Q1.

Prepare budgeted income statement based on the details given below: -

Manufacturing Operations Overhead Costs

Variable costs (for 300,000 direct manufacturing labor-hours)

 Supplies ($5 per direct manufacturing labor-hour) - $1,500,000

 Indirect manufacturing labor ($5.60 per direct manufacturing labor-hour) - 1,680,000
 Power (support department costs) ($7 per direct manufacturing labor-hour) - 2,100,000
 Maintenance (support department costs) ($4 per direct manufacturing labor-hour) - 1,200,000
Fixed costs (to support capacity of 300,000 direct manufacturing labor hours)
 Depreciation - 1,020,000
 Supervision -390,000
 Power (support department costs) -630,000
 Maintenance (support department costs)- 480,000

Machine Setup Overhead Costs

Variable costs Variable costs (for 15,000 setup labor-hours (0.2 hours/casual and 0.3 hours/Deluxe))
 Supplies ($26 per setup labor-hour)- $ 390,000
 Indirect manufacturing labor ($56 per setup labor-hour)- 840,000
 Power (support department costs) ($6 per setup labor-hour)- 90,000
Fixed costs (to support capacity of 15,000 setup labor-hours)
 Depreciation- 603,000
 Supervision -1,050,000
 Power (support department costs)- 27,000

Other non-manufacturing expenses: -

Illustration 1.3: Cash budget

Opening cash balance in quarter 1 – 300000

Stylistic wants to maintain a $320,000 minimum cash balance at the end of each quarter. The company
can borrow or repay money at an interest rate of 12% per year. Management does not want to borrow
any more short-term cash than is necessary. By special arrangement with the bank, Stylistic pays interest
at the end of next quarter. Assume, for simplicity, that borrowing takes place at the beginning and
repayment at the end of the quarter under consideration (in multiples of $1,000). Interest is computed
to the nearest dollar.