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Session:7 Budgeting

Problem Set B

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

PB 1. 

LO 7.2Lens & Shades sells sunglasses for $37 each and is estimating sales of 21,000 units in January and 19,000 in February. Each lens consists of 2.00 mm of plastic costing $2.50 per mm, 1.7 oz of dye costing $2.80 per ounce, and 0.50 hours direct labor at a labor rate of $18 per unit. Desired inventory levels are:

Beginning inventory for January, February, and March respectively: Finished goods 3,500, 3,800, 4,500; Direct materials: plastic, 4,100, 4,500, 4,600; Direct materials: dye, 10,100, 11,300, 12,200.

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

PB 2. 

LO 7.2The following data were obtained from the financial records of Sonicbrush, Inc., for March:

Estimated Sales, $333,000, Sales 329,831, Purchases 179,431, Ending Inventory (of next month’s sales) 15 percent, Administrative salaries 70,200, Marketing expense of estimated sales 3 percent, Sales commissions of estimated sales 4 percent, Rent expense per month 8,400, Depreciation expense per month 1,200, Utilities per month 2,800, Taxes on income (before taxes) 15 percent.

Sales are expected to increase each month by 15%. Prepare a budgeted income statement.

PB 3. 

LO 7.2TIB makes custom guitars and prepared the following sales budget for the second quarter

April, May, and June (respectively): Units, 80, 86, 84; Sales price $1,200, 1,200, 1,200; Budgeted sales, $96,000, 103,200, 100,800.

It also has this additional information related to its expenses:

Direct material per unit $55, Direct labor per hour 20, Variable manufacturing overhead per hour 3.50, Fixed manufacturing overhead per month 3,000, Sales commissions per unit 20, Sales salaries per month 5,000, Delivery expense per unit 0.50, Utilities per month 4,000, 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 ended June 30, 2018.

PB 4. 

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

Sales (units) 84,000, Sales price per unit $22, Uncollectible expense 1 percent of sales, Direct material per unit $1.50, Direct labor per unit (hours) 0.8, Direct labor rate per hour $19, Manufacturing overhead $14,000, Variable sales and administrative expenses per unit $2.10, Fixed sales and administrative expenses $23,000, Taxes (on income before taxes) 15 percent.

PB 5. 

LO 7.2Sunshine Gardens overhead expenses are:

Indirect material, pounds per unit 0.50, Indirect material cost per pound $1, Indirect labor hours 1, Indirect labor rate per hour $16.50, Variable maintenance per unit $0.75, Variable utilities per unit $0.20, Supervisor salaries $10,000, Maintenance salaries $9,000, Insurance $3,000, Depreciation $1,500.

Given production of 10,200; 11,300; 12,900; and 13,200 for each quarter of the next year, prepare a manufacturing overhead budget for each quarter.

PB 6. 

LO 7.3Relevant data from the operating budget of The Framers are:

Quarter 1 and Quarter 2 respectively: Sales $33,948, 76,482; Direct material purchases 25,312, 26,423; Direct labor 29,948, 24,328; Manufacturing overhead 9,322, 10,299; Selling and admin expenses 19,283, 19,238; Depreciation included in selling and admin 950, 800; Collections 34,324, 76,938; Cash payments 29,349, 20,937; Cash received: other 8,000, 500; Dividend 0, 500.

Other data:

  • Capital assets were sold in quarter 1 and $8,000 was collected in quarter 1 and $500 collected in quarter 2.
  • Dividends of $500 will be paid in May
  • The beginning cash balance was $50,000 and a required minimum cash balance is $10,000.
  • Prepare a cash budget for the first two quarters of the year.
PB 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) 21,000, 26,250, 8,750, 9.000, 65,000; Sales price per unit $?, ?, ?, ?; Total sales revenue $315,000, ?, ?, ?, 975,000.Production Budget For the Year Ending December 31, 2018, Quarter 1, Quarter 2, Quarter 3, Quarter 4, Q 1Year 2 (respectively): Expected Sales 21,000, 26,250, 8,750, 9,000, 8,000; plus Desired ending inventory 5,250, ?, ?, 1,600, –; Total required units 26,250, 28,000, 10,550, 10,600, 8,000; minus Beginning Inventory 5,250, 5,250, 1,750, 1,800, 1,600; Equals required production ?, ?, ?, ?, 6,400; Total 61,350.Direct Materials Budget, For the Year Ending December 31, 2018, Quarter 1, Quarter 2, Quarter 3, Quarter 4, Total (respectively): Units to be produced ?, ?, ?, ?, 61,350; Times Direct material per unit 2, 2, 2, 2, 2; Total pounds needed for production 42,000, 45,500, 17,600, 17,600, 122,700; Add: desired ending inventory11,375, ?, ?, 3,200, 3,200; Total material required 53,375, 49,900, 22,000, 20,800, 125,900; Less: beginning inventory 0, 11,375, 4,400, 4,400, –; Pounds of direct material purchase requirements 53,375, 38,525, 17,600, 16,400, 125,900; Cost per pound $1.50, 1.50, 1.50, 1.50, 1.50; Total cost of direct material purchase $80,063, 57,788, 26,400, 24,600, 188,850; Total $188,850, 188,850.Direct Labor Budget, For the Year Ending December 31, 2018, Quarter 1, Quarter 2, Quarter 3, Quarter 4, Total (respectively): Units to be produced ?, ?, ?, ?, ?; Direct labor hours per unit 1, 1, 1, 1, 1; Total required direct labor hours 15,750, 17,063, 6,600, 6,600, 46,013; Labor cost per hour $25, ?, ?, ?, ?; Total direct labor cost $393,750, 426,563, 165,000, 165,000, 1,150,313.

PB 8. 

LO 7.3Mesa Aquatics, Inc. estimated direct labor hours as 1,900 in quarter 1, 2,000 in quarter 2, 2,200 in quarter 3, and 1,800 in quarter 4. a sales and administration 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.

PB 9. 

LO 7.3Amusement tickets estimated sales are:

January $231,837, February 231,937, March 381,274, April 212,947, May 282,172, June 281,836.

What are the balances in accounts receivable for April, May, and June if 60% of sales are collected in the month of sale, 30% are collected the month after the sale, and 10% are collected the second month after the sale?

PB 10. 

LO 7.3All Temps 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, 80% of its payments are made in the month of purchase and 20% are made the following month. The direct materials budget provides for purchases of $23,812 in February, $23,127 in March, $21,836 in April, and $28,173 in May. What is the balance in accounts payable for April 30, and May 31?

PB 11. 

LO 7.4Prepare a flexible budgeted income statement for 47,000 units using the following information from a static budget for 45,000 units:

Sales price $50, Direct material per unit 12, Direct labor per unit 5, Variable manufacturing overhead per unit 3, Fixed manufacturing overhead 25,000, Variable sales and admin expenses per unit 3, Fixed sales and admin expenses 9,000, Taxes 15 percent of income before taxes.

PB 12. 

LO 7.4Before the year began, the following static budget was developed for the estimated sales of 50,000. Sales are higher than expected and management needs to revise its budget. Prepare a flexible budget for 100,000 and 110,000 units of sales.

50,000 Units: Sales $1,250,000 less cost of goods sold: Direct material 450,000, Direct labor 500,000, Variable manufacturing overhead 125,000, Fixed manufacturing overhead 32,000 equals 1,107,000 cost of goods sold Equals Gross profit 143,000 Less Variable sales and admin expenses 50,000 and Fixed sales and admin expenses 105,000 equals Income before taxes (12,000) Less Taxes (1,800) equals Net Income $(10,200).

PB 13. 

LO 7.4Artic Camping Gear’s currently sells 35,000 units at $73 per unit. Its expenses are as follows:

Direct material per unit $4, Direct labor per unit 7, Variable manufacturing overhead per unit 3, Variable sales and admin expenses per unit 1.50, Fixed manufacturing overhead 21,000, Fixed sales and admin expenses 89,000, Taxes 15 percent of income before taxes.

Management believes it can increase sales by 2,000 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 2,000 units. Prepare a flexible budgeted income statement for 35,000-, 37,000-, and 39,000-unit sales.

PB 14. 

LO 7.4Fruit Tea’s data show the following information:

August, September, October, November, December (respectively): Estimated sales (in units) 25,000, 25,000, 27,000, 27,500, 28,000; Sales price per unit $31, 31, 31, 31, 31; Direct labor per unit 1.75, 1.75, 1.50, 1.50, 1.50; Labor rate per hour $21, 21, 24, 24, 24.

New machinery will be added in October. 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 2.5 pounds per unit at a cost of $5 per pound. The ending inventory required for direct materials is 20% of the next month’s needs. In August, the beginning inventory is 3,750 units of finished goods and 13,125 pounds of materials. Prepare a production budget, direct materials budget, and direct labor budget for the first quarter of the year.

PB 15. 

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

  1. Accounts receivable
  2. Finished goods inventory
  3. Machinery
  4. Accumulated depreciation
  5. Notes payable
  6. Common stock

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

PB 16. 

LO 7.5Replenish sells shampoo that removes chlorine from hair. It prepared a static budget for the sales of 10,000 units. These variances were observed:

Actual Results and Variances, respectively: Sales $264,000, $66,000 Unfavorable; Variable expenses 70,500, 19,500 Favorable; Fixed expenses 70,270, 270 Unfavorable; Net income (loss) 123,230, 46,230 Unfavorable.

Determine the static budget and use the information to prepare a flexible budget and analysis for the 8,000 units actually sold.

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