Exercises

Page 1

Sales Budget

Beatrice Company estimates that unit sales of its lawn chairs will be 7,200 in October. 7,400 in November; and 7,100 in December.

Compute Beatrice's sales budget for the fourth quarter assuming each unit sells for $27.50:

SOLUTION:

October November December 4th Quarter

Budgeted Sales (Units) 7,200 7,400 7,100 21,700

Budgeted Unit Price X 27.50 X 27.50 X 27.50 X 27.50

Budgeted Sales Revenue $198,000 $203,500 $195,250 $596,750

Budgeted Sales Revenue = Units Sold X Unit Price

Page 2

Budgeted Production Units

Becker Bikes manufactures tricycles. The company expects to sell 350 units in May and 480 units in June. Beginning and ending finished goods for May is expected to be 95 and 60 units, respectively. June's ending finished goods is expected to be 70 units.

Compute Beckers Production Budget for May and June:

SOLUTION:

May June

Sales 350 490

Ending Inventory 60 70

Beginning Inventory (95) (60)

Budgeted Production (Units) 315 490

Budgeted Production Units = Predicted Sales Units + End Inventory - Beg. Inventory

Page 3

Direct Materials Purchases Budget

Becker Bikes manufactures tricycles. The company expects to sell 350 units in May and 480 units in June. Beginning and ending finished goods for May is expected to be 95 and 60 units, respectively. June's ending finished goods is expected to be 70 units. Each unit requires 3 wheels at a cost of $5 per wheel. Becker requires 20% of next month's material production needs on hand each month. July's production units is expected to be 450 units.

Compute Becker's direct materials purchases budget with respect to wheels for May and June.

SOLUTION:

1.) Production (taken from the last problem) X Wheels required per unit = Total wheels required

2.) Total wheels required + End Inventory (20% of next month production) - Beg. Inventory

= Budgeted Purchases

3. Budgeted Purchases X Cost Per Wheel =

Budgeted Cost of Wheels Purchased = Direct Material Purchases Budget

Page 4

Budgeting, Cumulative

Iguana, Inc. manufactures bamboo picture frames that sell for $25 each. Each frame requires 4 linear feet of bamboo, which costs $2.00 per foot. Each frame takes approximately 30 minutes to build, and the labor rate averages $12.00 per hour. Iguana has the following inventory policies:

Ending finished good inventory should be 40% of next month's sales

Ending direct materials inventory should be 30% of next month's production

Expected unit sales (frames) for the upcoming months follow:

March 275

April 250

May 300

June 400

July 375

August 425

Variable manufacturing overhead is incurred at a rate of $0.30 per unit produced. Annual fixed manufacturing overhead is estimated to be $7,200 ($600 per month) for expected production of 4,000 units for the year. SGA is estimated at $650 per month plus $0.60 per unit sold.

Iguana, Inc. had $10,800 cash on hand on April 1. Of its sales, 80% is in cash. of the credit sales, 50% is collected during the month of the sale, and 50% is collected during the month following the sale.

Of direct materials purchases, 80% is paid for during the month purchased and 20% is paid for in the following month. Direct materials purchases for March 1 totaled $2,000. All other operating costs are paid during the month incurred. Monthly fixed manufacturing overhead includes $250 in depreciation. During April, Iguana plans to pay $3,000 for a piece of equipment.