Arrowdale Manufacturing
Budget Information
Arrowdale Manufacturing is a family owned business that has been in operation for over 50 years. Although the actual manufacturing process has greatly changed due to huge advances in technology, the chief product produced by Arrowdale remains the same ─ a high-quality stainless steel thermos bottle that is popular with construction workers and others needing a product with a high level of durability. The company is considering opening a second shift and hiring a number of new employees. Before this decision is finalized, the board of directors would like to have a sense of what they can expect in terms of sales for the upcoming year. In preparation for the next board meeting, you, as the group of managers over sales, have been asked to prepare an annual sales budget, a production budget, a direct materials budget, a direct labor budget, and a budgeted income statement for next year. Your group must be able to answer questions that board members might have concerning your calculations and how they impact the decision making. Your assistants have provided the following data:
| Sales budget | |
| Anticipated volume in units | 600,000 |
| Unit selling price | $22.50 |
| Production budget | |
| Desired ending inventory | 40,000 |
| Beginning inventory | 35,000 |
| Direct materials budget | |
| Direct materials per unit (pounds) | 2.5 |
| Desired ending direct materials in pounds | 45,000 |
| Beginning direct materials in pounds | 50,000 |
| Cost per pound (unit price) | $3.50 |
| Direct labor budget | |
| Direct labor hours per unit | 0.5 |
| Direct labor cost per hour | $12.00 |
| Budgeted income statement | |
| Total Cost of Goods Manufactured per unit | $18.00 |
| Selling expenses | 660,000 |
| Administrative expenses | 540,000 |
| Interest expense | 5,000 |
| Income tax rate | 30% |
| Balance sheet – current year | |
| Finished goods inventory | 25,000 |
| Budgeted balance sheet – next year | |
| Finished goods inventory | 20,000 |