Exercises
FOSTER
Foster Company makes power tools. The sales budget for drills for the first four months of the year is:
Month
Unit Sales
January
20,000
February
15,000
March
22,000
April
25,000
Foster has taken a just-in-time approach to production and wants only 5% of the next month's sales
needs in ending inventory. January 1 inventory of drills was zero. Each drill takes 15 minutes of direct
labor at $18 per hour. The factory overhead formula is $27,000 + $1.20 per direct labor hour.
Required:
A. Budgeted production for January is
B. Budgeted production for February is
C. Budgeted production for the entire first quarter of the year is
D. Budgeted direct labor cost for January is
E.
Budgeted direct labor cost for February is
F.
Budgeted variable overhead for March is
G. Budgeted total overhead for March is
Yummy Bakery
Trish Morrow owns and operates Yummy Bakery which sells a wide variety of cupcakes. She has compiled
the following data and information in order to put together a cash budget for September and October.
• Budgeted sales for September are 65,000 cupcakes and 98,000 in October. Each cupcake sells for $3.50.
• On average 60% are cash sales and 40% are sold on account.
• The company expects to collect 75% of credit sales in the month of the sale and 20% in the month after
the sale.
• All necessary raw materials are purchased on account. Purchases are paid 85% in the month of the
purchase and 15% in the following month. Purchases for September are estimated to be $200,000 and
$290,000 in October.
• Monthly expenses include:
• Wages $10,000
• Rent $4,000
• Utilities $3,500
• Insurance $2,500
• Advertising $2,290
• Cash balance on September 1st was $6,000.
• The company has a policy to maintain a minimum cash balance of $5,000. If necessary the company will
borrow to meet its short-term needs. All borrowing is done at the beginning of the month and all
payments on principal and interest are made at the end of the next month. The annual interest rate is
7%. The company must borrow in multiples of $1,000.
• August sales were 43,000 cupcakes and raw materials purchased equal $230,000.
Required: Prepare a cash budget for September and October.
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