Question

Wilson Industries produces an assembly used in the production of various products. The assembly is sold to various manufacturers throughout the United States. The unit selling price is $ 175.00. A projected sales forecast (in units) follows:

                                    January           18,000                                    

                                    February         24,000

                                    March              30,000            

                                    April                 37,000

                                    May                 32,000

The following information pertains to production policies and manufacturing specifications followed by Wilson Industries:

a.    Finished goods inventory on January 1^st was 5,400 units. The desired ending inventory for each month is 30 percent of the next month’s sales.

b.    Materials used in the assembly are as follows:

Direct Material             Part #              Parts Per Unit             Cost per Part

     Widget                    325                            4                          $ 7.00

     Whatnot                  326                            6                          $ 3.00         

      Inventory policy dictates that sufficient materials be on hand at the beginning of the month to produce 40 percent of that month’s production needs. (THINK!!) This is exactly the amount of material on hand on January 1^st.

c.     The direct labor used per unit of assembly is four hours. The average direct labor cost per hour is $ 19.00.

d.    The predetermined variable overhead is allocated at the rate of $ 11.00 per direct labor hour. Fixed overhead averages $265,000 per month.

The following information pertains to sales/purchases and their related cash collections/disbursements pattern:

a.    On average, credit sales are 75% of total sales.

b.    On average, 30% of credit sales are collected in the month of sale; 55% of credit sales are collected in the month following sale; 15% of credit sales are collected in the second month following sale.

c.     Cash sales for November and December were $ 700,000 and $ 950,000 respectively. (THINK!!)

d.    All material purchases are on account. On average, 40% of material purchases are paid in the month of purchase; 60% of material purchases are paid in the month following purchase.

e.    Material purchases for November and December were $ 974,300 and $ 1,158,000 respectively.

Given the above information, answer the following questions.

(Hints: prepare a skeleton of the following budgets for the first quarter: sales, production, D/M, D/L, OVH, cash receipts, cash payments; plug in the appropriate data; complete the budgets; answer the questions; since there are 2 D/M (widgets and whatnots), you will need 2 D/M budgets – one for each part; credit will NOT be given for carry-thru errors so make sure your budgets are prepared properly; see me for help. Read the information carefully. I know you can do it. Good luck and have fun.J)

1.    How many assembly units should be produced in the first quarter?

2.    What dollar amount of widgets needs to be purchased in January?

3.    What quantity (not $) of whatnots needs to be purchased in the first quarter?

4.    What is the total cost of Direct Materials for February?

5.    How many Direct Labor hours are needed in March?

6.    What is the total cost for Direct Labor for the first quarter?

7.    How much is budgeted variable overhead for January?

8.    How much is budgeted fixed overhead for the first quarter?

9.    What is the expected amount of cash receipts for February?

10. What is the estimated payment in January for material purchases?

Answer 1

1	Production Budget
				Jan	Feb	Mar	Total	April	May
	Sales			18000	24000	30000		37000	32000
	Add:Ending inventory
	(30% of next month sales)			7200	9000	11100		9600
				25200	33000	41100		46600
	Less: Beginning inventory			5400	7200	9000		11100
	Units to be produced			19800	25800	32100	77700	35500
	Units to be produced in the first quretr=77700 units
2	Units to be produced in January=19800 units
	Widgets required (19800*4)				79200
	Add:Ending inventory
	(40% of next month production)
	(25800*4*40%)				41280
					120480
	Less: Beginning inventory
	(40% of this month production)
	(79200*40%)				31680
	Widgets to be purchased in units				88800
	Cost per part				7
	$ amount of widgets to be purchased				621600
3				Jan	Feb	Mar	Total	Apr
	Units to be produced			19800	25800	32100		35500
	Whatnot rquired per unit			6	6	6		6
	Whatnot rquired			118800	154800	192600		213000
	Add:Ending inventory
	(40% of next month production)			61920	77040	85200
				180720	231840	277800
	Less: Beginning inventory
	(40% of this month production)			47520	61920	77040
	Whatnots to be purchased in units			133200	169920	200760	503880
	What nots to be purchased in the first quarter=503880 units
4	Units to be produced in February=25800 units
	Widgets required (25800*4)				103200
	Add:Ending inventory
	(40% of next month production)
	(32100*4*40%)				51360
					154560
	Less: Beginning inventory
	(40% of this month production)
	(25800*4*40%)				41280
	Widgets to be purchased in units				113280
	Cost per part				7
	$ amount of widgets to be purchased…. (a)				792960
	$ amount of whatnots to be purchased
	(169920*3)……. (b)				509760
	Total cost of direct materials			(a)+(b)	1302720