ACCOUNTING
203
CHAPTER 8(Master
Budgeting)
The East
Division of Kensic Company manufactures a vital component that is used in one
of Kensic’s major product lines. The
East Division has been experiencing some difficulty in coordinating activities
between its various departments, which has resulted in some shortages of the
component at critical times. To overcome the shortages, the manager of East
Division has decided to initiate a monthly budgeting system that is integrated
between departments.
The first
budget is to be for the second quarter of the current year (April, May and
June). To assist in developing the budget figures, the divisional controller
has accumulated the following information.
Sales: Sales
through the first three months of the current year were 30,000 units. Actual
sales in units for January, February, and March, and planned sales in units
over the next five months, are given below:
January (actual) 6,000
February
(actual) 10,000
March (actual) 14,000
April (planned) 20,000
May (planned) 35,000
June (planned) 50,000
July (planned) 45,000
August (planned) 30,000
In total,
the East Division expects to produce and sell 250,000 units during the current
year.
Direct Material:Two different materials are used in
production of the component. Data regarding these materials are given below:
Units of Direct Cost
Direct Materials per per Inventory at
Material Finished Component lb/ft March 31
No. 208 4 pounds $5.00 46,000 pounds
No. 311 9 feet 2.00 69,000
feet
Material No.
208 is sometimes in short supply. Therefore, the East Division requires that
enough of the material be on hand at the end of each month to provide for 50%
of the following month’s production needs. Material No. 311 is easier to get,
so only one-third of the following month’s production needs must be on hand at
the end of each month.
Direct Labor: The
East Division has three department through which the components must past
before they are completed. Information relating to direct labor in these
departments is given below:
Direct
Labor-Hours Cost per
Per
Finished Direct
Department Component Labor-Hour
Shaping .25 $18.00
Assembly .70 16.00
Finishing .10 20.00
Direct labor
is adjusted to the workload each month.
Manufacturing Overhead: East Division manufactured 32,000
components during the first three months of the current year. The actual
variable overhead costs incurred during this three-month period are shown
below. Each Division’s controller believes that the variable overhead costs
incurred during the last nine months of the year will be at the same rate per
component as experienced during the first three months.
Utilities $ 57,000
Indirect
Labor 31,000
Supplies 16,000
Other 8,000
Total variable
overhead $112,000
The actual
fixed manufacturing overhead costs incurred during the first three months
amounted to $1,170,000. The East Division has planned fixed manufacturing
overhead costs for the entire year as follows:
Supervision $ 872,000
Property
Taxes 143,000
Depreciation 2,910,000
Insurance 631,000
Other 72,000
Total fixed
manufacturing
Overhead
$4,628,000
Finished Goods Inventory: The desired monthly ending inventory of
completed components is 20% of the next month’s estimated sales. The East
Division has 4,000 units in the finished goods inventory on March 31.
Selling and Administrative Expenses: Selling and Administrative Expenses
are budgeted at $400,000 per month plus 1% of total credit sales for the month.
REQUIRED:
- Prepare a production budget for
the East Division for the second quarter ending June 30. Show computations
by month and in total for the quarter.
(5
pts.) _____
- Prepare a direct materials
purchases budget in units and dollars for each
type
of material for the second quarter ending June 30. Again show computations by
month and in total for the quarter.
(5
pts.) _____
- Prepare a schedule of cash
payments for direct materials for the second quarter. Assume that all
direct materials are purchased on account and the East Division pays for
½ of the amount purchased in the
month of purchase and the other ½ in the month following the purchase. The
balance in the Accounts Payable account at 3/31 was $351,200.
(5
pts.) _____
- Prepare a direct labor budget in
hours and in dollars for the second quarter ending June 30. Again show
computations by month in total for the quarter.
(5
pts.) _____
- Prepare a manufacturing overhead
budget for the second quarter. Show computations by month and in total for
the quarter.
(5
pts.) _____
- Compute a new “selling price per
unit” for the East Division that will enable them to accumulate a balance
of $100,000 in their cash account by the end of the second quarter. Assume
that the cash balance at March 31 was $10,000.
(5
pts.) _____
- Using the selling price per unit
computed in #6 prepare a sales budget for the second quarter. Show
computations by month and in total for the quarter.
(5
pts.) _____
- Prepare a schedule of expected
cash collections for the second quarter using the selling price per unit
calculated in question #6. Assume that the East Division collects on its
credit sales as follows; 70% in the month of sale, 20% in the month
following the credit sale, 10% in the second month following the credit
sale. To compute the balance in Accounts Receivable at 3/31 assume that
the selling price per unit prior to 3/31 was $75.00.
(5
pts.) _____
- Prepare a cash budget for the
second quarter in month and in total for the East Division.
(10
pts.)
