Question

Krause Industries’ balance sheet at December 31, 2019, is presented below.

KRAUSE INDUSTRIES Balance Sheet December 31, 2019
Assets
Current Assets
Cash					$7,500
Accounts receivable					73,500
Finished goods inventory (1,500 units)					26,840
Total current assets					107,840
Property, Plant, and Equipment
Equipment			$40,780
Less: Accumulated depreciation			10,490		30,290
Total assets					$138,130
Liabilities and Stockholders' Equity
Liabilities
Notes payable					$25,730
Accounts payable					47,150
Total liabilities					72,880
Stockholders' Equity
Common stock			$39,110
Retained earnings			26,140
Total stockholders' equity					65,250
Total liabilities and stockholders' equity					$138,130

Budgeted data for the year 2020 include the following.

		2020
		Quarter 4		Total
Sales budget (8,000 units at $32)		$76,800		$256,000
Direct materials used		11,860		62,500
Direct labor		12,500		50,900
Manufacturing overhead applied		10,000		48,600
Selling and administrative expenses		17,420		75,000

To meet sales requirements and to have 2,500 units of finished goods on hand at December 31, 2020, the production budget shows 9,000 required units of output. The total unit cost of production is expected to be $18. Krause uses the first-in, first-out (FIFO) inventory costing method. Interest expense is expected to be $3,500 for the year. Income taxes are expected to be 40% of income before income taxes. In 2020, the company expects to declare and pay an $10,720 cash dividend.

The company’s cash budget shows an expected cash balance of $5,880 at December 31, 2020. All sales and purchases are on account. It is expected that 60% of quarterly sales are collected in cash within the quarter and the remainder is collected in the following quarter. Direct materials purchased from suppliers are paid 50% in the quarter incurred and the remainder in the following quarter. Purchases in the fourth quarter were the same as the materials used. In 2020, the company expects to purchase additional equipment costing $9,680. $12,274 of depreciation expense on equipment is included in the budget data and split equally between manufacturing overhead and selling and administrative expenses. Krause expects to pay $10,700 on the outstanding notes payable balance plus all interest due and payable to December 31 (included in interest expense $3,500, above). Accounts payable at December 31, 2020, includes amounts due suppliers (see above) plus other accounts payable relating to manufacturing overhead of $7,710. Unpaid income taxes at December 31 will be $5,900.

(a)

Prepare a budgeted statement of cost of goods sold.

Answer 1

Answer : Preparation of a budgeted statement of cost of goods sold :

Krause Industries
Budgeted Cost Of Goods Sold
For Year Ending December31,2020
Finished Goods Inventory, 1/1/20		26,840
Add : Cost Of Goods Manufactured
Direct Materials Used	62,500
Direct Labour	50,900
Manufacturing Overhead Applied	48,600
		162,000
Cost of goods available for sale		188,840
Less : Finished goods inventory, 12/31/20 (2500 units x $18)		45,000
Cost of Goods sold		143,840