Question

Case #1

Sienna Corporation is preparing budgets for the upcoming quarter ending June 30. Budgeted sales (in units) for the next five months are:

April	30,000
May	90,000
June	75,000
July	51,000
August	52,500

Below is additional information that may be relevant in preparing the budgets.

• The company produces professional quality bowls that sell for $31.50 per unit.
• To guard against inventory stockouts, the company has a policy of maintaining an ending inventory of 18 percent of the following month’s budgeted sales. At the beginning of April, Sienna Corp. had 15,000 units in inventory.
• Each unit of output requires 2 kilograms of direct material. To guard against stockouts of raw materials, the company has a policy of maintaining a raw materials inventory of 20 percent of the following month’s production. At the beginning of April, Sienna Corp. has 32,000 kilograms of direct materials on hand. Each kilogram of direct materials costs $1.00.
• Each unit of output requires 0.2 hours (12 minutes) of direct labour and employees are paid a standard rate of $22 per hour
• Sienna Corp. applies overhead using a variable rate of $15 per direct labour hour. The fixed overhead is $94,590 per month. Of that amount, $20,000 are non-cash costs, such as depreciation on assets.
• Sienna Corp. has both fixed and variable components to the selling and administrative expenses. Accountants at Sienna Corp. estimate that the variable selling and administrative expenses are $0.50 per unit sold. Fixed selling and administrative expenses are $140,000 per month, $20,000 are non-cash costs, such as depreciation on assets.
• Fifty percent of sales are made in cash. The remaining 50% of sales are made on account. The company collects 60% of sales made on account in the month of the sale, 20% in the month following the sale, and 15% in the second month following the sale. Sienna Corporation had total sales of $882,000 in February and $756,000 in March
• Sienna Corporation pays $1.00 per kilogram of direct materials. The company pays of half of its purchases in the month of the purchase and the remaining half in the month following the purchase. At the beginning of the quarter, Sienna Corporation owed its creditors $42,400 for purchases of direct materials.

Required:

5. Prepare the overhead budget for the months of April, May and June, and for the quarter-end.

6. Prepare the ending finished goods inventory budget for the quarter ending June 30.

7. Prepare the accounts receivable collections schedule for the months of April, May and June.

8. Prepare the cash payments on accounts payable schedule for the months of April, May, and June.

Answer 1

E. Factory Overhead Budget:
		Apr	May	Jun	Total
Total Direct Labor Hours Needed		6,240	17,460	14,136	37,836
Variable Overhead Rate		$                   15.00	$                        15.00	$                    15.00	$             15.00
Total Variable Manufacturing Overheads		$                 93,600	$                   261,900	$                212,040	$        567,540
Fixed Manufacturing Overhead		$                 94,590	$                      94,590	$                  94,590	$        283,770
Total Overheads	A	$               188,190	$                   356,490	$                306,630	$        851,310
Total Direct Labor Hours Needed		$                   6,240	$                      17,460	$                  14,136	$           37,836
Predetermined Overhead					$             22.50
Depreication	B	$               -20,000	$                    -20,000	$                -20,000	$   -60,000.00
Cash Disbursment for Payment	A-B	$               168,190	$                   336,490	$                286,630	$        791,310
F. Ending Finished Goods Inventory
		Units required	Per unit cost	Per unit fo FG
Direct Material		2.00	$                          1.00	$                       2.00
Direct Labor		0.20	$                        22.00	$                       4.40
Manufacturing overhead		0.20	$                        22.50	$                       4.50
Cost of goods sold per unit				$                    10.90
Finished goods inventory	$10.90*9,180			$                100,062
G. Schedule of Collection from customers:
	Credit Sale	Apr	May	Jun	Total	30th June Receivable
Cash Sale		$               472,500	$                1,417,500	$            1,181,250	$     3,071,250
Credit Sale:
Feb Sale	$                                   441,000	$                 66,150
Mar Sale	$                                   378,000	$                 75,600	$                      56,700
April Sale	$                                   472,500	$               283,500	$                      94,500	$                  70,875	$        448,875	$                               23,625
May Sale	$                               1,417,500		$                   850,500	$                283,500	$     1,134,000	$                            283,500
June Sale	$                               1,181,250			$                708,750	$        708,750	$                            472,500
Total cash Collection		$               897,750	$                2,419,200	$            2,244,375	$     5,561,325	$                            779,625
H Schedule of payment for pur:
	Credit Pur	Apr	May	Jun	Total	30th June Payable
Accounts Payable March Purchase		$                 42,400			$           42,400
Jan Pur	$                                     65,320	$                 32,660	$                      32,660		$           65,320	$                                        -
Feb Pur	$                                   167,952		$                      83,976	$                  83,976	$        167,952	$                                        -
Mar Pur	$                                   133,596			$                  66,798	$           66,798	$                               66,798
Total Payment for Pur		$                 75,060	$                   116,636	$                150,774	$        342,470	$                               66,798