Prepare budgets: direct labor, manufacturing overhead, sales, production, materials
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PROBLEM 9-12 Direct Labor and Manufacturing Overhead Budgets
The Production Department of Harveton Corporation has submitted the
following forecast of units to be produced by quarter for the upcoming fiscal
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.
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
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
a. The Marketing Department has estimated sales as follows for the remainder of the year (in pairs of swim fins):
August , .
6,000 7,000 5,000
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
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.
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
2. Prepare a production budget for each of the months July through
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
Account Receivable 48,000
Building and Equipment (net) 214,100
Accounts Payable $18,300
Capital Stock 190,000
Retained Earlings 75,400
b. Actual sales for March and budgeted sales for April-July are as follows:
b. 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.
c. 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-
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.)
Using the data above, complete the following statements and schedules for the second quarter:
I. Schedule of expected cash collections:
April May Total
Cash sales .................. $14,000
Credit sales .................. 48,000
Total collections .............. $62,000
Inventory purchases budget:
April May Total
BUdgeted cost of goods sold .... $42,000* $51,000
Add desired ending inventory ....
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.
Schedule of cash disbursements for purchases:
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
3. Schedule of cash disbursements for operating expenses:
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:
Cash balance, beginning .......
Add cash collections ........... 62,000
Total cash available ........... 71,000
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)
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.