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Management Accounting Tauseef A.Qureshi

Assignment No 5 (Budgeting)

Problem No 1: (Gulick Company)

The sales, purchasing and production managers of the Gulick Company are meeting to
determine the firm’s operating needs for the final six months of the year. The sales
budget for this period is as follows:

Month Budgeted Sales (Units)

July 19,200
August 22,400
September 18,600
October 25,600
November 30,400
December 20,800

The production manager attempts to maintain a raw materials inventory at the end of a
month to the budgeted production needs for the next two months. Each unit produced
four pounds of raw materials that cost $4/pound. The sales manager likes to maintain a
finished goods inventory at 150% of the following month’s budgeted sales. As of June
30, the firm had 272,000 pounds of raw materials in inventory & 27,200 of finished
goods.

Required:

A. Prepare a production budget (in units) for as many as possible.

B. Prepare a raw materials purchases budget (in pounds) for as many months as
possible.

Problem No 2: (Dice Company)

Dice Company manufactures patio and lawn furniture. The manager in charge of the
production of picnic tables has been asked to prepare a production budget, a direct
material budget, and a direct labor budget for part of 1990 based on management’s
sales forecast.
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The materials and labor requirements per table are:

Quantity Cost
Lumber 18 feet $0.70 per foot
Stain 1 quart 4 per quart
Cutting labor 4 hours 10 per hour
Finishing labor 7 hours 14 per hour

The company requires a finished goods ending inventory for each quarter that equals
50% of expected sales for the next quarter. Also, the ending inventory balance of direct
materials should equal 40% of the next quarter’s production requirements. The
inventory balances on January 1, 1990 are forecasted as:
Lumber 36,000 feet
Stain 2,000 quarts
Picnic tables 2,500 units
The forecasted quarterly sales in units are:
1st quarter, 1990 6,000
2nd quarter, 1990 8,000
3rd quarter, 1990 6,500
4th quarter, 1990 5,000
Required:
A: Prepare a quarterly production budget for the first three quarters of 1990.
B: Prepare a quarterly direct material budget for the first two quarters of 1990.
C: Prepare a quarterly labor budget for the first two quarters of 1990

Problem No 3: (Red Stone Company)

Red Stone Company has the following budgeted activity for January 1990.

Sales $900,000
Gross profit as a percentage of sales 30%
Increase in inventory during January $13,000
Increase in accounts receivable during January 20,000
Increase in accounts payable during January 2,000

Total selling and administrative expenses are $88,750 per month plus 10% of total sales.
Included in the total for selling and administrative expenses is $50,000 per month of
depreciation expense. Variable selling and administrative expenses include a charge for
uncollectible accounts of 1% of sales. The accounts receivable shown above are
presented net of the allowance for doubtful debts.

Required: Compute the estimated cash receipts and cash disbursements for January.
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Problem No 4: (OMI CO)

A sales budget is given below for one of the products manufactured by OMI CO:

January 25,000 units

February 40,000 units
March 65,000 units
April 45,000 units
May 35,000 units
June 30,000 units

The inventory of finished goods at the end of each month must equal 20% of the next
month’s sales. However, on December 31, the finished goods inventory totaled only
4,000 units.
Each unit of product requires three kilograms of specialized material. Since the
production of this specialized material by OMI’s suppliers is something irregular, the
company has a policy of maintaining an ending inventory at the end of each month
equal to 30% of the next month’s production needs. This requirement had been met on
January 1 of the current month.

Required:

1. Prepare a budget showing the quantity of units to be produced each month for
January, February, and March, and in total for the quarter.

2. Prepare a budget showing the quantity of material to be purchased each month for
January, February, and March, and in total for the quarter.

Problem No 5: (Merchant Corporation)

Merchant Corporation manufactures and sells two products, XX and YY. In December
2008, managers gathered the following budget data for 2009:

 2009 projected sales

Product Units Price

XX 10,000 $70
YY 15,000 $90
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 2009 inventories in units

Product Expected Jan 1,2009 Desired Dec 31,2009

XX 2,000 2,500
YY 3,000 5,000

 The following raw materials are used to produce one unit of XX and YY

Raw material Quantity measure XX YY

Mono pounds 4 per unit 5 per unit
Bio pounds 2 per unit 3 per unit
Tri unit 1 per unit

 Projected data for 2009 relative to raw material as follows

Raw material Anticipated Expected Inventory Expected Inventory

purchase price Jan 1,2009 Dec 31 ,2009
Mono $7 3,200 pounds 3,600 pounds
Bio $4 900 pounds 2,000 pounds
Tri $3 600 each 1,000 each

 Projected Direct-labor requirements for 2009 and rates follow

Product Hours per unit Rate per hour

XX 2 $5
YY 3 $6

Overhead is applied at the rate of $2 per direct labor hour

Required:

Prepare the following Budgets for 2009.

1. Sales Budget
2. Production Budget in units
3. Raw Material purchase budget in quantities and dollars
4. Direct labor budget
5. Budgeted finished goods inventory in dollars on December 31,2009
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Problem No 6: (XYZ Company)

Last year’s income statement for XYZ Company is as follows:

Sales (50,000 @ $10) $500,000

Cost of goods sold:
Direct material $200,000
Direct labor 100,000
Overhead 50,000 (350,000)
Gross Profit $150,000
Expenses:
Selling $60,000
Administrative 40,000 (100,000)
Net Income before taxes $50,000

In the current year, sales are expected to decrease by 10%, and material and labor costs
are expected to increase by 10%. Overhead is applied to production as a percentage of
direct labor cost. Ten thousand dollars of selling expenses are fixed; the remainder
varies with sales dollars. All administrative costs are fixed. Management wants to earn
5% on sales this year and, if necessary, will adjust the unit-selling price to do so.

Required:

Prepare a pro forma income statement for the year for XYZ Company that incorporates
the indicated changes. Show all calculations and round up to decimal points.

Problem No 7: (Janet Grossman)

Janet Grossman operates the Centrum Gift Shop. She expects cash sales of $ 10,000 for
October, $11,000 for November, and $16.000 for December. Grossman expects credit
card sales of $7,000 during October and $8,000 and $12,000 respectively during
November and December. Sales returns and allowance can be ignored. Credit card
companies like VISA and MasterCard charges 4% on credit card sales, so Centrum net
sales will be 96%. Cost of goods sold average 40% of net sales.

Required:

Grossman asks you to prepare a schedule of budgeted revenue cost of goods sold, and
gross margin for each month of the last quarter. She also wants you to show totals for
the quarter.
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Problem No 8: (Scarborough Corporation)

The Scarborough Corporation manufactures and sells two products, Thing One and
Thing Two. In July 2000, Scarborough’s budget department gathered the following data
in order to prepare budgets for 2001

2001 Projected sales

Products Units Price
Thing One 60,000 $165
Thing Two 40,000 $250

2001 Inventories in units

Product Expected Jan 1,2001 Target Dec 31,2001
Thing One 20,000 25,000
Thing Two 8,000 9,000

To produce one unit of Thing one and Thing two, he following direct materials are used:

Amount used per unit

Direct material Unit Thing One Thing Two
A Kilograms 4 5
B Kilograms 2 3
C Each 0 1

Projected data for 2001 with respect to direct materials are as follows:

Direct material Anticipated Expected inventories Target inventories

Purchase Price January 1,2001 December 31,2001

A $12 32,000 kilograms 36,000 kilograms

B $5 29,000 kilograms 32,000 kilograms
C $3 6,000 units 7,000 units

Projected manufacturing labor requirements and rates for 2001 are as follows:

Product Hours per unit Rate per hour

Thing One 2 $12
Thing Two 3 $16

Manufacturing overhead is allocated at the rate of $20 per direct manufacturing labor-
hour
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Required:

Based on the preceding projections and budget requirements for Thing one and Thing
two, prepare the following budgets for 2001:

1. Revenue budget (in dollars)

2. Production budget (in units)
3. Direct materials purchases budget (in quantities)
4. Direct materials purchases budget (in dollars)
5. Direct manufacturing labor budget (in dollars)
6. Budgeted finished goods inventory at December 31 2001 (in dollars)

Problem No 9: (coyote Loco, Inc)

Coyote Loco, Inc., a manufacturer of salsa, has the following historical collection pattern
for its credit sales.

 70 percent collected in the month of sales

 15 percent collected in the first month after sale
 10 percent collected in the second month after sale
 4 percent collected in the third month after sale
 1 percent uncollectable.

The sales on account have been budgeted for the last seven months of 19x9 as follows.

June $49,000
July 60,000
August 70,000
September 80,000
October 90,000
November 100,000
December 85,000

Required:

1. Compute the estimated total cash collections during October from credit sales during
19x9.
2. Compute the estimated total cash collections during the fourth quarter from sales
made on account during the fourth quarter.
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Problem No 10: (Homer Company)

Homer Company is preparing its quarterly budget for three months ending March 31,
1990.The information available for the budget is as follows:

1. Cash sales represent 30% of all monthly sales. Of all credit sales, 70% are
collected in the month of sale and the remainder in the month following the
sale.

2. Merchandise purchases that are made on account equal 60% of the forecasted
sales for the month. Of the purchase, 60% are paid in the month of purchase,
and 40% are paid the following month.

3. Ending inventory on March 31, 1990 is projected to be $36,800.

4. Equipment cash purchases for the first quarter are budged at $3,200.

5. Other quarterly expenses are budgeted as follows: Utilities,$7,360; rent,

$20,800, salaries, $40,000.These expenses are paid when incurred.

6. Depreciation for the first quarter will be $7,400.

7. The balance sheet as of December 31,1989 contained the following accounts.

Cash $13,460 Acc depreciation $38,400

Accounts receivable 7,840 Accounts payable 5,930
Inventory 16,000 Common Stock 32,800
Equipment 89,600 Retained earnings 49,770

8. Budgeted sales are January,$85,200; February $80,000; March $76,000.

9. Ignore Income taxes.

Required:

A. Prepare a budgeted income statement for the quarter ending March 31, 1990.

B. Prepare a Cash receipt and disbursement statement for the quarter ending
March 31, 1990.

C. Prepare budgeted balance sheet statement for the quarter ending March 31,
1990.
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