Question

DIA Marpe Center General $ % -48 Conditional Format Cell Formatting as Table Styles 1 Lab #7 Template for Chapter 20 2 Master Budget for a Manufacturer EF н 522 4 Budget Assumptions 5 1. Projected January unit sales: 11,000 6 - Assumed month-over-month increase in unit sales: 7 - Selling price per unit: 8 2. Monthly sales will be 25% cash sales and 75% credit sales (collected in the month following the sales) 93. Ending finished goods inventory should equal 80% of the next month's expected unit sales. 10 4. Ending raw materials inventory should equal 50% of the next month's expected raw material needs. 11 5. The product's manufacturing cost is $12.65 per unit, including: 12 - $7.35 per unit for materials (0.5 lbs. @ $14.70 per lb.) All purchases are on credit, and paid the following month. 13 - $3.75 per unit for direct labor (0.25 hour $15 per hour rate) 14 - $1.10 per unit for variable overhead 15 - $0.45 per unit for fixed overhead (consisting entirely of $5,000 per month for depreciation expense) 16 6. Sales commissions are 10% of sales, and are paid in the month of the sales. 17 7. The sales manager's monthly salary is $4,000 in January, and $5,000 each month thereafter. 18 8. Monthly general & administrative expenses include $12,000 in salaries and 0.8% monthly interest on a long-term $200,000 note (due next year). 19 9. Minimum monthly ending cash balance should be $50,000. If necessary, the company borrows enough cash to reach the 20 minimum. Any borrowed short-term notes require a 1% interest payment at month-end (before any repayments borrowings). Ifending cash exceeds 21 the minimum of $50,000, the excess is applied to repay any outstanding short-term note. There are currently no outstanding short-term notes 22 10. Dividends of $120.000 are declared and paid in February. 23 11. Equipment purchases of $75,000 are scheduled for March 25 Required - Prepare the following budget schedules: 26 28 1. Sales Budget January February March 1st Quarter 30 Projected Monthly Unit Sales 31 Selling Price Per Unit 32 Total Budgeted Sales 35 2. Production Budget Ch. 20 Template

Answer 1

1. Preparation of Sales Budget:

Given,

January sales = 11,000 units

Sales price per unit = $22

Month -over -month increase in unit sales = 5%

Now, Sales of February = Sales of January × (100+5)% = 11,000 units × 105% = 11,550 units

Sales of March = Sales of February × 105% = 11,550 units × 105% = 12,127.5 = 12,127 units

Sales Budget
	January	February	March	1st Quarter
Budgeted Monthly Unit Sales	11,000	11,550	12,127	34,677
Sales price per unit	$ 22	$ 22	$ 22	$ 22
Total Budgeted Sales	$ 242,000	$ 254,100	$ 266,794	$ 762,894

2. Preparation of Production Budget:

Production Budget
	January	February	March	1st Quarter
Projected Next Month's Unit sales	11,550	12,127	12,733
Targeted Ending Inventory %	80%	80%	80%
Desired Ending Inventory (units)	9,240	9,702	10,186	10,186
Current Period's Unit Sales	11,000	11,550	12,127	34,677
Estimated Units of Production	20,240	21,252	22,313	44,863
Less: Beginning Inventory (units)	8,400	9,240	9,702	8,400
Targeted Units to be Produced	11,840	12,012	12,612	36,463

Workings:

Sales of April = Sales of March × 105% = 12,127 units × 105% = 12,127.5 = 12,733.35 = 12,733 units

It is assumed that the sales increase pattern remain same in 2nd quarter also as 1st quarter's sales.

3. Preparation of Direct Material Budget:

Direct Material Budget
	January	February	March	1st Quarter
Targeted Units to be Produced	11,840	12,012	12,612	36,463
Materials Requirement per Unit (lbs)	0.50	0.50	0.50	0.50
Materials Needed for Production (lbs)	5,920	6,006	6,306	18,232
Add: Targeted Ending Inventory	3,003	3,153	2,100	2,100
Total Material Required	8,923	9,159	8,406	20,332
Less: Beginning Inventory (lbs)	2,425	3,003	3,153	2,425
Materials to be Purchased (lbs)	6,498	6,156	5,253	17,907
Material Price per Pound	$ 14.70	$ 14.70	$ 14.70	$ 14.70
Estimated Cost of Direct Materials Purchases	$ 95,519	$ 90,491	$ 77,218	$ 263,226

Working Note:

Targeted ending inventory = 50% of the next month's raw material needs

Targeted ending inventory of January = February's requirement × 50% = 6,006 lbs × 50% = 3,003 lbs

Targeted ending inventory of February = March's requirement × 50% = 6,306 lbs × 50% = 3,153 lbs

4. Preparation of Direct Labor Budget:

Direct Labor Budget
	January	February	March	1st Quarter
Targeted Units to be Produced	11,840	12,012	12,612	36,463
Labor Requirement per Unit (hours)	0.25	0.25	0.25	0.25
Total Labor Hours Needs	2,960	3,003	3,153	9,116
Labor Rate per Hour	$ 15	$ 15	$ 15	$ 15
Estimated Cost of Direct Labor	$ 44,400	$ 45,044	$ 47,294	$ 136,736

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