The Red Midget Company processes and distributes beans. The beans are packed in 1-pound plastic bags and sold to grocery chains for $0.50 each in boxes of 100 bags. Sales in February were 14,000 boxes and the firm anticipates selling 16,000 boxes during March. Typically 80% of the firms customers pay within the month of sale, 18% pay the month after and 2% are never collected.
The firm buys beans from local farmers. The farmers are paid $0.20 per pound, cash. Most of the processing is done automatically. Consequently, most ($80,000) of the firms facotry overhead is depreciation expense.
The firm advertises heavily and will publish $75,000 worth of advertisements in popular magazines during March. This is up frm Ferbuary’s $60,000 for advertisements. The firm pays for 10% of its advertising in the month the advertisments are run and 90% the next month. Following are March’s budgeted Income Statement and Statement of Costs of Goods Manufactured and Sold. All costs and expenses are paid for an incurred unless specifically indicated otherwise above. The firm will begin March with a cash balance of $25,000 and pays a monthly dividend of $15,000 to the owners.
Budgeted Income Statement
Cost of Goods Sold $540,000
Gross Margin $260,000
Administrative Salaries $80,000
Sales Commissions $69,000
Bad debt Expense $16,000
Operating Income $20,000
Budgeted Statement of Cost of Goods Manufactured and Sold
Beginning balance direct materials $20,000
Direct materials purchased $330,000
Materials Available for use $350,000
Ending Balance direct Materials $30,000
Direct materials used $320,000
Labor costs incurred $90,000
Overhead costs $115,000
Cost of goods manufactured $525,000
Beginning finished goods balance $45,000
Goods available for sale $570,000
Ending finished goods balance $30,000
Cost of goods sold $540,000