Question

CHAPTER 8! MASTER DUDUL IN-CLASS PRACTICE PROBLEM - SALES BUDGET TO MANUFACTURING OVERHEAD BUDGET (SCHEDULES 1-10) The following information pertains to the budgeting process for Tulip, Inc. SALES: Tulip, Inc. sell one type of decorative basket for $25 per basket. Based on various sales forecasting models, Tulip expects to sell 11.000 units in quarter 1. 10,000 in quarter 2, 12,000 in quarter 3 and 9,000 in quarter 4. The beginning accounts receivable balance was $58,000. Assuming all sales are made on credit, about 75% of the quarterly sales are collected in that quarter; the remaining 25% are collected in the following quarter. PRODUCTION (UNITS Tulip would like for ending inventory for each quarter to be 15% of the following quarter's sales Beginning of year Inventory included 700 units. Assume desired Inventory at the end of the year is 1,600 units DIRECT MATERIALS Tulip needs 5 pounds of material for each basket produced. Each pound of material costs $2.60 Ending raw materials inventory should equal 10% of the following quarter's production Beginning raw materials inventory is 900 pounds. Desired end-of-year inventory is 1,000 pounds. Beginning accounts payable is $37,000. For purchases, assume 50% are paid for in the same quarter as purchased: 50% are paid for in the following quarter. DIRECT LABOR: Direct labor hours per unit.5 Direct labor cost per hour $15. MANUFACTURING OVERHEAD Based on estimates and research, the variable overhead rate is $2 per hour. Total fixed manufacturing overhead is $104,000. Assume this is spread evenly over the four quarters Depreciation on all factory assets - $41,000. ENDING FINISHED GOODS INVENTORY BUDGET: See Tulip's previous budget schedules for information needed to prepare this schedule. SELLING AND ADMINISTRATIVE EXPENSE BUDGET Tulip estimates that the variable selling and administrative expenses will be $1.85 per unit. The following fixed expenses were provided by Tulip's various departments: advertising $85,000; salaries $102,000; insurance $41,000; legal and professional fees $39.000; taxes $48,000; depreciation 526,000 CASH BUDGET Tulip's cash policy requires a minimum cash balance of $25,000 Per a loan agreement with the local bank, Tulip must pay 4% per quarter interest on any borrowings. Assume that borrowings occur on the first day of the period and repayments occur on the last day of the period. Borrowings must be made in $1,000 increments, and interest is paid when the loan repayments are made. The cash balance at the beginning of the year was $84,000. Tulip is expecting to purchase new machinery costing $135,000 in the second quarter. Tulip is expecting to pay dividends of $25,000 in the fourth quarter. BUDGETED INCOME STATEMENT o See Tulip's previous budget schedules for information needed to prepare this schedule. BUDGETED BALANCE SHEET Beginning Buildings & Equipment = $490,000; Beginning Accumulated Depreciation = $275,000 (assume no fixed assets were so Common stock balance is $40,000 (this did not change throughout the year) o Beginning of year retained earnings = $291,139 BASED ON THE ABOVE BUDGETING ASSUMPTIONS PREPARE THE FOLLOWING: 1. SALES BUDGET 2. PRODUCTION BUDGET 3. DIRECT MATERIALS BUDGET 4. DIRECT LABOR BUDGET 5. MANUFACTURING OVERHEAD BUDGET 6. ENDING FINISHED GOODS INVENTORY BUDGET 7. SELLING AND ADMINISTRATIVE EXPENSE BUDGET 8. CASH BUDGET 9. BUDGETED INCOME STATEMENT 10. BUDGETED BALANCE SHEET

Answer 1

1			Sales budget
						Quarter
						1	2	3	4	Year
	Expected unit sales			a		11000	10000	12000	9000	42000
	Selling price per unit			b		25	25	25	25
	Sales in $			a*b		275000	250000	300000	225000	1050000
2			Production budget
						Quarter
						1	2	3	4	Year
	Expected unit sales					11000	10000	12000	9000	42000
	Add: Ending inventory					1500	1800	1350	1600
	(15%*following quarter sales)					(10000*15%)	(12000*15%)	(9000*15%)	(Given)
						12500	11800	13350	10600	48250
	Less: Beginning inventory					700	1500	1800	1350
	Units to be produced					11800	10300	11550	9250	42900
3			Direct materials budget
						Quarter
						1	2	3	4	Year
	Units to be produced				a	11800	10300	11550	9250	42900
	Material required per unit (in pounds)				b	0.5	0.5	0.5	0.5
	Total materials required				c=a*b	5900	5150	5775	4625	21450
	Add: Ending raw materials inventory					1030	1155	925	1000	4110
	(10%*Units to be produced for the next qtr)					(10300*10%)	(11550*10%)	(9250*10%)	(Given)
						6930	6305	6700	5625	25560
	Less: Beginning raw materials inventory					900	1030	1155	925
	Materials to be purchased				d	6030	5275	5545	4700	21550
	Material cost per pound				e	2.6	2.6	2.6	2.6
	Direct material cost in $				f=d*e	15678	13715	14417	12220	56030
4	Direct labor budget is correct
5			Manufacturing overhead budget
						Quarter
						1	2	3	4	Year
	Total direct labor hours required				a	5900	5150	5775	4625	21450
	Variable overhead rate per hour				b	2	2	2	2
	Total variable overhead				c=a*b	11800	10300	11550	9250	42900
	Fixed manufacturing overhead			(104000/4)	d	26000	26000	26000	26000	104000
	Depreciation			(41000/4)	e	10250	10250	10250	10250	41000
	Total manufacturing overhead				f=c+d+e	48050	46550	47800	45500	187900