SRI Incorporated Manufactures and Sells Shark Repellent

Essay

SRI Incorporated manufactures and sells shark repellent. Angelica and Vincent, members of the accounting staff, have collected the data below to assist in the development of operating and financial budgets for the next fiscal year:
Expected unit sales 3,000
Price per unit $25
Variable product costs per unit:
Materials $3.50
Labour 5.00
Variable overhead 2.50
Fixed product cost:
Manufacturing overhead $12,200 allocated at $4.00 per unit
Period costs (totals):
Research & development $ 3,000
Marketing 7,000
Administration 10,000
SRI had no beginning work in process or raw materials inventories. Beginning finished goods inventory totalled 250 units at a cost of $15 per unit. SRI's managers want an ending finished goods inventory equal to 10% of unit sales, and an ending raw materials inventory of $1,200.
a)Prepare a revenue budget for expected sales of 3,000 units.
b)Prepare a production budget in units for the sales level of 3,000 units.
c)Prepare a cost of goods sold budget for the sales level of 3,000 units.
d)Prepare a budgeted income statement (pretax)based on an expected sales level of 3,000 units.
e)Angela and Vincent are not sure whether sales will be 2,500, 3,000 or 3,500 next period. They have decided to prepare budgets for each level of sales, in addition to the current budget. Explain why the managers of a company might be interested in budgets prepared for different expected sales levels.