the total direct materials purchases for RM1 turn out to be 192,400. After applying the cost per pound of $2.00, the total cost of direct materials budgeted purchases is $384,800. The costs of direct materials purchases for RM2 and RM3 are $89,250 and $16,675 respectively.
Direct Labor Budget
The direct labor budget is developed based on the labor time used in the production. From schedule 2, production budget, we know the budgeted production in units. The direct labor time per unit and the cost per hour for two components are given, we can easily get the total direct labor costs for C12 and D57 of $595,000 and 678,750 respectively and $1,273,750 in total.
Factory Overhead Budget
After preparing the production budget, the direct material purchase budget, and the direct labor budget, we...
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