Prepare budgets: direct labor, manufacturing overhead, sales, production, materials

PROBLEM 9-12 Direct Labor and Manufacturing Overhead Budgets [LOS, L06]



The Production Department of Harveton Corporation has submitted the
following forecast of units to be produced by quarter for the upcoming
fiscal year.



1st Quarter

Units to be produced 16,000



2nd Quarter 15,000



3rd Quarter 14,000



4th Quarter 15,000



Each unit requires 0.80 direct labor-hours and direct labor-hour workers
are paid $11.50 per hour.

In addition, the variable manufacturing overhead rate is $2.50 per
direct labor-hour. The fixed manufacturing overhead is $90,000 per
quarter. The only noncash element of manufacturing overhead is
depreciation, which is $34,000 per quarter.

Required:

1. Prepare the company's direct labor budget for the upcoming fiscal
year, assuming that the direct labor work force is adjusted each quarter
to match the number of hours required to produce the forecasted number
of units produced.

2. Prepare the company's manufacturing overhead budget.



PROBLEM 9-16 Integration of Sales, Production, and Purchases Budgets
[L02, L03,L04]

Crydon, Inc., manufactures an advanced swim fin for scuba divers.
Management is now preparing detailed budgets for the third quarter, July
through September, and has assembled the following information to assist
in the budget preparation:

a. The Marketing Department has estimated sales as follows for the
remainder of the year (in pairs of swim fins):











July .

August , .

September .



6,000 7,000 5,000



October .

November .

December .



4,000 3,000 3,000



The selling price of the swim fins is $50 per pair.

b. All sales are on account. Based on past experience, sales are
expected to be collected in the following pattern:

40% in the month of sale

50% in the month following sale 10% uncollectible

The beginning accounts receivable balance (excluding uncollectible
amounts) on July I will be $130,000.

c. The company maintains finished goods inventories equal to 10% of the
following month's sales. The inventory of finished goods on July 1 will
be 600 pairs.

d. Each pair of swim fins requires 2 pounds of geico compound. To
prevent shortages, the company would like the inventory of geico
compound on hand at the end of each month to be equal to 20% of the
following month's production needs. The inventory of geico compound on
hand on July 1 will be 2,440 pounds.

e. Geico compound costs $2.50 per pound. Cry don pays for 60% of its
purchases in the month of purchase; the remainder is paid for in the
following month. The accounts payable balance for geico compound
purchases will be $11,400 on July 1.

Required:

1. Prepare a sales budget, by month and in total, for the third
quarter. (Show your budget in both pairs of swim fins and dollars.) Also
prepare a schedule of expected cash collections, by month and in total,
for the third quarter.

2. Prepare a production budget for each of the months July through
October.

3. Prepare a materials purchases budget for geico compound, by month
and in total, for the third quarter. Also prepare a schedule of expected
cash payments for geico compound, by month and in total, for the third
quarter.



PROBLEM 9-19 Completing a Master Budget [L02, L04, L07, LOS, L09, L010]



Nordic Company, a merchandising company, prepares its master budget on a
quarterly basis. The following data have been assembled to assist in
preparation of the master budget for the second quarter.

a. As of March 31 (the end of the prior quarter), the company's balance
sheet showed the following account balances:

Cash $9,000

Account Receivable 48,000

Inventory 12,600

Building and Equipment (net) 214,100

Accounts Payable $18,300

Capital Stock 190,000

Retained Earlings 75,400

$283.700 $283,700





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b. Actual sales for March and budgeted sales for April-July are as
follows:



March(actual) $60,000

April 70,000

May 85,000

June 90,000

July 50,000



c. Sales are 20% for cash and 80% on credit. All payments on credit
sales are collected in the month following sale. The accounts receivable
at March 31 are a result of March credit sales.

d. The company's gross profit rate is 40% of sales. (In other words,
cost of goods sold is 60% of sales.)

e. Monthly expenses are budgeted as follows: salaries and wages, $7,500
per month; shipping, 6% of sales; advertising, $6,000 per month; other
expenses, 4% of sales. Depreciation, including depreciation on new
assets acquired during the quarter, will be $6,000 for the quarter.

f. At the end of each month, inventory is to be on hand equal to 30% of
the following month's cost of goods sold.

g. Half of a month's inventory purchases are paid for in the month of
purchase and half in the fol-

lowing month.

h. Equipment purchases during the quarter will be as follows: April, $ I
I ,500; and May, $3,000.

i. Dividends totaling $3,500 will be declared and paid in June.

j. The company must maintain a minimum cash balance of $8,000. An open
line of credit is available at a local bank. Al1 borrowing is done at
the beginning of a month, and an repayments are made at the end of a
month. Borrowings and repayments of principal must be in multiples of
$1,000. Interest is paid only at the time of payment of principal. The
annual interest rate is 12%. (Figure interest on whole months, e.g.,
Y12,2/12.)

Required:

Using the data above, complete the following statements and schedules
for the second quarter:

I. Schedule of expected cash collections:



April May June Total Cash sales .................. $14,000 Credit sales
.................. 48,000 Total collections .............. $62,000 2. a.
Inventory purchases budget: April May June Total BUdgeted cost of goods
sold .... $42,000* $51,000 Add desired ending inventory .... 15,300t
Total needs .................. 57,300 Less beginning inventory .......
12,600 Required purchases ........... $44,700 *$70,000 sales x 60% =
$42,000. t$51 ,000 x 30% = $15,300. b. Schedule of cash disbursements
for purchases:





b.contd.

For March purchases 18,300 18,300



For April purchases 22,350 22,350 44,700



For May purchases



For June purchases





Total cash disbursements

for purchases $40,650





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3. Schedule of cash disbursements for operating expenses: April May
Salaries and wages ........... $7,500 Shipping ....................
4,200 Advertising .................. 6,000 Other expenses ..............
2,800 Total cash disbursements for operating expenses .......... $20,500
4. Cash budget: April May Cash balance, beginning ....... $ 9,000 Add
cash collections ........... 62,000 Total cash available ...........
71,000 Less disbursements: For inventory purchases ...... 40,650 For
operating expenses ...... 20,500 For equipment purchases ..... 11,500
For dividends .............. - Total disbursements ......... '.' 72,650
Excess (deficiency) of cash ..... (1,650) Financing Etc.

June Total

June Total



5. Prepare an income statement for the quarter ending June 30 as shown
in Schedule 9 in the chapter.

6. Prepare a balance sheet as of June 30.