Question

CONT 4125                                                                  BUDGET PROBLEM

Comp. Paradice manufactures a special calculator used in a science laboratory of an recognized university. Expected pattern of sales for the next year is presented as a follows:

	Quaters					Year
	1Q	2Q	3Q	4Q
Sales unit	2,000	6,000	7,500	4,000		19,500

Each calculator sells for $25. All sales are on account and Comp. Paradise’s experience with cash collections is that 60 percent of each quarter’s sales are collected during the same quarter as the sale, except during the last quarter. Due to the Christmas activities arrival, collections down to 45% during the last quarter of each year. The remaining percent of sales is collected in the quarter after the sale, except 2% will be transferred to bad debts. Comp. Sales in the fourth quarter of previous year are expected to be $100,000 (4,000 units).

Comp.   Paradise desires to have 10 percent of the following quarter’s sales needs in finished goods inventory at the end of each quarter. On December prior year, Comp. Paradise expects to have 200 units in inventory. The expected sales volume for the first quarter next year will be 7,300 units.

Each calculator requires two type of raw material. Comp. Paradise desires to have 10 percent of the next quarter’s raw material required at the end of each quarter. On December prior year, the company expects to have 480 types of ending raw material inventory.

The raw material price is $4.75 per type. The company buys its raw material on account and pays 70 percent of the resulting accounts payable during the quarter of the purchase. The remaining 30 percent is paid during the following quarter. The company needs trained employees in order to get a practical capacity. Each employee is capable to process 500 units on each quarter with a direct labor rate of $7.5 per hour. Total monthly hours required is 160 per employee. Standard manufacturing overhead rate was assigned based on 82% of total direct labor cost.

Required: Prepare the following budget schedules for the current year. Include a column for each quarter and for the year.

1.       Sales budget in units and dollars.

2.       Production budget

3.       Direct material budget

4.       Direct labor budget

5.       Manufacturing Overhead budget

6.       Cash receipt budget

7.       Cash disbursements budget for raw material purchases.

Answer 1

Comp Paradise
Sales Budget
	Quarter 1	Quarter 2	Quarter 3	Quarter 4	Year Total
Units Sold	2000	6000	7500	4000	19500
Price per Unit	$          25.00	$            25.00	$            25.00	$            25.00	$            25.00
Sales in Dollars	$ 50,000.00	$ 150,000.00	$ 187,500.00	$ 100,000.00	$ 487,500.00

Production Budget
	Quarter 1	Quarter 2	Quarter 3	Quarter 4	Year Total
Sales Units	2000	6000	7500	4000	19500
Closing Stock Needed	600	750	400	730	2480
Less: Opening Stock of Goods	200	600	750	400	1950
Units to Produce	2400	6150	7150	4330	20030

Direct Material Budget
	Quarter 1	Quarter 2	Quarter 3	Quarter 4	Year Total
Units required in Production ( production units*2)	4800	12300	14300	8660	40060
Closing Stock needed	1230	1430	866	0	3526
Less: Opening Stock of Goods	480	1230	1430	866	4006
Stock to be Purchased	5550	12500	13736	7794	39580

Note* Closing stock needed is assumed to be zero since Raw material requirement of nexy years first quarter is not given. Students can make different assumptions.

Direct Labor Budget
	Quarter 1	Quarter 2	Quarter 3	Quarter 4	Year Total
(A) Units Produced	2400	6150	7150	4330	$    20,030.00
(B) Hours in quarter per worker	480	480	480	480
(C ) Units produced in by 1 employee in 1 Quarter	500	500	500	500
(D=B/C)Hours per unit	0.96	0.96	0.96	0.96
(E=A*D)Hours Required to produce total production in a quarter	2304	5904	6864	4156.80	$    19,228.80
(F) Hour Rate	$            7.50	$               7.50	$               7.50	$               7.50	$               7.50
(G=E*F) Direct Labour Wages to be paid	$ 17,280.00	$    44,280.00	$    51,480.00	$    31,176.00	$ 144,216.00

Manufacturing Overheads Budget
	Quarter 1	Quarter 2	Quarter 3	Quarter 4	Year Total
Manufacturing Overheads (82% of Labour Cost)	$ 14,169.60	$    36,309.60	$    42,213.60	$    25,564.32	$ 118,257.12

Cash Receipts Budget
	Quarter 1	Quarter 2	Quarter 3	Quarter 4	Year Total
(A) Cash Receipts from Current Quarter Sales	$ 30,000.00	$    90,000.00	$ 112,500.00	$    45,000.00	$ 277,500.00
(B) Bad Depts	$     (900.00)	$        (400.00)	$    (1,200.00)	$    (1,500.00)	$    (4,000.00)
(C )Cash Receipts from Previous quarter credit sales( After deducting Bad Depts)	44100	$    19,600.00	$    58,800.00	$    73,500.00	$ 196,000.00
(D=A+C)Total Cash Receipts	$ 74,100.00	$ 109,600.00	$ 171,300.00	$ 118,500.00	$ 473,500.00

Cash Payment Budger (For Raw material purchases)
	Quarter 1	Quarter 2	Quarter 3	Quarter 4	Year Total
(A) Units Purchased	5550	12500	13736	7794	39580
(B)Cost of Raw material	$            4.75	$               4.75	$               4.75	$               4.75
(C=A*B)Purchase Value in Dollars	$ 26,362.50	$    59,375.00	$    65,246.00	$    37,021.50	$ 188,005.00
(D=C*70%)Cash Paid for current quarter purchases	$ 18,453.75	$    41,562.50	$    45,672.20	$    25,915.05	$ 131,603.50
(E) Cash Paid for Previous quarter purchases	$                 -	$      7,908.75	$    17,812.50	$    19,573.80	$    45,295.05
(F=D+E)Total Cash Paid	$ 18,453.75	$    49,471.25	$    63,484.70	$    45,488.85	$ 176,898.55

Note* Purchase of previous year is not given so it is assumed that no cash is paid for pervious year's ending quarter in this year.