Q2 Q3 Q4 UPS 'N DOWNS makes down jackets.

April May June July Aug Sept Oct Nov Dec Pertinent Budget and actual sales data for
Q2, Q3, & Q4 are presented.
Budget #s 1,500 1,400 1,300 1,200 1,400 1,500 2000 3,000 4,000
Budget $/# $ 450 $ 300 $ 250 $ 250 $ 300 $ 500 $ 650 $ 700 $ 750 Also, key budgeting assumptions on
collections, production, purchasing, and
labor, used in budget preparations
Actual #s 1,600 1,500 1,100 1,300 are also presented.
Actual $/# $ 425 $ 325 $ 200 $ 225

Collections 60% of each month's sales are made by credit card, thereby collected in the month of sale,.
Collections from credit card companies, typically are received with a 2.5% fee assessed
on each $ of sale.
40% The remaining monthly sales are on merchant credit
70% of each month's credit sales are collected 1 month after the sale To be prepared
28% of each month's credit sales are collected 2 months after the sale 1 Sales $ Budget
2% of each month's credit sales are initially uncollected, until given to a collections agency 2 Sales Variance Analysis for July, Act vs. Budget
80% of uncollected accounts given to collections agencies are collected by those agencies 3 Collections Budget, July
50% and split(50/50) with the company 3 months after the sale 4 Production Budget
April thru July
Production 50% of next month's sales in finished goods ending inventory 5 Purchasing Budget # & $
32 oz (2lb) of down required per coat April thru July
What is the Production Budget in units and lbs for April - Oct? 6 Cash Payments Budget
April thru July
Purchasing $60 Cost per pound of down feathers = $60 7 Direct Labor Budget for Q2
75% of next month's production in raw materials ending inventory April thru July
Pay Vendors 20% current mo @ 2% disc; 80% in next month after purchase
Assume there were $120,000 in remaining March purchases to be paid in April

Labor 1 pair 2 workers are required to fully assemble a coat

8 min Each worker takes 8 minutes to complete a jacket
48 min Workers are productive 48 minutes of each hour.
Remaining 12 minutes are for rest, breaks, etc.
$ 20.00 workers are paid $20.00 / hr plus 15% for fringe benefits
40 hrs / Week Workers work 40 hrs per week with no overtime, must work in pairs
13 Weeks Each Qtr has 13 weeks.

581513041.xlsx 1 of 5
UPS & DOWNS Problem
UPS & DOWNS - April-July Only (4 months)

Part 1. Prepare a Sales Budget

April May June July
Units Sold 1,500 1,400 1,300 1,200
Price / Unit $ 450 $ 300 $ 250 $ 250
Gross sales $ 675,000 $ 420,000 $ 325,000 $ 300,000

Part 2. July Sales Variance July Actual July Budget

Units 1,300 1,200
Sell. Price $ 225 $ 250
Actual Price Variance Actual @ BP Volume variance Budgeted
AQ x AP AQ x BP BQ x BP
$ 292,500 $ 325,000 $ 300,000
$ (32,500) $ 25,000
UNFAV FAV

Overall Variance ($7,500)

FAV or UNFAV?? UNFAV

Part 3. Cash Collections Budget for July

Assumptions: 60% of each month's sales are made by credit card, thereby collected in the month of sale,.
2.5% Collections from credit card companies, typically are received with a 2.5% fee assessed on each $ of sale.
40% The remaining monthly sales are on merchant credit
70% of each month's credit sales are collected 1 month after the sale
28% of each month's credit sales are collected 2 months after the sale
2% of each month's credit sales are initially uncollected, until given to a collections agency
80% of uncollected accounts given to collections agencies are collected by those agencies
50% and split(50/50) with the company 3 months after the sale

Cash Collected in Each Month

Month of Sale Sales for Month April May June July
April $ 675,000 $ 394,875 $ 189,000 $ 75,600 $ 2,160
May $ 420,000 $ 245,700 $ 117,600 $ 47,040
June $ 325,000 $ 190,125 $ 91,000
July $ 300,000 $ 175,500
$ 315,700
Part 4. Prepare a Production Budget - Units

50% of next month's sales in FG ending Inventory 50% 2 Ways to Solve This Problem
Pounds of material per coat 2
Total Units Needed Approach
Budgeted Unit Sales 1,500 1,400 1,300 1,200 1,400
March April May June July August
Budgeted Sales in Units 1,500 1,400 1,300 1,200 1,400
+ Ending Inventory Required: 50% of next months sales 750 700 650 600 700
= Total Units Needed This Period 2,200 2,050 1,900 1,900

- Beginning Inventory on Hand: 50% of This Month's Sales 750 700 650 600
= Units Required to be Produced 1,450 1,350 1,250 1,300
Pounds of Material Needed for Production 2,900 2,700 2,500 2,600

Inventory Flow Approach

March April May June July
Beginning Balance: Last month's Ending Inventory 750 700 650 600
+ Production (what you are solving for) 1,450 1,350 1,250 1,300
- Sales (given) 1,500 1,400 1,300 1,200
Ending Balance: 50% of next month's sales 750 700 650 600 700

Part 5. Purchasing Budget: Purchasing of Material for Coats - both in Pounds and $$

Pounds of material per coat 2

Cost per pound $ 60.00
75% of next month's production in RM ending Inventory 75% 2 Ways to Solve This Problem
Pay vendors: 20% current month with 2% discount; 80% on following month
End of March: $120,000 of Payables to be paid in April Total Units Needed Approach
March April May June July August
Units Required to Produce 1,450 1,350 1,250 1,300
Pounds of RM required for Production 2,900 2,700 2,500 2,600 2,900
+ Ending RM Inventory Required 2,175 2,025 1,875 1,950 2,175
= Total Amount of RM Needed 4,925 4,575 4,450 4,775
- Beginning RM Inventory on Hand 2,175 2,025 1,875 1,950
RM (Pounds) Needed to Purchase 2,750 2,550 2,575 2,825
Cost of RM needed to purchase $ 165,000 $ 153,000 $ 154,500 $ 169,500
 Inventory Flow Approach
March April May June July
Beginning Balance: Last month's Ending Inventory 2,175 2,025 1,875 1,950
+ Purchases of RM (what you are solving for) 2,750 2,550 2,575 2,825
- RM Used in Produciton (from production budget) 2,900 2,700 2,500 2,600
Ending Balance: 75% of next month's produciton 2,175 2,025 1,875 1,950 2,175

Part 6. Cash Payments to Vendors Budget

Pay vendors: 20% current month with 2% discount; 80% on following month
End of March: $120,000 of Payables to be paid in April
April May June July
Cash payments for Current Month's Purchases $ 32,340 $ 29,988 $ 30,282 $ 33,222
Cash payments for Last Month's Purchases $ 120,000 $ 132,000 $ 122,400 $ 123,600
Total Cash Payments $ 152,340 $ 161,988 $ 152,682 $ 156,822

Part 7. Direct Labor Budget

Time each worker spends on a coat (minutes) 8

# of Workers per team 2
Total time to make a coat (minutes) 16
Labor rate/hour $ 20.00
Fringe benefits 15%
Fully loaded, or Total Labor Rate $ 23.00
Productive minutes per hour 48
Hours worked per month 160
Full-time workers only (Yes or No) Yes
April May June July
Units to be produced each month 1,450 1,350 1,250 1,300

Direct Labor Budget

Total productive time (in minutes) required to make all jackets 23,200 21,600 20,000 20,800
Total productive time (in hours) required to make all jackets 386.7 360.0 333.3 346.7
Total non-productive time (in hours) incurred each month 96.7 90.0 83.3 86.7
Total Hours required to make all jackets 483.3 450.0 416.7 433.3

# of workers required each month (divide by Hours worked per month) 3.02 2.81 2.60 2.71

# of Teams required 2.00 2.00 2.00 2.00

Number of workers needed to hire. 4.00 4.00 4.00 4.00

Total Budgeted Direct Labor Cost (multiply # of workers x hours worked per month x Total Labor Rate) $ 14,720.00 $ 14,720.00 $ 14,720.00 $ 14,720.00