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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.

Instructions
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.

Instructions
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.

Instructions
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.

Instructions
(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

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