Question

Johnson Company is preparing budgets for the upcoming quarter ending October 31st . The marketing director has provided the following information to the Budget Committee. Currently the company sells one product, the korda, for $25 per unit. Budgeted sales for the next five months are as follows:

August 15,000

September 45,000

October 37,500

November 25,500

December 26,250

To minimize the risk of stockouts, the company has a policy to maintain an ending inventory of 18% of the following month’s budgeted sales. At the beginning of the quarter, the company had 7,500 units of korda in inventory. Each unit of korda requires 2 kilograms of direct materials. The company has a policy that materials on hand at the end of each month must be a minimum of 20% of the following month’s production. At the beginning of the quarter, the company has 15,600 kilograms of direct materials on hand. Each kilogram of direct material costs $3.00. Each unit of korda requires 0.2 hours (12 minutes) of direct labour. The company pays employees a standard wage of $15.00 per hour. The company applies overhead on the basis of direct labour hours. The variable manufacturing overhead rate is $12.00 per direct labour hour. Fixed overhead is $81,978 per month. The company has variable selling and administrative costs that are equal to $0.75 per unit sold. Fixed selling and administrative costs are estimated to be $100,000 per month. All sales are made on account. The company collects 65% of the sales revenue in the month of the sale, and the remaining 35% in the month following the sale. At the start of 2 the quarter, the company has $45,000 in accounts receivable that are deemed to be fully collectible. As stated, the company pays $3.00 per kilogram of direct materials. The company pays for 70% the direct materials purchases in the month of the purchase and pays the remaining 30% in the month following the purchase. At the beginning of the month, the company owes $20,000 to creditors.

Required:

(A) Prepare a sales budget for August, September, and October, and for the quarter.

(B) Prepare a production budget for August, September, and October, and for the quarter-end. (Note: You should also compute November’s production needs. That information is necessary for section (C).)

(C) Prepare the direct materials purchases budget for August, September, and October, and for the quarter-end.

(D) Prepare the direct labour budget for August, September, and October, and for the quarter-end.

(E) Prepare the overhead budget for August, September, and October, and for the quarter-end.

(F) Prepare the ending finished goods inventory budget for the quarter-end.

(G) Prepare a cost of goods sold budget for the quarter-end.

(H) Prepare the selling and administrative expense budget for August, September, and October, and for the quarter-end.

(I) Prepare a budgeted income statement for the quarter-end.

(J) Prepare the schedule of expected cash collections on sales for August, September, and October, and for the quarter-end.

(K) Prepare the schedule of expected cash disbursements for August, September, and October, and for the quarter-end.

Answer 1

Requirement A: Prepare the sales budget as follows:
JC Inc
Sales Budget
For the Quarter Ended October 31, XXXX
Particulars	August	September	October	Quarter
Budgeted sales in units	15,000	45,000	37,500	97,500
× Selling price per unit	$25	$25	$25	$25
Budgeted sales revenue	$375,000	$1,125,000	$937,500	$2,437,500
Requirement B: Prepare the production budget as follows:
JC Inc
Production Budget
For the Quarter Ended October 31, XXXX
Particulars	August	September	October	Quarter
Budgeted sales in units	15,000	45,000	37,500	97,500
Add: Desired ending units of finished goods inventory	8,100	6,750	4,590	4,590
Total needs	23,100	51,750	42,090	102,090
Deduct: Beginning units of finished goods inventory	7,500	$8,100	6,750	7,500
Required production in units	15,600	43,650	35,340	94,590
Requirement C: Prepare the direct material purchase budget as follows:
JC Inc
Direct Material Purchase Budget
For the Quarter Ended October 31, XXXX
Particulars	August	September	October	Quarter
Required production in units	15,600	43,650	35,340	94,590
× Units of direct material required per unit	2	2	2	2
Units of direct material required for production	31,200	87,300	70,680	189,180
Add: Desired ending units of direct material	17,460	14,136	10,254	10,254
Total units of direct material needed	48,660	101,436	80,934	199,434
Deduct: Beginning units of direct material	15,600	17,460	14,136	15,600
Units of direct material to be purchased	33,060	83,976	66,798	183,834
× Cost per unit	$3.00	$3.00	$3.00	$3.00
Cost of direct material to be purchased	$99,180	$251,928	$200,394	$551,502
Requirement D: Prepare the direct labor budget as follows:
JC Inc
Direct labor Budget
For the Quarter Ended October 31, XXXX
Particulars	August	September	October	Quarter
Required production in units	15,600	43,650	35,340	94,590
× Direct labor per unit	0.20	0.20	0.20	0.20
Total direct labor hours needed	3,120	8,730	7,068	18,918
Direct labor cost per hour	$15.00	$15.00	$15.00	$15.00
Total direct labor cost	$46,800	$130,950	$106,020	$283,770

Notes: