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1. PR.08.02B
Sales, Production, Direct Materials Purchases, and Direct Labor Cost Budgets

The budget director of Royal Furniture Company requests estimates of sales, production, and other operating data
from the various administrative units every month. Selected information concerning sales and production for February
is summarized as follows:

a. Estimated sales of King and Prince chairs for February by sales territory:

Northern Domestic:
King 610 units at $780 per unit
Prince 750 units at $550 per unit
Southern Domestic:
King 340 units at $780 per unit
Prince 440 units at $550 per unit
International:
King 360 units at $850 per unit
Prince 290 units at $600 per unit

b. Estimated inventories at February 1:

Direct materials:
Fabric 420 sq. yds.
Wood 580 linear ft.
Filler 250 cu. ft.
Springs 660 units
Finished products:
King 90 units
Prince 25 units

c. Desired inventories at February 28:

Direct materials:
Fabric 390 sq. yds.
Wood 650 linear ft.
Filler 300 cu. ft.
Springs 540 units
Finished products:
King 80 units
Prince 35 units

d. Direct materials used in production:

In manufacture of King:
Fabric 6.0 sq. yds. per unit of product
Wood 38 linear ft. per unit of product
Filler 4.2 cu. ft. per unit of product
Springs 16 units per unit of product

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In manufacture of Prince:
Fabric 4.0 sq. yds. per unit of product
Wood 26 linear ft. per unit of product
Filler 3.4 cu. ft. per unit of product
Springs 12 units per unit of product

e. Anticipated purchase price for direct materials:

Fabric $12.00 per sq. yd.

Wood 7.00 per linear ft.
Filler $3.00 per cu. ft.
Springs 4.50 per unit

f. Direct labor requirements:

King:
Framing Department 1.2 hrs. at $12 per hr.
Cutting Department 0.5 hr. at $14 per hr.
Upholstery Department 0.8 hr. at $15 per hr.
Prince:
Framing Department 1.0 hr. at $12 per hr.
Cutting Department 0.4 hr. at $14 per hr.
Upholstery Department 0.6 hr. at $15 per hr.

Required:

1. Prepare a sales budget for February.

Royal Furniture Company

Sales Budget
For the Month Ending February 28

Unit Sales Unit Selling

Product and Area Total Sales
Volume Price

King:
Northern Domestic $ $
Southern Domestic
International

Total $

Prince:
Northern Domestic $ $
Southern Domestic
International

Total $

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Total revenue from sales $

2. Prepare a production budget for February. For those boxes in which you must enter subtracted or negative
numbers use a minus sign.

Royal Furniture Company

Production Budget
For the Month Ending February 28

Units

King Prince

3. Prepare a direct materials purchases budget for February. For those boxes in which you must enter subtracted or
negative numbers use a minus sign.

Royal Furniture Company

Direct Materials Purchases Budget
For the Month Ending February 28

Direct Materials

Fabric Wood Filler Springs

Total
(sq. yds.) (linear ft.) (cu. ft.) (units)

Required units for production:

King
Prince
Desired inventory, February 28
Total
Estimated inventory, February 1
Total units to be purchased
Unit price $ $ $ $

Total direct materials to be purchased $ $ $ $ $

4. Prepare a direct labor cost budget for February.

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Royal Furniture Company

Direct Labor Cost Budget
For the Month Ending February 28

Framing Cutting Upholstery

Total
Department Department Department

Hours required for production:

King
Prince
Total
Hourly rate $ $ $

Total direct labor cost $ $ $ $

2. BE.09.01.EXCEL.ALGO (Algorithmic)
Direct materials variances

Bellingham Company produces a product that requires 2.3 standard pounds per unit. The standard price is $3.65 per
pound. 15,800 units used 35,100 pounds, which were purchased at $3.80 per pound.

This information has been collected in the Microsoft Excel Online file. Open the spreadsheet, perform the required
analysis, and input your answers in the questions below.

Open spreadsheet

What is the direct materials (a) price variance, (b) quantity variance, and (c) cost variance? Round your answers to
the nearest dollar. Enter a favorable variance as a negative number using a minus sign and an unfavorable variance as
a positive number.

a. Direct materials price variance $

b. Direct materials quantity variance $

c. Direct materials cost variance $

3. BE.09.02.EXCEL.ALGO (Algorithmic)
Direct labor variances

Bellingham Company produces a product that requires 3 standard direct labor hours per unit at a standard hourly rate
of $20.00 per hour. 15,500 units used 63,100 hours at an hourly rate of $19.70 per hour.

This information has been collected in the Microsoft Excel Online file. Open the spreadsheet, perform the required
analysis, and input your answers in the questions below.

Open spreadsheet
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What is the direct labor (a) rate variance, (b) time variance, and (c) cost variance? Round your answers to the nearest
dollar. Enter a favorable variance as a negative number using a minus sign and an unfavorable variance as a positive
number.

a. Direct labor rate variance $

b. Direct labor time variance $
c. Direct labor cost variance $

4. TMM.09.02
Click to watch the Tell Me More Learning Objective 2 video and then answer the questions below.

1. The differences between actual and standard costs are called __________ variances.

a. cost
b. profit
c. quantity
d. volume

2. A favorable cost variance results when

a. actual cost is greater than standard cost at actual volumes.

b. actual cost is less than standard cost at actual volumes.
c. actual cost is equal to standard cost at actual volumes.
d. actual cost is greater than standard cost at budgeted volumes.

5. TMM.08.01
Click to watch the Tell Me More Learning Objective 1 video and then answer the questions below.

1. Budgeting involves ________.

a. establishing specific goals

b. executing plans to achieve the goals
c. periodically comparing actual results with the goals
d. All of these choices are correct.

2. Budgeting affects all of the following managerial functions except ________.

a. planning

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b. directing
c. controlling
d. None of these choices are correct.

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