Question

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Iguana, Inc., manufactures bamboo picture frames that sell for $20 each. Each frame requires 4 linear feet of bamboo, which costs $2.00 per foot. Each frame takes approximately 30 minutes to build, and the labor rate averages $13 per hour. Iguana has the following inventory policies:

Ending finished goods inventory should be 40 percent of next month’s sales.

Ending raw materials inventory should be 30 percent of next month’s production.

Expected unit sales (frames) for the upcoming months follow:   

March	365
April	430
May	480
June	580
July	555
August	605

Variable manufacturing overhead is incurred at a rate of $0.30 per unit produced. Annual fixed manufacturing overhead is estimated to be $4,800 ($400 per month) for expected production of 4,000 units for the year. Selling and administrative expenses are estimated at $450 per month plus $0.50 per unit sold.

     Iguana, Inc., had $11,000 cash on hand on April 1. Of its sales, 80 percent is in cash. Of the credit sales, 50 percent is collected during the month of the sale, and 50 percent is collected during the month following the sale.

     Of raw materials purchases, 80 percent is paid for during the month purchased and 20 percent is paid in the following month. Raw materials purchases for March 1 totaled $3,400. All other operating costs are paid during the month incurred. Monthly fixed manufacturing overhead includes $330 in depreciation. During April, Iguana plans to pay $2,000 for a piece of equipment.

Required:
Compute the following for Iguana, Inc., for the second quarter (April, May, and June).     

		April	May	June	2nd Quarter Total
A	Sales Budget Revenue
B	Budgeted Production in Units
C	Budgeted Cost of Raw Material Purchases
D	Budgeted Direct Labor Cost
E	Budgeted Manufacturing Overhead
F	Budgeted Cost of Goods Sold
G	Total Budgeted Selling and Adm. Expenses

Required:
Complete Iguana's budgeted income statement for quarter 2. (Round cost per unit in intermediate calculations and final answers to 2 decimal places.)

IGUANA, INC.
Budgeted Income Statement
For the Quarter Ending June
	April	May	June	2nd Quarter Total
Budgeted Gross Margin
Budgeted Net Operating Income

Answer 1

1.

		April	May	June	2nd Quarter Total
A	Sales Budget Revenue	$ 8,600	$ 9,600	$ 11,600	$ 29,800
B	Budgeted Production in Units	450	520	570	1,540 units
C.	Budgeted Cost of Raw Materials Purchases	$ 3,768	$ 4,280	$ 4,572	$ 12,620
D.	Budgeted Direct Labor Cost	$ 2,925	$ 3,380	$ 3,705	$ 10,010
E.	Budgeted Manufacturing Overhead	$ 645	$ 720	$ 870	$ 2,235
F.	Budgeted Cost of Goods Sold	$ 6,880	$ 7,680	$ 9,280	$ 23,840
G.	Total Budgeted Selling and Administrative Expenses	$ 665	$ 690	$ 740	$ 2,095

2. Iguana Inc.

Budgeted Income Statement

For the quarter ending June

	April	May	June	Total
	$	$	$	$
Budgeted Sales Revenue	8,600	9,600	11,600	29,800
Cost of Goods Sold	6,880	7,680	9,280	23,840
Budgeted Gross Margin	1,720	1,920	2,320	5,960
Budgeted Selling and Administrative Expenses	665	690	740	2,095
Budgeted Net Operating Income	1,055	1,230	1,580	3,865