Question

Prepare the following budgets:
1. Beginning balance sheet
2. Sales budget
3. Production budget in units
4. Materials acquisition budget
5. Direct labor budget

Camarillo Manufacturing Company was established to manufacture two types of pipe fittings, XL1 and XL2. The manufacturing process involves molding the fittings and then smoothing them. The firm was initially capitalized with $500,000 as an S Corporation. The firm purchased equipment for $450,000 with cash of $125,000 and a note payable of $325,000. It also acquired furniture for $120,000 with cash of $60,000 and a note payable of $60,000. Management is now preparing the master budget for the first year of operations.

Sales Budget: Management expects to meet established market prices for its pipe fittings of $40 for XL1 and $32 for XL2. Sales representatives have estimated that total sales of XL1 fittings will be 4,500 units and sales of XL2 will be 12,000 units. Production Budget: Management has expressed a desire to have 1,000 units of XL1 and 3,000 units of XL2 in ending inventory. Material Acquisition Budget:The firm’s industrial engineer has prepared standards that call for 0.6 pounds of material per XL1 casting and 0.4 pounds per XL2 casting. Both products require the same material. Management also desires to end the period with 2,000 pounds of material in raw materials inventory. The purchasing agent anticipates that the metal can be purchased at an average cost of $4 per pound. Direct Labor Budget:The standards for a unit of XL1 call for 0.5 hours of direct labor in Molding and 0.3 hours in Smoothing. The standards for a unit of XL2 call for 0.4 hours in Molding and 0.2 hours in Smoothing. Management’s anticipated average cost for labor is $15 per hour.

Answer 1

1. Beginning balance sheet

Assets
Cash	315000
Equipment	450000
Furniture	120000
Total assets	885000
Liabilities and Stockholders' Equity
Notes payable	385000
Stockholders' equity	500000
Total liabilities and stockholders' equity	885000

2.

Sales Budget
	XL1	XL2
Budgeted sales units	4500	12000
Sales price per unit $	$          40	$          32
Budgeted sales $	180000	384000

3.

Production Budget
	XL1	XL2
Budgeted sales units	4500	12000
Add desired ending inventory	1000	3000
Budgeted production in units	5500	15000

4.

Materials Acquisition Budget
	XL1	XL2	Total
Budgeted production in units	5500	15000
Raw Material required per unit (pounds)	0.6	0.4
Raw Material required for production (pounds)	3300	6000	9300
Add desired ending inventory of raw materials			2000
Total needs			11300
Material price per pound $			$             4
Budgeted materials purchases $			45200

5.

Direct Labor Budget
	XL1	XL2	Total
Budgeted production in units	5500	15000
Direct labor hours required per unit:
Molding	0.5	0.4
Smoothing	0.3	0.2
Total direct labor hours required per unit	0.8	0.6
Total direct labor hours required	4400	9000	13400
Direct labor rate per hour $	15	15	15
Budgeted direct labor cost $	66000	135000	201000