Your Company, Inc. has determined that its planned production for the upcoming fiscal
year is:
Units to be produced;
First Quarter = 6,000
Second Quarter = 7,000
Third Quarter = 5,000
Fourth Quarter = 4,000
Beginning raw materials inventory for the first quarter is 2,400 pounds. Beginning
accounts payable for the first quarter is $2,520. Each unit requires 4 pounds of raw
material that costs $0.70 per pound. Management desires to end each quarter with an
inventory equal to 10% of the following quarter’s production needs. The desired ending
inventory for the fourth is 2,600 pounds. Management plans to pay 80% of the raw
material purchases in the quarter acquired and 20% in the following quarter. Each unit
requires 0.70 direct labor hours and the labor rate is $16.00 per hour.
Required:
1] Prepare the company’s direct materials budget and schedule of expected cash
disbursements for purchases of raw materials for the upcoming fiscal year.
2] Prepare the company’s direct labor budget for the upcoming fiscal year, assuming
that the direct labor workforce is adjusted each quarter to match the number of hours
required to produce the forecasted number of units produced. Problem 5-2:
My Company, Inc. has determined that its planned production for the upcoming fiscal
year is:
Units to be produced:
First Quarter = 6,000
Second Quarter = 7,000
Third Quarter = 6,500
Fourth Quarter = 5,500
Each unit requires 1.4 direct labor hours and workers are paid $12.50 per hour. The
variable manufacturing overhead rate is $0.75 per direct labor hour. The fixed
manufacturing overhead is $90,000 per quarter. The only non-cash element of
manufacturing overhead is depreciation, which is $20,000 per quarter. All labor costs
and manufacturing overhead is paid in the quarter incurred.
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 5-3:
You will be required to prepare a December cash budget. You are provided with the
following information:
a] Cash balance on December 1 is $60,000.
b] Actual sales for October and November and expected sales for December are as
follows:
October
November December
Cash sales
$95,000
$105,000
$125,000
Sales on account
$600,000
$785,000
$900,000
Sales on account are collected over a three month period as follows:
Month of sale:
15%
Month following sale:
60%
Second month following sale:
20%
Five percent of sales on account are uncollectible.
c] Purchases of inventory for December will total $420,000. Forty percent of a month’s
inventory purchases are paid in the month of purchase. The accounts payable
remaining from November inventory purchases total $205,000, all of which will be paid
in December.
d] Selling and administrative expenses are budgeted at $440,000 for December; of
this amount $50,000 is for depreciation.
e] A new machine will be purchased for cash, in December, at a cost of $205,000;
dividends totaling $25,000 will be paid in December.
f] The company maintains a minimum cash balance of $60,000. An open line of credit
is available from the company’s bank to bolster the cash position as needed.
Required:
1] Prepare a schedule of cash collections for December.
2] Prepare a schedule of cash disbursements for merchandise purchases for
December.
3] Prepare a cash budget for December. Indicate in the financing section any
borrowing that will be needed during the month. Assume that no interest payments are
due or will be paid before January.