Exercises

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

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 

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               

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.