Problem 10-47: Comprehensive Profit Plan Background Spring Manufacturing Company

Problem 10-47: Comprehensive Profit Plan

Background

Spring Manufacturing Company makes two components identified as C12 and D57. Selected budgetary data for 2013 follow:

Finished Components

C12 D57

Requirements for each finished component:

RM1 10 pounds 8 pounds

RM2 0 4 pounds

RM3 2 pounds 1 pound

Direct labor 2 hours 3 hours

Product information:

Sales price $150 $220

Sales units 12,000 9,000

Estimated beginning inventory (units) 400 150

Desired ending inventory (units) 300 200

Direct Materials Information

RM1 RM2 RM3

Cost per pound $2.00 $2.50 $0.50

Estimated beginning inventory in pounds 3,000 1,500 1,000

Desired ending inventory in pounds 4,000 1,000 1,500

The firm expects the average wage rate to be $25 per hour in 2013. Spring Manufacturing uses DLHs to apply overhead. Each

year the firm determines the overhead application rate for the year based on the budgeted ouput for the year. The company

maintains negligible WIP inventory and expects the cost per unit for both beginning and ending finished products inventories to

be identical.

Factory Overhead Information

Indirect materials-variable $10,000

Miscellaneous supplies and tools-variable $5,000

Indirect labor-variable $40,000

Supervision-fixed $120,000

Payroll taxes and fringe benefits-variable $250,000

Maintenance costs-fixed $20,000

Maintenance costs-variable $10,080

Depreciation-fixed $71,330

Heat, light, and power-fixed $43,420

Heat, light, and power-variable $11,000

Total $580,830

Selling and Administrative Expense Information

Advertising $60,000

Sales salaries $200,000

Travel and entertainment $60,000

Depreciation-warehouse $5,000

Office salaries $60,000

Executive salaries $250,000

Supplies $4,000

Depreciation-office $6,000

Total $645,000

Income Tax Rate 40%

Requirements

Prepare the following schedules or statements for 2013:

1. Sales budget

2. Production budget

3. Direct materials purchases budget (units and dollars)

4. Direct labor budget

5. Factory overhead budget

6. Cost of goods sold and ending inventory budgets

7. Selling and administrative expense budget

8. Budgeted Income Statement