Question

May Corporation, a merchandising firm, has budgeted sales as follows for the third quarter of the year:

  

July$99,000

August$72,000

September$86,400

Cost of goods sold is equal to 65% of sales. The company wants to maintain a monthly ending inventory equal to 110% of the Cost of Goods Sold for the following month. The inventory on June 30 is less than this ideal since it is only $68,185. The company is now preparing a Merchandise Purchases Budget.

The budgeted purchases for July are:

$64,350

$47,645

$32,045

$75,645

Papenfuss Family Inn is a bed and breakfast establishment in a converted 100-year-old mansion. The Inn's guests appreciate its gourmet breakfasts and individually decorated rooms. The Inn's overhead budget for the most recent month appears below:

Activity level		84	guests
Variable overhead costs:
Supplies	$	159.60
Laundry		646.80
Fixed overhead costs:
Utilities		405.00
Salaries and wages		5,750.00
Depreciation		2,790.00
Total overhead cost	$	9,751.40

The Inn's variable overhead costs are driven by the number of guests.
What would be the total budgeted overhead cost for a month if the activity level is 74guests?

$54,229.40

$9,751.40

$9,655.40

$8,754.24

Gandrud Kennel uses tenant-days as its measure of activity; an animal housed in the kennel for one day is counted as one tenant-day. During June, the kennel budgeted for 2,880 tenant-days, but its actual level of activity was 2,860 tenant-days. The kennel has provided the following data concerning the formulas to be used in its budgeting:

	Fixed element per month			Variable element per tenant-day
Revenue		−		$	42.70
Wages and salaries	$	3,390		$	8.70
Food and supplies		1,455			16.80
Facility expenses		12,000			4.00
Administrative expenses		7,860			1.70
Total expenses	$	24,705		$	31.20

The food and supplies in the flexible budget for June would be closest to:

$49,176

$49,752

$49,839

$49,503

Answer 1

1)

Budgeted cost of goods sold (65% × $99,000)	$   64,350.00
Add desired ending merchandise inventory	$   51,480.00
Total needs	$ 115,830.00
Less beginning merchandise inventory	$ -68,185.00
Required purchases	$   47,645.00

2)

Guest	74
Supplies	$         140.60
Laundry	$         569.80
Utilities	$         405.00
Salaries and wages	$      5,750.00
Depreciation	$      2,790.00
Total Overhead cost	$      9,655.40

3)

Cost = Fixed cost + (Variable cost per unit × q)

=1,455 + (16.80 x 2,860)

=49,503