# Acc122 Managerial Accounting: P20-7 Ginnie Springs Company has been bottling and selling water

Acc122 Managerial Accounting

P20-7 Preparing a Comprehensive Budget
Ginnie Springs Company has been bottling and selling water since 1940. The company’s current owner would like to know how a new product would affect the company’s net income in the coming year.

Required
Calculate Ginnie Springs’ net income for the new product in the coming year by completing the operating budgets and budgeted income statement that follow. Assume that the selling price will remain constant.
1. Sales budget:
Ginnie Springs Company
Sales Budget
For the Year Ended December 31
Quarter
1 2 3 4 Year
Sales in units 40,000 30,000 50,000 55,000 175,000
Selling price per unit \$1 ? ? ? ?
Total sales \$40,000 ? ? ? ?

2. Production budget:
Ginnie Springs Company
Production Budget
For the Year Ended December 31
Quarter
1 2 3 4 Year
Sales in units 40,000 ? ? ? ?
Plus desired units of ending finished goods inventory* 3,000 ? ? 6,000 6,000
Desired total units 43,000 ? ? ? ?
Less desired units of beginning finished goods inventory 4,000 ? ? ? 4,000
Total production units 39,000 ? ? ? ?
*Desired units of ending finished goods inventory = 10% of next quarters budgeted sales
*Desired units of beginning goods inventory = 10% of current quarter's budgeted sales

3. Direct materials purchases budget:
Ginnie Springs Company
Direct Materials Purchases Budget
For the Year Ended December 31
Quarter
1 2 3 4 Year
Total production units 39,000 32,000 50,500 55,500 ?
Ounces per unit 20 20 20 20 20
Total produciton needs in ounces 780,000 ? ? ? ?
Plus desired ounces of ending direct materials inventory* 128,000 ? ? 240,000 240,000
908,000 ? ? ? ?
Less desired ounces of beginning direct materials inventory* 156,000 ? ? ? 156,000
Total ounces of direct materials to be purchased 752,000 ? ? ? ?
Cost per ounce \$0.01 ? ? ? ?
Total cost of direct materials purchases \$7,520 ? ? ? ?
*Desired ounces of ending direct materials inventory = 20% of next quarters budgeted production needs in ounces
*Desired ounces of beginning direct materials inventory = 20% of next quarter's budgeted production needs in ounces

4. Direct labor budget:
Ginnie Springs Company
Direct Labor Budget
For the Year Ended December 31
Quarter
1 2 3 4 Year
Total production units 39,000 ? ? ? ?
Direct labor hours per unit 0.001 ? ? ? ?
Total direct labor hours 39 ? ? ? ?
Direct labor cost per hour \$8 ? ? ? ?
Total direct labor cost \$312 ? ? ? ?

Ginnie Springs Company
For the Year Ended December 31
Quarter
1 2 3 4 Year
Factory supplies (\$0.01) 390 ? ? ? ?
Employee benefits (\$0.05) 1,950 ? ? ? ?
Inspection (\$0.01) 390 ? ? ? ?
Maintenance and repairs (\$0.02) 780 ? ? ? ?
Utilities (\$0.01) 390 ? ? ? ?
Total variable overhead costs 3,900 ? ? ? ?
Total fixed overhead costs 1,416 ? ? ? ?
Total overhead costs \$5,316 ? ? ? ?
Note: The figures in parentheses are variable costs per unit.

6. Selling and administrative expenses budget:
Ginnie Springs Company
For the Year Ended December 31
Quarter
1 2 3 4 Year
Delivery expenses (\$0.01) 400 ? ? ? ?
Sales commissions (\$0.02) 800 ? ? ? ?
Accounting (\$0.01) 400 ? ? ? ?
Other administrative expenses (\$0.01) 400 ? ? ? ?
Total variable selling and administrative expenses 2,000 ? ? ? ?
Total fixed selling and administrative expenses 5,000 ? ? ? ?
Total selling and administrative expenses \$7,000 ? ? ? ?
Note: The figures in parentheses are variable costs per unit.

7. Cost of goods manufactured budget:
Ginnie Springs Company
Cost of Goods Manufactured Budget
For the Year Ended December 31
Direct materials used:
Direct materials inventory, beginning ?
Purchases ?
Cost of direct materials available for use ?
Less direct materials inventory, ending ?
Cost of direct materials used ?
Direct labor costs ?
Total manufacturing costs ?
Work in process inventory, beginning* ?
Less work in process inventory, ending* ?
Cost of goods manufactured ?
Units produced ?
Manufactured cost per unit ?
*It is the company's policy to have no units in process at the end of the year.

8. Budgeted income statement:
Ginnie Springs Company
Budgeted Income Statement
For the Year Ended December 31
Sales ?
Cost of goods sold:
Finished goods inventory, beginning ?
Cost of goods manufactured ?
Cost of goods available for sale ?
Less finished goods inventory, ending ?
Cost of goods sold ?
Gross margin ?