CH 8 – Budgeting for Planning and Control
Exercise 8.2 Production Budget (EO8:2 Page 398)
1.
Unit Sales
Desired Ending Inventory
Total Needed
Less: Beginning Inventory
Units Produced
Production Budget for Training Balls
January
February
March
70,000
65,000
100,000
13,000
20,000
24,000
83,000
85,000
124,000
10,000
13,000
20,000
73,000
72,000
104,000
Unit Sales
Desired Ending Inventory
Total Needed
Less: Beginning Inventory
Units Produced
Production Budget for Match Balls
January
February
March
10,000
8,000
15,000
1,600
3,000
5,000
11,600
11,000
20,000
1,500
1,600
3,000
10,100
9,400
17,000
2.You need Unit Sales for May to be able to calculate ending inventory.
Exercise 8.3 Direct Materials Purchases Budget (EO8:3 Page 398)
1.
Direct Materials Purchases Budget for Practice Balls
Polyvinyl Chloride Panels
January
February
Units Produced
73,000
72,000
Direct Materials Per Unit
x
.7
x
.7
Production Needs
51,100
50,400
Desired ending inventory*
5,040
7,280
Total needed
56,140
57,680
Less: Beginning inventory**
5,110
5,040
Direct Materials Purchased
51,030
52,640
*Desired Ending Inventory: January = .10 x Feb production needs = .10 x 50,400 = 5,040
Desired Ending Inventory: February = .10 x March production needs = .10 x (104,000 x .7) = 7,280
**Beginning Inventory:January=End of year for December=January Production Needs x .10
= 51,100 x .10 = 5,110
Bladder with Valve
Units Produced
Direct Materials Per Unit
Production Needs
Desired ending inventory*
Total needed
Less: Beginning inventory**
Direct Materials Purchased
January
73,000
x
1
73,000
7,200
80,200
7,300
72,900
February
72,000
x
1
72,000
10,400
82,400
7,200
75,200
*Desired Ending Inventory: January = .10 x Feb production needs = .10 x 72,000 = 7,200
Desired Ending Inventory: February = .10 x March production needs = .10 x (104,000 x 1) = 10,400
**Beginning Inventory:January=End of year for December=January Production Needs x .10
= 73,000 x .10 = 7,300
Glue
Units Produced
Direct Materials Per Unit
Production Needs
Desired ending inventory*
Total needed
Less: Beginning inventory**
Direct Materials Purchased
January
73,000
x
3
219,000
21,600
240,600
21,900
218,700
February
72,000
x
3
216,000
31,200
247,200
21,600
225,600
*Desired Ending Inventory: January = .10 x Feb production needs = .10 x 216,000 = 21,600
Desired Ending Inventory: February = .10 x March production needs = .10 x (104,000 x 3) = 31,200
**Beginning Inventory:January=End of year for December=January Production Needs x .10
= 219,000 x .10 = 21,900
2. If StrikeSmart increased ending inventory to 20% of next month’s needs, ending inventory would
increase, increasing Total materials needed and causing an increase in direct materials purchased.
StrikeSmart would need more ordered to account for the increase in ending inventory.
Exercise 8.10 Budgeted Income Statement (EO8:10 Page 401)
1.
Coral Seas Jewelry Company
Budgeted Income Statement
For the Year Ended December 31, 20__
Sales
Less: Cost of Goods Sold
Gross Margin
Less:
Marketing Expense
$2,800,000
Administrative Expense
675,000
Operating Income
Less: Interest Expense
Income Before taxes
Less: Income Taxes (.40 x $3,675,000)
Net Income
$15,900,000
8,750,000
$ 7,150,000
3,475,000
$ 3,675,000
0
$ 3,675,000
1,470,000
$ 2,205,000
2.If Coral Seas Jewelry Company had interest payments of $500,000, Income before taxes would
decrease by $500,000 to $3,175,000. Income taxes would decrease to $1,270,000, resulting in a
decrease in net income to $1,905,000 ($300,000 decrease).
Exercise 8.13 Flexible Budget for Varying Levels (EO8:13 Page 402)
1.
Variable Cost
Range of Production in Units
Per Unit
210,000
220,000
Variable:
Direct Materials
$3.40
$714,000
$748,000
Direct Labor
1.30
273,000
286,000
Variable Overhead
Supplies
.23
48,300
50,600
Maintenance
.19
39,900
41,800
Power
.18
37,800
39,600
Total Variable Costs
$5.30
$1,113,000
$1,166,000
Fixed Overhead:
Supervision
Depreciation
Other Overhead
Total Fixed Costs
Total Production costs
$110,000
135,000
245,000
$490,000
$1,603,000
$110,000
135,000
245,000
$490,000
$1,656,000
2.
Per-unit product cost @ 210,000 units = Total Production Costs/Production Units=
= $1,603,000/210,000 = $7.63 (rounded)
Per-unit product cost @ 220,000 units = $1,656,000/220,000 = $7.53 (rounded)
Per-unit product cost @ 230,000 units = $1,709,000/230,000 = $7.43 (rounded)
3. If the cost of maintenance went up to .22, the per unit cost would increase by $.03.
230,000
$782,000
299,000
52,900
43,700
41,400
$1,219,000
$110,000
135,000
245,000
$490,000
$1,709,000
Exercise 8.15 Production Budget (EO8:15 Page 403)
1.
Shippen Company
Production Budget
For the Third Quarter
July
August
Unit Sales
23,400
35,600
Desired Ending Inventory
7,120
6,800
Total Needed
30,520
42,400
Less: Beginning Inventory*
4,680
7,120
Units Produced
25,840
35,280
September
34,000
5,600
39,600
6,800
32,800
Total
93,000
5,600
98,600
4,680
93,920
*Desired Ending Inventory for July = 23,400 x .20 = 4,680
Exercise 8.17 Direct Materials Purchases Budget, Direct Labor Budget (EO8:17 Page 403)
1.
GPB Company
Direct Materials Purchases Budget for Fabric
For the Fourth Quarter
October
November
December
Total
Units Produced
42,000
90,000
50,000
182,000
Direct Materials Per Unit
x
.25
x .25
x .25
x .25
Production Needs
10,500
22,500
12,500
45,500
Desired ending inventory*
4,500
2,500
2,000
2,000
Total needed
15,000
25,000
14,500
47,500
Less: Beginning inventory**
2,100
4,500
2,500
2,100
Direct Materials Purchased
12,900
20,500
12,000
45,400
Cost per Yard
x $3.50
x $3.50
x $3.50
x $3.50
Total Purchase Cost
$45,150
$71,750
$42,000
$158,900
*Desired Ending Inventory: October = .20 x November production needs = .20 x 22,500
Desired Ending Inventory: November = .20 x December production needs = .20 x 12,500
Desired Ending Inventory: December = .20 x January production needs (40,000 x .25) = .20 x 10,000
**Beginning Inventory:October=October Production Needs x .20 = 10,500 x .20 = 2,100
2.
GPB Company
Direct Materials Purchases Budget for Polyfiberfill
For the Fourth Quarter
October
November
December
Units Produced
42,000
90,000
50,000
Direct Materials Per Unit
x
8
x
8
x
8
Production Needs
336,000
720,000
400,000
Desired ending inventory*
288,000
160,000
128,000
Total needed
624,000
880,000
528,000
Total
182,000
x
8
1,456,000
128,000
1,584,000
Less: Beginning inventory**
Direct Materials Purchased
Cost per Ounce
Total Purchase Cost
134,400
489,600
x $.05
$24,480
288,000
592,000
x $.05
$29,600
160,000
368,000
x $.05
$18,400
134,400
1,449,600
x
$.05
$72,480
*Desired Ending Inventory: October = .40 x November production needs = .40 x 720,000
Desired Ending Inventory: November = .40 x December production needs = .40 x 400,000
Desired Ending Inventory: December = .40 x January production needs (40,000 x 8) = .40 x 320,000
**Beginning Inventory:October=October Production Needs x .40 = 336,000 x .40 = 134,400
3.
Units Produced
Direct Labor per unit
Direct Labor Hours needed
Cost per Direct Labor Hour
Total Direct Labor Cost
GPB Company
Direct Labor Budget
For the Fourth Quarter
October
November
42,000
90,000
x .35
x .35
14,700
31,500
x $14
X $14
$205,800
$441,000
December
50,000
x .35
17,500
x 14
$245,000
Total
182,000
x .35
63,700
x
$14
$891,800