The Happy Fun Ball Company

Happy Fun Ball is a large bouncy ball for children and adults who just
want to have a good time. The company began operations 3 years
ago and is achieving consistent sales growth. Operations and
administration occupy one facility in Atlanta. The company follows a
variable costing methodology for their internal reporting.

Demand
The company expects demand of 7500 units in Q1, 7500 units in Q2,
9000 units in Q3, and 20,000 units in Q4.

Inventory Levels
The company desires to have enough inventory at the end of the
quarter to be able to meet demand early in the following quarter, as
well as to maintain a safety margin to manage supply interruption.
These levels have been included in the Production Schedule. The
company uses FIFO.

Standards:
Sales Price $ 70.00 per unit
Standard quantity of material (rubber) 5 lbs per unit
Standard price of material (rubber) $ 3.00 per pound of rubber
Standard quantity of material (dye) 5 fluid ounces per unit
Standard price of material (dye) $ 1.50 per fluid ounce
Standard quantity of labor 1.00 hours per unit
Standard labor rate $ 14.00 per labor hour
Variable overhead applied per direct labor dollar. $ 0.40 per DL$
Variable marketing costs per unit $ 1.75 per unit
SALES BUDGET

Quarter 1 Quarter 2 Quarter 3 Quarter 4 Sales Price Total

Happy Fun Ball
Sales in units 7,500 7,500 9,000 20,000 44,000
Sales price per unit $ 70 $ 70 $ 70 $ 70 $ 70.00
Total Revenue 525,000 525,000 630,000 1,400,000 $ 3,080,000
PRODUCTION SCHEDULE

Quarter 1 Quarter 2 Quarter 3 Quarter 4 Total

Happy Fun Ball
Sales in units 7,500 7,500 9,000 20,000 44,000
+ Desired ending inventory 1,125 1,800 4,000 2,500
= Total requirements 8,625 9,300 13,000 22,500
- Beginning inventory 1,125 1,125 1,800 4,000
= Units to be produced 7,500 8,175 11,200 18,500 45,375
MATERIALS BUDGET
Standards
Quarter 1 Quarter 2 Quarter 3 Quarter 4 Qty & Rate Total
Rubber
Units to be produced 7,500 8,175 11,200 18,500
Standard quantity per unit 5 5 5 5 5
Standard price of material $ 3.00 $ 3.00 $ 3.00 $ 3.00 $ 3.00
Total Materials Cost $ 112,500 $ 122,625 $ 168,000 $ 277,500 $ 680,625

Dyes
Units to be produced 7,500 8,175 11,200 18,500
Standard quantity per unit 5 5 5 5
Standard price of material $ 1.50 $ 1.50 $ 1.50 $ 1.50 $ 1.50
Total Materials Cost $ 56,250 $ 61,313 $ 84,000 $ 138,750 $ 340,313

Cost of all materials to be used $ 1,020,938

LABOR BUDGET
Standards
Quarter 1 Quarter 2 Quarter 3 Quarter 4 Qty & Rate Total

Happy Fun Ball

Units to be produced 7,500 8,175 11,200 18,500
Standard quantity of labor per unit 1.00 1.00 1.00 1.00 1.00
Standard labor rate per hour $ 14.00 $ 14.00 $ 14.00 $ 14.00 $ 14.00
Direct Labor cost $ 105,000 $ 114,450 $ 156,800 $ 259,000 $ 635,250
MANUFACTURING OVERHEAD BUDGET
Standard
Quarter 1 Quarter 2 Quarter 3 Quarter 4 Rate Total
Variable manufacturing overhead
Budgeted direct labor cost $ 105,000 $ 114,450 $ 156,800 $ 259,000
Variable overhead rate per DL$ $ 0.40 $ 0.40 $ 0.40 $ 0.40 $ 0.40
Total Variable overhead $ 42,000 $ 45,780 $ 62,720 $ 103,600 $ 254,100

Fixed manufacturing overhead

Cash expenses $ 75,000 $ 75,000 $ 75,000 $ 75,000 $ 300,000
Annual equipment depreciation 20,000
Total fixed overhead $ 320,000
TOTAL OVERHEAD COSTS $ 574,100
COST OF GOODS MANUFACTURED BUDGET

From Schedule Happy Fun Ball

Rubber Materials 680,625
Dyes Materials 340,313
Direct manufacturing labor Labor 635,250
Variable manufacturing overhead MOH 254,100
Variable cost of goods manufactured $ 1,910,288
INVENTORY SCHEDULE

Beginning Finished Goods Inventory

Happy Fun Ball
Variable cost per unit $ 33.00
Number of units 1125
Total Variable cost, BI $ 37,125

Ending Finished Goods Inventory

(per unit) Happy Fun Ball
Rubber 15.00
Dyes 7.50
Direct Labor 14.00
Variable Manuf. OH 5.60
Total per unit $ 42.10

Number of units 2500

Total Variable Cost, EI $ 105,250
COST OF GOODS SOLD BUDGET

Tab Ref. Happy Fun Ball

Beginning finished goods inventory Inventory 37,125
+ Cost of goods manufactured COGM
=Cost of goods available for sale
-Ending finished goods inventory Inventory
=Variable Cost of goods sold
MARKETING & ADMINISTRATIVE BUDGET

Variable Marketing & Administrative costs Standard

Quarter 1 Quarter 2 Quarter 3 Quarter 4 Rate Total
Happy Fun Ball
Sales in units 7,500 7,500 9,000 20,000
Variable costs per unit $ 1.75 $ 1.75 $ 1.75 $ 1.75 $ 1.75
Variable costs 13,125 13,125 15,750 35,000 $ 77,000

Fixed Marketing & Administrative costs

Cash Expenses 50,000 50,000 50,000 50,000 $ 200,000
Fixed R&D expenses 40,000 40,000 40,000 40,000 160,000
Annual depreciation 80,000
$ 440,000

Total marketing and administrative costs $ 517,000

PRO FORMA INCOME STATEMENT

Tab Ref. Happy Fun Ball

Budgeted sales in units
Revenue Sales Budget
Variable costs:
Manufacturing COGS
Marketing & Administration Marketing
Contribution Margin #DIV/0! cm ratio
Fixed costs:
Manufacturing MOH
Marketing & Administration Marketing
Profit before Taxes
Taxes (at 30% of pre-tax profit)
Profit after Taxes #DIV/0! net profit margin