The Red Midget Company processes and distributes beans. The beans are packed in 1-pound plastic bags and

Question:

The Red Midget Company processes and distributes beans. The beans are packed in 1-pound plastic bags and sold to grocery chains for $0.50 each in boxes of 100 bags. Sales in February were 14,000 boxes, and the firm anticipates selling 16,000 boxes during March. Typically, 80% of the firm’s customers pay within the month of sale, 18% of the customers pay the month after, and 2% of sales are never collected. The firm buys beans from local farmers. The farmers are paid $0.20 per pound, cash. Most of the processing is done automatically. Consequently, most ($80,000) of the firm’s factory overhead is depreciation expense.

The firm advertises heavily and will publish $75,000 worth of advertisements in popular magazines during March. This is up from February’s $60,000 for advertisements. The firm pays for 10% of its advertising in the month the advertisements are run and 90% in the next month.

Following are March’s budgeted Income Statement and Statement of Cost of Goods Manufactured and Sold. All costs and expenses are paid for as incurred unless specifically indicated otherwise above. The firm will begin March with a cash balance of $25,000 and pays a monthly dividend of $15,000 to the owners.

BUDGETED INCOME STATEMENT

Sales …………………………. $800,000

Cost of goods sold …………… 540,000

Gross margin ………………… 260,000

Administrative salaries ……… 80,000

Sales commissions …………… 69,000

Advertising ………………….. 75,000

Bad debt expense ……………. 16,000

Operating Income ……………. $ 20,000

BUDGETED STATEMENT OF COST OF GOODS

MANUFACTURED AND SOLD

Beginning balance direct materials ………….. $ 20,000

Direct materials purchases …………………… 330,000

Materials available for use …………………… 350,000

Ending balance direct materials ……………… 30,000

Direct materials used ………………………… 320,000

Labor costs incurred …………………………. 90,000

Overhead costs ………………………………. 115,000

Cost of good manufactured ………………….. 525,000

Beginning finished goods balance …………… 45,000

Goods available for sale ……………………… 570,000

Ending finished goods balance ……………….. 30,000

Cost of good sold ……………………………… $540,000

Dividend
A dividend is a distribution of a portion of company’s earnings, decided and managed by the company’s board of directors, and paid to the shareholders. Dividends are given on the shares. It is a token reward paid to the shareholders for their...