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Forecast revenue, production, direct materials budgets

Exercise 9-3
Crede and Rensing, CPAs, are preparing their service revenue (sales) budget for the coming year (2011). The practice is divided into three departments: auditing, tax, and consulting. Billable hours for each department, by quarter, are provided below.

Department Quarter 1 Quarter 2 Quarter 3 Quarter 4
Auditing 2,200 1,600 2,000 2,400
Tax 3,000 2,400 2,000 2,500
Consulting 1,500 1,500 1,500 1,500

Average hourly billing rates are: auditing $80, tax $90, and consulting $100.

Prepare the service revenue (sales) budget for 2011 by listing the departments and showing for each quarter and the year in total, billable hours, billable rate, and total revenue.

Exercise 9-4
Pletcher Company produces and sell automobile batteries, the heavy-duty HD-24. The 2011 sales forecast is as follows.

Quarter HD-240
1 5,000
2 7,000
3 8,000
4 10,000

The January 1, 2011, inventory of DH-240is 2,500 units. Management desires an ending inventory each quarter equal to 50% of the next quarter's sales. Sales in the first quarter of 2012 are expected to be 30% higher than sales in the same quarter in 2011.

Prepare quarterly production budgets for each quarter and in total for 2011.

Exercise 9-5
Dewitt Industries has adopted the following production budget for the first 4 months of 2012.

Month Units Month Units
January 10,000 March 5,000
February 8,000 April 4,000

Each unit requires 3 pounds of raw materials costing $2 per pound. On December 31, 2011, the ending raw materials inventory was 9,000 pounds. Management wants to have a raw materials inventory at the end of the month equal to 30% of next month's production requirements.

Prepare a direct materials purchases budget by month for the first quarter.

Exercise 9-12

Ortiz Company's sales budget projects unit sales of part 198Z of 10,000 units in January, 12,000 units in February, and 13,000 units in March. Each unit of part 198Z requires 2 pounds of materials, which cost $3 per pound. Ortiz Company desires its ending raw materials inventory to equal 40% of the next month's production requirements, and its ending finished goods inventory to equal 25% of the next month's expected unit sales. These goals were met at December 31, 2010.

(a) Prepare a production budget for January and February 2011.
(b) Prepare a direct materials budget for January 2011.

Solution Summary

The solution explains how to prepare a sales budget, production budget and direct material budget