EXERCISE 9-2 Production Budget [ LO3 ] Crystal Telecom has budgeted the sales of
ID: 2517180 • Letter: E
Question
EXERCISE 9-2 Production Budget [ LO3 ]
Crystal Telecom has budgeted the sales of its innovative mobile phone over the next four months as
follows:
Sales in Units
July. . . . . . . . . . . . . . 30,000
August . . . . . . . . . . . 45,000
September . . . . . . . . 60,000
October . . . . . . . . . . 50,000
The company is now in the process of preparing a production budget for the third quarter. Past experience
has shown that end-of-month inventories of fi nished goods must equal 10% of the next month’s
sales. The inventory at the end of June was 3,000 units.
Required:
Prepare a production budget for the third quarter showing the number of units to be produced each
month and for the quarter in total.
EXERCISE 9-3 Direct Materials Budget [ LO4 ]
Micro Products, Inc., has developed a very powerful electronic calculator. Each calculator requires
three small “chips” that cost $2 each and are purchased from an overseas supplier. Micro Products
has prepared a production budget for the calculator by quarters for Year 2 and for the fi rst quarter of
Year 3, as shown below:
Year 2 Year 3
First Second Third Fourth First
Budgeted production,
in calculators . . . . . . . . . . . . 60,000 90,000 150,000 100,000 80,000
The chip used in production of the calculator is sometimes hard to get, so it is necessary to carry
large inventories as a precaution against stockouts. For this reason, the inventory of chips at the end of
a quarter must be equal to 20% of the following quarter’s production needs. Some 36,000 chips will
be on hand to start the fi rst quarter of Year 2.
Required:
Prepare a direct materials budget for chips, by quarter and in total, for Year 2. At the bottom of your
budget, show the dollar amount of purchases for each quarter and for the year in total.
EXERCISE 9-4 Direct Labor Budget [ LO5 ]
The Production Department of the Riverside Plant of Junnen Corporation has submitted the following
forecast of units to be produced at the plant for each quarter of the upcoming fi scal year. The plant
produces high-end outdoor barbecue grills.
1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
Units to be produced . . . . . . . . 5,000 4,400 4,500 4,900
Each unit requires 0.40 direct labor-hours and direct labor-hour workers are paid $11 per hour.
Required:
1. Construct the company’s direct labor budget for the upcoming fi scal year, assuming that the direct
labor workforce is adjusted each quarter to match the number of hours required to produce
the forecasted number of units produced.
2. Construct the company’s direct labor budget for the upcoming fi scal year, assuming that the direct
labor workforce is not adjusted each quarter. Instead, assume that the company’s direct labor
workforce consists of permanent employees who are guaranteed to be paid for at least 1,800
hours of work each quarter. If the number of required direct labor-hours is less than this number,
the workers are paid for 1,800 hours anyway. Any hours worked in excess of 1,800 hours in a
quarter are paid at the rate of 1.5 times the normal hourly rate for direct labor.
Profi t Planning 401
EXERCISE 9-5 Manufacturing Overhead Budget [ LO6 ]
The direct labor budget of Krispin Corporation for the upcoming fi scal year contains the following
details concerning budgeted direct labor-hours.
The company’s variable manufacturing overhead rate is $1.75 per direct labor-hour and the company’s
fi xed manufacturing overhead is $35,000 per quarter. The only noncash item included in the fi xed
manufacturing overhead is depreciation, which is $15,000 per quarter.
Required:
1. Construct the company’s manufacturing overhead budget for the upcoming fi scal year.
2. Compute the company’s manufacturing overhead rate (including both variable and fi xed manufacturing
overhead) for the upcoming fi scal year. Round off to the nearest whole cent.
EXERCISE 9-6 Selling and Administrative Expense Budget [ LO7 ]
The budgeted unit sales of Haerve Company for the upcoming fi scal year are provided below:
1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
Budgeted direct labor-hours . . . . . . . 5,000 4,800 5,200 5,400
The company’s variable selling and administrative expenses per unit are $2.75. Fixed selling and administrative
expenses include advertising expenses of $12,000 per quarter, executive salaries of
$40,000 per quarter, and depreciation of $16,000 per quarter. In addition, the company will make insurance
payments of $6,000 in the 2nd Quarter and $6,000 in the 4th Quarter. Finally, property taxes
of $6,000 will be paid in the 3rd Quarter.
Required:
Prepare the company’s selling and administrative expense budget for the upcoming fi scal year.
EXERCISE 9-7 Cash Budget Analysis [ LO8 ]
A cash budget, by quarters, is given below for a retail company (000 omitted). The company requires
a minimum cash balance of $5,000 to start each quarter.
1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
Budgeted unit sales . . . . . . . . 12,000 14,000 11,000 10,000
Required:
Fill in the missing amounts in the table above.
Quarter
1 2 3 4 Year
Cash balance, beginning . . . . . . . . . . . . . . . . . $ 9 $ ? $ ? $ ? $ ?
Add collections from customers . . . . . . . . . . . . ? ? 125 ? 391
Total cash available . . . . . . . . . . . . . . . . . . . . . 85 ? ? ? ?
Less disbursements:
Purchases of inventory. . . . . . . . . . . . . . . . . 40 58 ? 32 ?
Operating expenses . . . . . . . . . . . . . . . . . . . ? 42 54 ? 180
Equipment purchases. . . . . . . . . . . . . . . . . . 10 8 8 ? 36
Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 2 2 2 ?
Total disbursements . . . . . . . . . . . . . . . . . . . . . ? 110 ? ? ?
Excess (defi ciency) of cash available
over disbursements . . . . . . . . . . . . . . . . . . . (3) ? 30 ? ?
Financing:
Borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . ? 20 — — ?
Repayments (including interest)* . . . . . . . . . — — (?) (7) (?)
Total fi nancing . . . . . . . . . . . . . . . . . . . . . . . . . ? ? ? ? ?
Cash balance, ending . . . . . . . . . . . . . . . . . . . $ ? $ ? $ ? $ ? $ ?
*Interest will total $4,000 for the year.
Explanation / Answer
Answer 9-2. Frame Production Budget Jul Aug Sep Total Oct. Sales In units 30,000 45,000 60,000 135,000 50,000 Add: Closing Inventory in units 4,500 6,000 5,000 5,000 Total Needs 34,500 51,000 65,000 140,000 Less: opening Inventory in uints (3,000) (4,500) (6,000) (3,000) Required Production in Units 31,500 46,500 59,000 137,000 Answer 9-3. Raw Material Purchase Budget Year 2 Total Year 3 Qtr 1 Qtr 2 Qtr 3 Qtr 4 Qtr 1 Required Production in Units 60,000 90,000 150,000 100,000 400,000 80,000 Chips Required per Unit 3 3 3 3 3 3 Total Bamboo required for Production 180,000 270,000 450,000 300,000 1,200,000 240,000 Add: Closing Raw Material Inventory 54,000 90,000 60,000 48,000 48,000 Total Needs 234,000 360,000 510,000 348,000 1,248,000 Less: opening Inventory (36,000) (54,000) (90,000) (60,000) (36,000) Raw Material Purchased in units 198,000 306,000 420,000 288,000 1,212,000 Cost per Chip 2.00 2.00 2.00 2.00 2.00 Cost of Chips Purchased 396,000 612,000 840,000 576,000 2,424,000 Answer 9-4-a. Budgeted Direct Labor Costs Qtr 1 Qtr 2 Qtr 3 Qtr 4 Total Required Production in Units 5,000 4,400 4,500 4,900 18,800 Lab. Hour required per unit 0.40 0.40 0.40 0.40 0.40 Total Labor Hours Required 2,000 1,760 1,800 1,960 7,520 Lab. Rate per Hour 11 11 11 11 11 Budgeted Direct Labor Costs 22,000 19,360 19,800 21,560 82,720 Answer 9-4-b. Budgeted Direct Labor Costs Qtr 1 Qtr 2 Qtr 3 Qtr 4 Total Required Production in Units 5,000 4,400 4,500 4,900 18,800 Lab. Hour required per unit 0.40 0.40 0.40 0.40 0.40 Total Labor Hours Required 2,000 1,760 1,800 1,960 7,520 Regular Labour Hours 1,800 1,800 1,800 1,800 7,200 Overtime Labor Hours 200 - - 160 360 Regular Lab. Rate per Hour 11 11 11 11 11 Budgeted Direct Labor Costs - regular 19,800 19,800 19,800 19,800 79,200 Budgeted Direct Labor Costs - Overtime 3,300 - - 2,640 5,940 Total Budgeted Direct Labor Costs 23,100 19,800 19,800 22,440 85,140 Answer 9-5. Full Details are not attached with the question - Labor Hours are not given in the question Answer 9-6. Total Budgetd Selling & Admn. Expenses Qtr 1 Qtr 2 Qtr 3 Qtr 4 Total No. Of Units Sold 5,000 4,800 5,200 5,400 20,400 Variable Selling & Admn. Exp. Per Unit 2.75 2.75 2.75 2.75 2.75 Total Variable selling & Admn. Exp. 13,750 13,200 14,300 14,850 56,100 Fixed selling & Admn. Exp.: Advertising Expense 12,000 12,000 12,000 12,000 48,000 Executive Salaries 40,000 40,000 40,000 40,000 160,000 Depreciation 16,000 16,000 16,000 16,000 64,000 Insurance - 6,000 - 6,000 12,000 Property Taxes 6,000 - 6,000 Total Fixed selling & Admn. Exp 68,000 74,000 74,000 74,000 290,000 Total selling & Admn. Exp. 81,750 87,200 88,300 88,850 346,100
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