Question

EXERCISE 9-2 Production Budget [ LO3 ]
Crystal Telecom has budgeted the sales of its innovative mobile phone over the next four months as
follows:
Sales in Units
July. . . . . . . . . . . . . . 30,000
August . . . . . . . . . . . 45,000
September . . . . . . . . 60,000
October . . . . . . . . . . 50,000
The company is now in the process of preparing a production budget for the third quarter. Past experience
has shown that end-of-month inventories of fi nished goods must equal 10% of the next month’s
sales. The inventory at the end of June was 3,000 units.
Required:
Prepare a production budget for the third quarter showing the number of units to be produced each
month and for the quarter in total.
EXERCISE 9-3 Direct Materials Budget [ LO4 ]
Micro Products, Inc., has developed a very powerful electronic calculator. Each calculator requires
three small “chips” that cost $2 each and are purchased from an overseas supplier. Micro Products
has prepared a production budget for the calculator by quarters for Year 2 and for the fi rst quarter of
Year 3, as shown below:
Year 2 Year 3
First Second Third Fourth First
Budgeted production,
in calculators . . . . . . . . . . . . 60,000 90,000 150,000 100,000 80,000
The chip used in production of the calculator is sometimes hard to get, so it is necessary to carry
large inventories as a precaution against stockouts. For this reason, the inventory of chips at the end of
a quarter must be equal to 20% of the following quarter’s production needs. Some 36,000 chips will
be on hand to start the fi rst quarter of Year 2.
Required:
Prepare a direct materials budget for chips, by quarter and in total, for Year 2. At the bottom of your
budget, show the dollar amount of purchases for each quarter and for the year in total.
EXERCISE 9-4 Direct Labor Budget [ LO5 ]
The Production Department of the Riverside Plant of Junnen Corporation has submitted the following
forecast of units to be produced at the plant for each quarter of the upcoming fi scal year. The plant
produces high-end outdoor barbecue grills.
1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
Units to be produced . . . . . . . . 5,000 4,400 4,500 4,900
Each unit requires 0.40 direct labor-hours and direct labor-hour workers are paid $11 per hour.
Required:
1. Construct the company’s direct labor budget for the upcoming fi scal year, assuming that the direct
labor workforce is adjusted each quarter to match the number of hours required to produce
the forecasted number of units produced.
2. Construct the company’s direct labor budget for the upcoming fi scal year, assuming that the direct
labor workforce is not adjusted each quarter. Instead, assume that the company’s direct labor
workforce consists of permanent employees who are guaranteed to be paid for at least 1,800
hours of work each quarter. If the number of required direct labor-hours is less than this number,
the workers are paid for 1,800 hours anyway. Any hours worked in excess of 1,800 hours in a
quarter are paid at the rate of 1.5 times the normal hourly rate for direct labor.
Profi t Planning 401
EXERCISE 9-5 Manufacturing Overhead Budget [ LO6 ]
The direct labor budget of Krispin Corporation for the upcoming fi scal year contains the following
details concerning budgeted direct labor-hours.
The company’s variable manufacturing overhead rate is $1.75 per direct labor-hour and the company’s
fi xed manufacturing overhead is $35,000 per quarter. The only noncash item included in the fi xed
manufacturing overhead is depreciation, which is $15,000 per quarter.
Required:
1. Construct the company’s manufacturing overhead budget for the upcoming fi scal year.
2. Compute the company’s manufacturing overhead rate (including both variable and fi xed manufacturing
overhead) for the upcoming fi scal year. Round off to the nearest whole cent.
EXERCISE 9-6 Selling and Administrative Expense Budget [ LO7 ]
The budgeted unit sales of Haerve Company for the upcoming fi scal year are provided below:
1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
Budgeted direct labor-hours . . . . . . . 5,000 4,800 5,200 5,400
The company’s variable selling and administrative expenses per unit are $2.75. Fixed selling and administrative
expenses include advertising expenses of $12,000 per quarter, executive salaries of
$40,000 per quarter, and depreciation of $16,000 per quarter. In addition, the company will make insurance
payments of $6,000 in the 2nd Quarter and $6,000 in the 4th Quarter. Finally, property taxes
of $6,000 will be paid in the 3rd Quarter.
Required:
Prepare the company’s selling and administrative expense budget for the upcoming fi scal year.
EXERCISE 9-7 Cash Budget Analysis [ LO8 ]
A cash budget, by quarters, is given below for a retail company (000 omitted). The company requires
a minimum cash balance of $5,000 to start each quarter.
1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
Budgeted unit sales . . . . . . . . 12,000 14,000 11,000 10,000
Required:
Fill in the missing amounts in the table above.
Quarter
1 2 3 4 Year
Cash balance, beginning . . . . . . . . . . . . . . . . . $ 9 $ ? $ ? $ ? $ ?
Add collections from customers . . . . . . . . . . . . ? ? 125 ? 391
Total cash available . . . . . . . . . . . . . . . . . . . . . 85 ? ? ? ?
Less disbursements:
Purchases of inventory. . . . . . . . . . . . . . . . . 40 58 ? 32 ?
Operating expenses . . . . . . . . . . . . . . . . . . . ? 42 54 ? 180
Equipment purchases. . . . . . . . . . . . . . . . . . 10 8 8 ? 36
Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 2 2 2 ?
Total disbursements . . . . . . . . . . . . . . . . . . . . . ? 110 ? ? ?
Excess (defi ciency) of cash available
over disbursements . . . . . . . . . . . . . . . . . . . (3) ? 30 ? ?
Financing:
Borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . ? 20 — — ?
Repayments (including interest)* . . . . . . . . . — — (?) (7) (?)
Total fi nancing . . . . . . . . . . . . . . . . . . . . . . . . . ? ? ? ? ?
Cash balance, ending . . . . . . . . . . . . . . . . . . . $ ? $ ? $ ? $ ? $ ?
*Interest will total $4,000 for the year.

Answer 1

Answer 9-2.
Frame Production Budget
	Jul	Aug	Sep	Total	Oct.
Sales In units	30,000	45,000	60,000	135,000	50,000
Add: Closing Inventory in units	4,500	6,000	5,000	5,000
Total Needs	34,500	51,000	65,000	140,000
Less: opening Inventory in uints	(3,000)	(4,500)	(6,000)	(3,000)
Required Production in Units	31,500	46,500	59,000	137,000
Answer 9-3.
Raw Material Purchase Budget
	Year 2				Total	Year 3
	Qtr 1	Qtr 2	Qtr 3	Qtr 4		Qtr 1
Required Production in Units	60,000	90,000	150,000	100,000	400,000	80,000
Chips Required per Unit	3	3	3	3	3	3
Total Bamboo required for Production	180,000	270,000	450,000	300,000	1,200,000	240,000
Add: Closing Raw Material Inventory	54,000	90,000	60,000	48,000	48,000
Total Needs	234,000	360,000	510,000	348,000	1,248,000
Less: opening Inventory	(36,000)	(54,000)	(90,000)	(60,000)	(36,000)
Raw Material Purchased in units	198,000	306,000	420,000	288,000	1,212,000
Cost per Chip	2.00	2.00	2.00	2.00	2.00
Cost of Chips Purchased	396,000	612,000	840,000	576,000	2,424,000
Answer 9-4-a.
Budgeted Direct Labor Costs
	Qtr 1	Qtr 2	Qtr 3	Qtr 4	Total
Required Production in Units	5,000	4,400	4,500	4,900	18,800
Lab. Hour required per unit	0.40	0.40	0.40	0.40	0.40
Total Labor Hours Required	2,000	1,760	1,800	1,960	7,520
Lab. Rate per Hour	11	11	11	11	11
Budgeted Direct Labor Costs	22,000	19,360	19,800	21,560	82,720
Answer 9-4-b.
Budgeted Direct Labor Costs
	Qtr 1	Qtr 2	Qtr 3	Qtr 4	Total
Required Production in Units	5,000	4,400	4,500	4,900	18,800
Lab. Hour required per unit	0.40	0.40	0.40	0.40	0.40
Total Labor Hours Required	2,000	1,760	1,800	1,960	7,520
Regular Labour Hours	1,800	1,800	1,800	1,800	7,200
Overtime Labor Hours	200	-	-	160	360
Regular Lab. Rate per Hour	11	11	11	11	11
Budgeted Direct Labor Costs - regular	19,800	19,800	19,800	19,800	79,200
Budgeted Direct Labor Costs - Overtime	3,300	-	-	2,640	5,940
Total Budgeted Direct Labor Costs	23,100	19,800	19,800	22,440	85,140
Answer 9-5.
Full Details are not attached with the question - Labor Hours are not given in the question
Answer 9-6.
Total Budgetd Selling & Admn. Expenses
	Qtr 1	Qtr 2	Qtr 3	Qtr 4	Total
No. Of Units Sold	5,000	4,800	5,200	5,400	20,400
Variable Selling & Admn. Exp. Per Unit	2.75	2.75	2.75	2.75	2.75
Total Variable selling & Admn. Exp.	13,750	13,200	14,300	14,850	56,100
Fixed selling & Admn. Exp.:
Advertising Expense	12,000	12,000	12,000	12,000	48,000
Executive Salaries	40,000	40,000	40,000	40,000	160,000
Depreciation	16,000	16,000	16,000	16,000	64,000
Insurance	-	6,000	-	6,000	12,000
Property Taxes			6,000	-	6,000
Total Fixed selling & Admn. Exp	68,000	74,000	74,000	74,000	290,000
Total selling & Admn. Exp.	81,750	87,200	88,300	88,850	346,100