Module 21: Master Budget Example
Developing a Master Budget for a Manufacturing Organization (LO4)
Jacobs Incorporated manufactures a product with a selling price of $50 per unit. Units and
monthly cost data follow:
Jacobs pays all bills in the month incurred. All sales are on account with 50 percent collected the
month of sale and the balance collected the following month. There are no sales discounts or bad
debts.
Jacobs desires to maintain an ending finished goods inventory equal to 20 percent of the
following month's sales and a raw materials inventory equal to 10 percent of the following
month's production. January 1, 2012, inventories are in line with these policies.
Actual unit sales for December and budgeted unit sales for January, February, and March of
2012 are as follows:
Additional information:
 The January 1 beginning cash is projected as $5,000.
 For the purpose of operational budgeting, units in the January 1 inventory of finished
goods are valued at variable manufacturing cost.
 Each unit of finished product requires one unit of raw materials.
 Jacobs intends to pay a cash dividend of $10,000 in January.
Required
a. A production budget for January and February.
b. A purchases budget in units for January.
c. A manufacturing cost budget for January.
d. A cash budget for January.
e. A budgeted contribution income statement for January.
a.
b.
Jacobs Incorporated
Production Budget
For the Months of January and February 2012
January
February
Requirements for current sales
5,000
10,000
Desired ending inventory (20 % following
month’s sales)
2,000
1,600
Total requirements
7,000
11,600
Less beginning inventory (20 % current
month’s sales)
(1,000)
(2,000)
Production requirements
6,000
9,600
Jacobs Incorporated
Purchases Budget
For the Month of January 2012
January
Current requirements (units)
6,000
Desired ending inventory (10 % following month’s
production requirements)
960
Total requirements
6,960
Less beginning inventory (10 % current month’s
requirements)
(600)
Purchases (units)
6,360
Purchases (dollars at $10 each)
c.
March
8,000
February
9,600
$63,600
Jacobs Incorporated
Manufacturing Cost Budget
For the Month of January 2012
Variable costs
Direct materials (6,000 × $10)
Direct labor (6,000 × $10)
Variable manufacturing overhead (6,000 × $5)
Total variable costs
Fixed manufacturing overhead
Total manufacturing overhead
$60,000
60,000
30,000
150,000
30,000
$180,000
d.
Jacobs Incorporated
Cash Budget
For the Month of January 2012
Beginning balance
Receipts:
December sales (6,250 × $50 × 0.50)
January sales (5,000 × $50 × 0.50)
Total cash available
Disbursements:
Purchases
Direct labor
Variable manufacturing overhead
Fixed manufacturing overhead (exclude depreciation)
Variable selling and administrative (5,000 × $5)
Fixed selling and administrative
Dividend
Ending Balance
e.
$
$156,250
125,000
63,600
60,000
30,000
20,000
25,000
20,000
10,000
5,000
281,250
286,250
(228,600)
$ 57,650
Jacobs Incorporated
Budgeted Contribution Income Statement
For the Month of January 2012
Sales (5,000 × $50)
Less variable costs:
Cost of goods sold [5,000 × ($10 + $10 + $5)]
Selling and administrative (5,000 × $5)
Contribution
Less fixed costs
Manufacturing overhead
Selling and administrative
Operating income
$250,000
$125,000
25,000
30,000
20,000
(150,000)
100,000
(50,000)
$ 50,000