Budgets

1. Dillard Company has calculated its annual total fixed costs to be
$50,000. Production for recent years has averaged 40,000 units with
total variable costs of $80,000. Based on the foregoing data, complete
the table below. Assume all activity levels are within the relevant
range.

Activity Level Total Fixed

Costs Unit Fixed

Cost Total Variable

Costs Unit Variable

Cost

20,000





30,000





40,000





55,000





80,000







2. The sales budget of Shelby Company for the second quarter of 20X6 is
as follows:

April May June

Sales $96,000 $72,000 $108,000

Sales are 20% cash, 80% credit.

Cost of goods sold is 70% of total sales.

Desired ending inventory for each month is equal to 25% of

cost of goods sold for the following month.

Collections on credit sales are as follows:

50% in the month of sale

30% in the month following sale

15% in the second month following sale

5% uncollectible

April 1 inventory is $16,000.

Expected sales for July are $84,000.

Payments for inventory are 70% in the month following purchase and 30%
two months following purchase.

Prepare the purchases budget for April, May, and June.



3. Hawkins Company provided the following partially completed monthly
flexible budget. Complete the flexible budget.

Flexible Budget

Formula per

Unit

Flexible Budget for Various

Levels of Volume

Units

5,000 6,000 7,000

Sales Revenue $10.00



Variable expense

$15,000

Fixed expenses

$27,000



Total expenses





Operating income



$25,500



4. Scientific Company manufactures glass vials for use in laboratories.
A backflush costing system is used and standard costs for each vial are
as follows:

Direct materials $ .35

Conversion costs 1.20

Total $1.55



During October, Scientific produced and sold 25,000 and 22,000 vials,
respectively. Direct materials costing $9,000 were purchased. Conversion
costs of $27,800 were incurred.

a) Prepare summary journal entries for October.

b) Prepare the journal entry to write off the overallocated or
underallocated conversion costs.

5. Manchester, Inc., is considering acquiring another manufacturing
facility for a cost of $900,000. The required payback period is 4.5
years.

a) What are the lowest annual equal net cash inflows required by
Manchester to achieve a 4.5 year payback?

b) Assume annual net cash inflows are $200,000 for the first two years
and $180,000 for the third and fourth years. What must net cash inflows
be in the fifth year to achieve a 4.5 year payback?