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 2016: Estimated sales for December: Bird house 3,200 units at $50 per unit Bird feeder 3,000 units at $70 per unit Estimated inventories at December 1: Direct materials: Wood 200 ft. Plastic 240 lbs. Finished products: Bird house 320 units at $27 per unit Bird feeder 270 units at $40 per unit Desired inventories at December 31: Direct materials: Wood 220 ft. Plastic 200 lbs. Finished products: Bird house 290 units at $27 per unit Bird feeder 250 units at $41 per unit Direct materials used in production: In manufacture of Bird House: Wood 0.80 ft. per unit of product Plastic 0.50 lb. per unit of product In manufacture of Bird Feeder: Wood 1.20 ft. per unit of product Plastic 0.75 lb. per unit of product Anticipated cost of purchases and beginning and ending inventory of direct materials: Wood $7.00 per ft. Plastic $1.00 per lb. Direct labor requirements: Bird House: Fabrication Department 0.20 hr. at $16 per hr. Assembly Department 0.30 hr. at $12 per hr. Bird Feeder: Fabrication Department 0.40 hr. at $16 per hr. Assembly Department 0.35 hr. at $12 per hr. Estimated factory overhead costs for December: Indirect factory wages $75,000 Depreciation of plant and equipment 23,000 Power and light $6,000 Insurance and property tax 5,000 Estimated operating expenses for December: Sales salaries expense $70,000 Advertising expense 18,000 Office salaries expense 21,000 Depreciation expense—office equipment 600 Telephone expense—selling 550 Telephone expense—administrative 250 Travel expense—selling 4,000 Office supplies expense 200 Miscellaneous administrative expense 400 Estimated other income and expense for December: Interest revenue $200 Interest expense 122 Estimated tax rate: 30% Required: 1. Prepare a sales budget for December. Feathered Friends Inc. Sales Budget For the Month Ending December 31, 2016 Unit Sales Volume Unit Selling Price Total Sales Bird house 3,200 50 160,000 Bird feeder 3,000 70 210,000 Total revenue from sales 370,000 2. Prepare a production budget for December. Feathered Friends Inc. Production Budget For the Month Ending December 31, 2016 Units Bird House Bird Feeder Expected units to be sold 3,200 3,000 Plus desired inventory, December 31, 2016 290 250 Total 3,490 3,250 Less estimated inventory, December 1, 2016 320 270 Total units to be produced 3,170 2,980 3. Prepare a direct materials purchases budget for December. Feathered Friends Inc. Direct Materials Purchases Budget For the Month Ending December 31, 2016 Wood Plastic Total Required units for production: Bird house 2,536 1,585 Bird feeder 3,576 2,235 Plus desired units of inventory, December 31, 2016 220 200 Total 6,332 4,020 Less estimated units of inventory, December 1, 2016 200 240 Total units to be purchased 6,132 3,780 Unit price 7 1 Total direct materials to be purchased 42,924 3,780 46,704 4. Prepare a direct labor cost budget for December. Feathered Friends Inc. Direct Labor Cost Budget For the Month Ending December 31, 2016 Fabrication Department Assembly Department Total Hours required for production: Bird house 634 951 Bird feeder 1,192 1,043 Total 1,826 1,994 Hourly rate 16 12 Total direct labor cost 29,216 23,928 53,144 5. Prepare a factory overhead cost budget for December. Feathered Friends Inc. Factory Overhead Cost Budget For the Month Ending December 31, 2016 Indirect factory wages 75,000 Depreciation of plant and equipment 23,000 Power and light 6,000 Insurance and property tax 5,000 Total 109,000 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, 2016 Finished goods inventory, December 1, 2016 Work in process inventory, December 1, 2016 Direct materials: Direct materials inventory, December 1, 2016 Direct materials purchases Cost of direct materials available for use Less: Direct materials inventory, December 31, 2016 Cost of direct materials placed in production Direct labor Factory overhead Total manufacturing costs Total work in process during the period Less: Work in process inventory, December 31, 2016 Cost of goods manufactured Cost of finished goods available for sale Less: Finished goods inventory, December 31, 2016 Cost of goods sold 7. Prepare a selling and administrative expenses budget for December. Feathered Friends Inc. Selling and Administrative Expenses Budget For the Month Ending December 31, 2016 Selling expenses: Sales salaries expense Advertising expense Telephone expense—selling Travel expense—selling Total selling expenses Administrative expenses: Office salaries expense Depreciation expense—office equipment Telephone expense—administrative Office supplies expense Miscellaneous administrative expense Total administrative expenses Total operating expenses 8. Prepare a budgeted income statement for December. Feathered Friends Inc. Budgeted Income Statement For the Month Ending December 31, 2016 Revenue from sales Cost of goods sold Gross profit Operating expenses: Selling expenses Administrative expenses Total operating expenses Income from operations Other income: Interest revenue Other expenses: Interest expense Income before income tax Income tax expense (30% rate) Net income 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