Question

Business Decision Case The sales department of Donovan Manufacturing, Inc. has completed the following sales forccast for the months of January through March 20X1 for its only two products: 50,000 units of J to be sold at $90 each and 30,000 units of K to be sold at $70 each. The desired unit inventories at March 31, 20X1, are 10% of the next quarter's unit sales forecast, which are 60,000 units of J and 30,000 units of K. The January 1, 20X1, unit inventories were 5,000 units of J and 2,000 units of K. Each unit of J requires 3 pounds of material A and 2 pounds of material B for its manufacturc: K requires 2 pounds of A and 4 pounds of B. The purchase cost of A is $9 per pound and the purchase cost of B is $5 per pound. Materials A and B on hand at January 1, 20X1, were 19,000 pounds of A and 7,000 pounds of B. Desired inventories at March 31, 20X1, are 14,000 pounds of A and 8,000 pounds of B. Each unit of J requires 0.5 hours of direct labor in the factory, cach unit of K requires 1.0 hour of direct labor. The average hourly rate for direct labor is $12 per hour. Estimated manufacturing overhead cost is $6 per direct labor hour plus $90,000 per month. Selling and administrative expenses are estimated to be 10% of sales revenue plus $180,000 per month Cash sales for the first quarter are estimated to be $300,000 per month. It is forecast that 30% of the credit sales for the quarter ended March 31, 20X1, will occur in January, 30% in February, and 40% in March. Of credit sales (December through March), 40% will be collected as cash in the month of sale and 55% will be collected in the following month. The remainder will be uncollectible. Cash collected in January 20X1 from December 20X0 sales will be $1,050,000. The January 1, 20X1, cash balance was $70,000. The minimum acceptable cash balance at the end of each month is $60,000. Short-term borrowings (6-month term) are made in multiples of $10,000. Interest is charged at the rate of 1% per month on short-term borrowings. The first interest payment is made the month following the borrowing. Cash disbursements (excluding interest on short-term borrowings) are estimated as follows: January February March Manufacturing costs ....... Selling and administrative expenses ....... Interest expense...... Income tax payment.......... $1,500,000 390,000 90,000 $1,300,000 410,000 90,000 $1,400,000 400,000 90,000 210,000 Capital expenditures................ 124,000 110,000 50,000 Cash dividends. 300,000 0

I think I have A & B correct but I'm so lost. The attached screenshots after the question are the templates I'm using. Any help is very appreciated.

Answer 1

Solution (c): Direct Materials Budget

Workings:
For Production of Unit J
Total Units to be produced (as determined in solution(b))	51000
Each unit of J, requires 3 pounds of 'A' and 2 pounds of 'B'
Therefore, Material A for Unit J (51000*2)	153000
Therefore, Material B for Unit J (51000*2)	102000
For Production of Unit K
Total Units to be produced (as determined in solution(b))	31000
Each unit of K, requires 2 pounds of 'A' and 4 pounds of 'B'
Therefore, Material A for Unit J (31000*2)	62000
Therefore, Material B for Unit J (31000*4)	124000
Budget:
Direct materials required:	Material A	Material B
For Unit J	153000	102000
For Unit K	62000	124000
	215000	226000
Desired Ending material inventory (given)	14000	8000
Total pound of material already available in the beginnig	19000	7000
Total pound of material to be purchased	210000	227000
Unit Purchase Price	9	5
Total Material Purchases	1890000	1135000

Solution (d): Direct Labour Budget

Direct labour hours required for production
Unit J (51000units * 0.5hrs per unit)	25500
Unit K (31000units * 1 hrs per unit)	31000
Total Direct Labour Hrs	56500
Labour cost per Hour	12
Total Direct Labour Cost	678000

Solution (e): Manufacturing overhead cost Budget

Total Direct Labour Hours (as determined in (d))	56500
Manufacturing overhead cost per hour	6
Total variable Manufacturing overhead cost	339000
Total fixed Manufacturing overhead cost (given)	270000
(90000 is per month. Since budget is for 3 months (90000*3))
Total Manufacturing overhead cost	609000

Solution (f): Selling and admin expense budget

Total Sales Revenue (as determined in (a))	6600000
Selling and admin expense cost %	10%
Total variable Selling and admin expense cost	660000
Total fixed Selling and admin expense cost (given)	540000
(180000 is per month. Since budget is for 3 months (180000*3))
Total Selling and admin expense cost	1200000

(as a rule only 4 sub questions can be answered. therefore, solution from (c) to (f) is provided)