Question

Addison Co. budgets production of 2,420 units during the second quarter. Other information is as follows:

Direct labor		Each finished unit requires 4 direct labor hours, at a cost of $8 per hour.
Variable overhead		Applied at the rate of $10 per direct labor hour.
Fixed overhead		Budgeted at $470,000 per quarter.

1. Prepare a direct labor budget.
2. Prepare a factory overhead budget.

Jasper Company has sales on account and for cash. Specifically, 58% of its sales are on account and 42% are for cash. Credit sales are collected in full in the month following the sale. The company forecasts sales of $515,000 for April, $525,000 for May, and $550,000 for June. The beginning balance of Accounts Receivable is $300,300 on April 1.

Prepare a schedule of budgeted cash receipts for April, May, and June.

Answer 1

1.

Addison Co.
Direct Labour Budget for the 2nd Quarter
A	Budgeted Production	2,420 units
B	Budgeted Direct Labor Hours per unit	4 Hours
C	Total Budgeted Direct Labor Hours [ A x B ]	9,680 hours
D	Direct Labor Cost per hour	$ 8
E	Total Budgeted Direct Labour [ C x D ]	$ 77,440

2.

Addison Co.
Factory Overhead Budget for the 2nd Quarter
A	Budgeted Production	2,420 units
B	Budgeted Direct Labor Hours per unit	4 Hours
C	Total Budgeted Direct Labor Hours [ A x B ]	9,680 hours
D	Variable overhead per hour	$ 10
E	Total Variable Overhead [ C x D ]	$ 96,800
F	Fixed Overhead	$ 470,000
G	Total Budgeted Overhead [ E + F ]	$ 566,800

3.

Addison Co.
Schedule for Budgeted Cash Receipts
Particulars	April ($)	May ($)	June ($)
Sales During the Quarter	515,000	525,000	550,000
Cash Sales ( 42% of Sales)	216,300	220,500	231,000
Credit Sales (58 % of Sales )	298,700	304,500	319,000
Budgeted Cash Receipts
Credit Sales for Previous Month	300,300	298,700	304,500
Cash Sales for the month	216,300	220,500	231,000
Total Budgeted Cash Receipts	516,600	519,200	535,500

Note 1: Since the opening Receivable as on April 1 is $ 300,300, It is assumed to be the receivables with respect to on Account Sales (Credit Sales) for the month of March which will be collected in April as per the company's policy.

Note 2: The company collects the amount of on account sale in the succeeding month, hence during each month the collection of credit sales of previous month is shown above in the table. Therefore budgeted total collection for a month will be the cash sales of the same month and the credit sale of the previous month.