Question

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) 34,000 June (planned) 51,000 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 poundsNo. 311 9 feet 2.00 69,000 feetMaterial 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-HourShaping .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 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: 1. 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.) _____ 2. 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.) _____ 3. 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.)____

Answer 1

PRODUCTION BUDGET( MONTH WISE)

ALL AMOUNT(IN $) QTR=APR+MAY+JUNE

PARTICULARS	APRIL	MAY	JUNE
SALES(UNITS)	20,000	34000	51000
+ CLOSING INVENTORY	6800(20% *34000)	10,200(20%*51,000)	9000(45,000*20%)
- OPENING INVENTORY	4000	6800	10,200

TOTAL PRODUCTION= SALES+CLOSING INENTORY-OPENING INVENTORY

PRODUCTION BUDGET

22800

37400

49800

1,10,00( QTR)

DIRECT MATERIAL PRODUCTION BUDGET(208)

PARTICULARS	APRIL	MAY	JUNE	TOTAL(QTR)
UNITS PRODUCED	22800	37400	49800	110000
MATERIAL REQUIRMENT(GIVEN)	4	4	4	4
TOTAL REQ	91200	149600	199200	440000
+ CLOSING(50% OF EST PROD)	74800	99600	83600	258000
-OPENING INV	45600	74800	99600	220000
TOTAL MAT REQD (A)	120400	174400	183200	478000
TOTAL COST OF DIRECT MATERIAL (A)* 5	602000	872000	916000	2390000

DIRECT MATERIAL PRODUCTION BUDGET(311)

PARTICULARS	APRIL	MAY	JUNE	TOTAL(QTR)
UNITS PRODUCED	22800	37400	49800	110000
MAT REQUIREMENT(GIVEN)	9	9	9	9
TOTAL REQ.	205200	336600	448200	990000
+CLOSING STOCK(1/3 OF NEXT MONTH)	112200	149400	125400	387000
- OPENING STOCK	68400	112200	149400	330000
TOTAL MAT REQD	249000	373800	424200	1047000
PRICE	2	2	2	2
TOTAL COST	498000	747600	848400	2094000

SCHEDULE OF CASH

PARTICULARS	APRIL	MAY	JUNE	TOTAL(QTR)
BALANCE	351200	725600	809800
APRIL	351200*1/2+1100000*1/2=725600
MAY		725600+1619600*1/2=1535400
JUNE			809800+1764400*1/2=1692000
TOTAL	725600	809800	882200