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

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Answer 1

Dear Student , Please see below answer relates to multiple Budget .Majority numbers are as per Question . Where ever require calculation , I provided the same . Please review line by line . I have completed first 6 answer ,,

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	In this Question , We have to calculate multiple OVERHEAD
A)	First we need to dertermined Sales Budget Quarter end 31st March 20X1
			Product J	Product k	Total
	Budgeted Unit sold-A		50,000	30,000
	Budgeted Unit Price$/ unit -B		90	70
	Sales Value(A*B) $		45,00,000	21,00,000	66,00,000
b)	Production Budget - Quarter end 31st March 20X1
			Product J	Product k	Total
	Budgeted Unit sold-A		50,000	30,000
	Add- Desired Inventory - 10% next Qtr Sale		6,000	3,000
	closing as on 31st March
	Total Unit needed		56,000	33,000
	Less - Opening Inventory		5,000	2,000
	Jan 1
	Material Production Requirement		51,000	31,000
c)	Direct Material Budget - Quarter end 31st March 20X1
	Still now er calculate Sales + Procurement as above in case
	of Product J & k ... Now they are looking for Material Budget
	As per Question , material Budget require input material of Material A and B as below
		Material A			Material B
		Product J	Product k	Total	Product J	Product k	Total
	Production requirement as above --A	51,000	31,000		51,000	31,000
	Raw material required in Pound-B	3	2		2	4
	RaW material required - production ( Pound)(A*B)	1,53,000	62,000	2,15,000	1,02,000	1,24,000	2,26,000
	Add- Desired Inventory
	closing Inventory			14,000			8,000
	Total requirement of Raw material			2,29,000			2,34,000
	Less-
	Opening of
	direct material ( pound)			19,000			7,000
	Net Raw material in pound= C			2,10,000			2,27,000
	Rate $/ Pound-D			9			5
	Total cost of Material Purchased(C*D) $			18,90,000			11,35,000
D)	Direct Labour Budget -Quarter end 31st March 20X1
		Product J	Product k
	Production requirement as above --as above	51,000	31,000
	Direct labour Hr per unit	0.5	1
	Total Direct Labour Hrs-M	25,500	31,000
	Direct labour rate $/ hr-N	12	12
	Total Direct labour cost(M*N) $	3,06,000	3,72,000

e)	Overhead Manufacturing Budget -Quarter end 31st March 20X1
	Production requirement as above --as above	51,000	31,000	Total
	Direct labour Hr per unit	0.5	1
	Total Direct Labour Hrs-	25,500	31,000	56,500
	As per Question , Manufacturing Overhead @ $6/hr- P $			3,39,000	(56500*6)
	Fixed manufacturing Overhead-Q$
	($90000*3) Monthly $90 k			2,70,000
	Total Manufacturing Overhead(P+Q)	$		6,09,000

	Overhead Selling and Administration Overhead Budget -Quarter end 31st March 20X1
f)
			Product J	Product k	Total
	Sales value as calculated above $		45,00,000	21,00,000	66,00,000
	Variable Selling & Admin OH - 10% of revenue -A$				6,60,000
	Add -
	Fixed overhead $ 180000*3 months -B$				5,40,000
	Total Selling and Adminitration OH ( A+B)$				12,00,000