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Session:7 Budgeting

Problem Set A

Principles of Accounting, Volume 2: Managerial Accounting | Leadership Development – Micro-Learning Session

Rice University 2020 | Michael Laverty, Colorado State University Global Chris Littel, North Carolina State University| https://openstax.org/details/books/principles-managerial-accounting

PA 1. 

LO 7.2Lens Junction sells lenses for $45 each and is estimating sales of 15,000 units in January and 18,000 in February. Each lens consists of 2 pounds of silicon costing $2.50 per pound, 3 oz of solution costing $3 per ounce, and 30 minutes of direct labor at a labor rate of $18 per hour. Desired inventory levels are:

Beginning inventory for January 31, February 28, and March 31 respectively: Finished goods 4,500, 5,900, 5,000; Direct materials: silicon, 8,500, 9,100, 9,200; Direct materials: solution, 11,200, 12,000, 13,000.

Prepare a sales budget, production budget, direct materials budget for silicon and solution, and a direct labor budget.

PA 2. 

LO 7.2The data shown were obtained from the financial records of Italian Exports, Inc., for March:

Estimated Sales, $560,000, Sales 567,923, Purchases 294,823, Ending Inventory of next month’s sales 10%, Administrative salaries 50,320, Marketing expense of estimated sales 5%, Sales commissions of estimated sales 2%, Rent expense 7,500, Depreciation expense 1,100, Utilities 2,500, Taxes on income (before taxes) 15%.

Sales are expected to increase each month by 10%. Prepare a budgeted income statement.

PA 3. 

LO 7.2Echo Amplifiers prepared the following sales budget for the first quarter of 2018:

January, February, and March (respectively): Units, 1,000, 1,200, 1,500; Sales price $10, 10, 10; Budgeted sales, $10,000, 12,000, 15,000.

It also has this additional information related to its expenses:

Direct material per unit $1.50, Direct labor per unit 2, Variable manufacturing overhead per hour 0.50, Fixed manufacturing overhead per month 3,000, Sales commissions per unit 15, Sales salaries per month 5,000, Delivery expense per unit 0.50, Factory utilities per month 5,000, Administrative salaries per month 20,000, Marketing expenses per month 8,000, Insurance expense per month 11,000, Depreciation expense per month 9,000.

Prepare a sales and administrative expense budget for each month in the quarter ending March 31, 2018.

PA 4. 

LO 7.2Prepare a budgeted income statement using the information shown.

Sales (units) 15,000, Sales price per unit $40, Uncollectible expense 1 percent of sales, Direct material per unit $2, Direct labor per unit (hours) .5, Direct labor rate per hour $20, Manufacturing overhead $15,000, Variable sales and administrative expenses per unit $2, Fixed sales and administrative expenses $20,000, Taxes (on income before taxes) 15 percent.

PA 5. 

LO 7.2Spree Party Lights overhead expenses are:

Indirect material, pounds per unit 0.25, Indirect material cost per pound $2, Indirect labor hours 1, Indirect labor rate per hour $15, Variable maintenance per unit $.75, Variable utilities per unit $.20, Supervisor salaries $10,000, Maintenance salaries $9,000, Insurance $3,000, Depreciation $1,500.

Prepare a manufacturing overhead budget if the number of units to produce for January, February, and March are 2,500, 3,000, and 2,700, respectively.

PA 6. 

LO 7.3Relevant data from the Poster Company’s operating budgets are:

Quarter 1 and Quarter 2 respectively: Sales $208,470, 211,539; Direct material purchases 115,295, 120,832; Direct labor 75,205, 73,299; Manufacturing overhead 25,300, 25,300; Selling and admin expenses 32,000, 32,500; Depreciation included in selling and admin 1,500, 1,000; Collections from customers 215,392, 240,155; Cash payments for purchases 114,295, 119,253.

Additional data: Capital assets were sold in January for $10,000 and $4,500 in May. Dividends of $4,500 were paid in February. The beginning cash balance was $60,359 and a required minimum cash balance is $59,000. Use this information to prepare a cash budget for the first two quarters of the year

PA 7. 

LO 7.3Fill in the missing information from the following schedules:

Sales Budget, For the Year Ending December 31, 2018, Quarter 1, Quarter 2, Quarter 3, Quarter 4, Total (respectively): Expected sales (units) 7,500, 8,250, 8,750, 9.000, ?; Sales price per unit $45, 50, 50, 55; Total sales revenue $337,500, 412,500, 437,500, ?, ?Production Budget For the Year Ending December 31, 2018, Quarter 1, Quarter 2, Quarter 3, Quarter 4, Q 1Year 2 (respectively): Expected Sales 7,500, 8,250, 8,750, 9,000, 8,000; plus Desired ending inventory 1,650, 1,750, 1,800, ?, 900; Total required units 9,150, 10,000, 10,550, 10,600, 8,900; minus Beginning Inventory 1,500, 1,650, 1,750, 1,800, 1,600; Equals required production 7,650, 8,350, 8800, ?, 7,300; Total ?Direct Materials Budget, For the Year Ending December 31, 2018, Quarter 1, Quarter 2, Quarter 3, Quarter 4, Total (respectively): Units to be produced 7,650, 8,350, 8,800, 8,800, 33,600; Times Direct material per unit 2, 2, 2, 2, 2; Total pounds needed for production 15,300, 16,700, 17,600, 17,600, 67,200; Add: desired ending inventory 4,175, 4,400, 4,400, 3,650, 3,650; Total material required 19,475, 21,100, 22,000, 21,250, 70,850; Less: beginning inventory 0, 4,175, 4,400, 4,400, –; Pounds of direct material purchase requirements 19,475, 16,925, 17,600, 16,850, 70,850; Cost per pound $1.50, 1.50, 1.50, 1.50, 1.50; Total cost of direct material purchase $29,213, 25,388, 26,400, 25,275, 106,275; Total ? $106,275.Direct Labor Budget, For the Year Ending December 31, 2018, Quarter 1, Quarter 2, Quarter 3, Quarter 4, Total (respectively): Units to be produced 7,650, 8,350, 8,800, 8,800, 33,600; Direct labor hours per unit 0.75, 0.75, 0.75, 0.75, 0.75; Total required direct labor hours 5,738, 6,263, 6,600, 6,600, 25,200; Labor cost per hour $25, 25, 25, 25, 25; Total direct labor cost $143,438, 156,563, 165,000, 165,000, 630,000.

PA 8. 

LO 7.3Direct labor hours are estimated as 2,000 in Quarter 1; 2,100 in Quarter 2; 1,900 in Quarter 3; and 2,300 in Quarter 4. Prepare a manufacturing overhead budget using the information provided.

Indirect material per hour $1.00; Indirect labor per hour 1.25; Maintenance per hour 0.25; Utilities per hour 0.50; Supervisory salaries 17,000; Maintenance 5,000; Property taxes and insurance 6,000; Depreciation 3,500.

PA 9. 

LO 7.3Fitbands’ estimated sales are:

October $131,982, November 195,723, December 249,283, January 124,298, February 124,284, March 124,373.

What are the balances in accounts receivable for January, February, and March if 65% of sales is collected in the month of sale, 25% is collected the month after the sale, and 10% is second month after the sale?

PA 10. 

LO 7.3Sports Socks has a policy of always paying within the discount period and each of its suppliers provides a discount of 2% if paid within 10 days of purchase. Because of the purchase policy, 85% of its payments are made in the month of purchase and 15% are made the following month. The direct materials budget provides for purchases of $129,582 in November, $294,872 in December, $239,582 in January, and $234,837 in February. What is the balance in accounts payable for January 31, and February 28?

PA 11. 

LO 7.4Prepare a flexible budgeted income for 120,000 units using the following information from a static budget for 100,000 units:

Sales price $90, Direct material per unit 30, Direct labor per unit 15, Variable manufacturing overhead per unit 13, Fixed manufacturing overhead 75,000, Variable sales and admin expenses per unit 3, Fixed sales and admin expenses 25,000, Taxes 30 percent of income before taxes.

PA 12. 

LO 7.4Before the year began, the following static budget was developed for the estimated sales of 100,000. Sales are sluggish and management needs to revise its budget. Use this information to prepare a flexible budget for 80,000 and 90,000 units of sales.

Sales $3,500,000 less cost of goods sold: Direct material 900,000, Direct labor 1,000,000, Variable manufacturing overhead 80,000 equals 2,230,000 cost of goods sold Equals Gross profit 1,270,000 Less Variable sales and admin expenses 100,000 and Fixed sales and admin expenses 950,000 equals Income before taxes 220,000 Less Taxes 66,000 equals Net Income $154,000.

PA 13. 

LO 7.4Caribbean Hammocks currently sells 75,000 units at $50 per unit. Its expenses are:

Direct material per unit $9, Direct labor per unit 10, Variable manufacturing overhead per unit 7, Variable sales and admin expenses per unit 2, Fixed manufacturing overhead 75,000, Fixed sales and admin expenses 850,000, Taxes 30 percent of income before taxes.

Management believes it can increase sales by 5,000 units for every $5 decrease in sales price. It also believes the additional sales will allow a decrease in direct material of $1 for each additional 5,000 units. Prepare a flexible budgeted income statement for 75,000-, 80,000-, and 85,000-unit sales.

PA 14. 

LO 7.4Total Pop’s data show the following information:

January, February, March, April, May (respectively): Estimated sales (in units) 15,000, 14,500, 16,000, 15,500, 15,800; Sales price per unit $45, 45, 45, 45, 45; Direct labor per unit 3, 3, 2.25, 2, 2; Labor rate per hour $18, 18, 21, 21, 21.

New machinery will be added in April. This machine will reduce the labor required per unit and increase the labor rate for those employees qualified to operate the machinery. Finished goods inventory is required to be 20% of the next month’s requirements. Direct material requires 2 pounds per unit at a cost of $3 per pound. The ending inventory required for direct materials is 15% of the next month’s needs. In January, the beginning inventory is 3,000 units of finished goods and 4,470 pounds of material. Prepare a production budget, direct materials budget, and direct labor budget for the first quarter of the year.

PA 15. 

LO 7.4Identify the document that contains the information listed in these lines from the budgeted balance sheet shown.

  1. Cash
  2. Accounts receivable
  3. Raw materials inventory
  4. Computers
  5. Accounts payable

Assets: Cash $2,500,000A; Accounts receivable 5,381,239 B; Raw materials inventory 3,149,183 C; Finished goods inventory 6,239,138 Equals Total current assets $17,269,560; Property, plant, and equipment: Computers $150,000 D, Machinery 9,745,231, less Accumulated Depreciation (5,385,733) equals Net Property, plant, and equipment 4,509,498 Equals Total assets $21,779,058; Liabilities: Accounts Payable $3,242,938 E; Notes payable 8,289,722 Equals Total liabilities $11,532,660; Stockholders’ equity: Common stock $5,000,000, Retained earnings 5,246,398 Equals Total stockholders’ equity $10,246,398; Total liabilities and stockholders’ equity $21,779,058.

PA 16. 

LO 7.5Titanium Blades refines titanium for use in all brands of razor blades. It prepared a static budget for the sales of 5,000 units. These variances were observed:

Actual Results and Variances, respectively: Sales $150,000, $25,000 Favorable; Variable expenses 77,800, 12,800 Unfavorable; Fixed expenses 70,300, 300 Unfavorable; Net income (loss) 1,900, 11,900 Unfavorable.

Determine the static budget and use the information to prepare a flexible budget and analysis for the 6,000 units actually sold.

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