Question

Para Corp is preparing its Master Budget for 20XX. To complete this problem you need to prepare a selection of Para’s individual budgets. Specifically, the Production Budget, the Direct Materials Budget and Schedule of Cash Payments, the Direct Labor Budget and the Ending Finished Goods Budget.

1.            PREPARE A PRODUCTION BUDGET (2 POINTS)

Prepare the Production Budget for the first three months of Para’s fiscal year (January, February, and March), along with the totals for the quarter using the format shown in the text book.

Relevant Information for preparing the Production Budget includes:

• Sales projections for the 3 months:
  • January – 75,000 units
  • February - 100,000 units
  • March – 90,000 units
  • April – 53,383 Units
• Finished goods inventory on January 1, 20XX = 7,500 units
• Desired ending inventory for each month = 25% of the next month’s budgeted unit sales.

2.            PREPARE A DIRECT MATERIALS BUDGET (3 POINTS)

(TO INSURE CONSISTENCY IN GRADING – USE THE REQUIRED PRODUCTION GIVEN HERE, NOT THE AMOUNTS YOU COMPUTED FOR QUESTION 1.)

Prepare the Direct Materials Budget for the first three months of Para’s fiscal year (January, February, and March), along with the totals for the quarter, using the format shown in the text book. Relevant Information for preparing the Direct Materials Budget includes:

Required Production for the 3 months:

• January – 95,000 units
• February - 120,000 units
• March – 110,000 units
• April – 53,383 Units

Number of gallons needed per unit = 3

Raw materials inventory on January 1, 20XX = 30,000 gallons

Desired ending inventory for each month = 10% of the next month’s budgeted production

Raw materials cost per gallon = $2.00

3.            PREPARE A SCHEDULE OF CASH PAYMENTS FOR RAW MATERIALS (3 POINTS)

(TO INSURE CONSISTENCY IN GRADING – USE THE COST OF GALLON PURCHASED GIVEN HERE, NOT THE AMOUNTS YOU COMPUTED IN PART 2.)

Prepare the Schedule of Cash Payments for the first three months of Para’s fiscal year (January, February, and March), along with the totals for the quarter, using the format shown in the textbook. Relevant information for the Schedule of Cash Payments includes:

• January cost of gallons purchased - $350,000
• February cost of gallons purchased - $400,000 units
• March cost of gallons purchased – $450,000
• pays for 40% of its purchases in the month of purchase, 50% in the month after purchase and 10% in the second month after purchase.
• Beginning Accounts Payable = $40,000

4. PREPARE A DIRECT LABOR BUDGET (2 POINTS)

Prepare the Direct Labor Budget for the first three months of Para’s fiscal year (January, February, and March), along with the totals for the quarter, using the format shown in the text book. Relevant information for the Direct Labor Budget includes:

• Use the required production amounts given for the Direct Materials Budget in Question #2.
• Each unit requires .5 hours of direct labor at a rate of $20 per hour.

5. PREPARE AN ENDING FINISHED GOODS BUDGET (2 POINTS)

Prepare the Ending Finished Goods Budget using the format shown in the text book. Be sure to compute an amount for ending finished goods inventory.

• Use the per unit amounts and costs given for Question 2 (Direct Materials Budget) and Question 4 (Direct Labor Budget)
• Assume Manufacturing Overhead is based on direct labor hours at a cost of $10 per hour.
• Assume ending finished goods inventory = 50,000 units.

Answer 1

1	Preparation of production budget for the 3 months -
	Particulars	January	February	March
	Sales	75000	100000	90000
	Add Closing stock	25000	22500	13345.75
	Less : opening stock	7500	25000	22500
	Production	92500	97500	80845.75
	Closing stock = 25% of the next month’s budgeted unit sales.
2	Preparation of Cash budget for the 3 months -
	Particulars	January	February	March
	Opening cash payable	40000	250000	315000
	Purchase Amount	350000	400000	450000
	Less : January purchase paid	140000	175000	35000
	Less ; February purchase paid	-	160000	200000
	Less : March purchase paid	-	-	180000
	Clsoing cash payable	2,50,000	3,15,000	3,50,000
	Notes
	Pays for 40% of its purchases in the month of purchase, 50% in the month after purchase and 10% in the second month after purchase.
	Beginning Accounts Payable = $40,000
3	Direct materials budget
	Particulars	January	February	March
	Production (in units)	95000	120000	110000
	Rawmaterial needed per unit	3	3	3
	Production (In gallon)	285000	360000	330000
	Add Closing stock (in gallon)	36000	33000	5338.3
	Less : opening stock (in gallon)	30000	36000	33000
	Purchases (In gallon)	291000	357000	302338.3
	Rawmaterial cost per gallon	2	2	2
	Purchase amount (in value)	582000	714000	604676.6
	Notes
	Desired ending inventory for each month = 10% of the next month’s budgeted production
	Raw materials cost per gallon = $2.00
4	Direct labour budget
	Particulars	January	February	March
	Production (in units)	95000	120000	110000
	Required hours for one unit	5	5	5
	Total hours needed	475000	600000	550000
	Rate per hour( in $)	20	20	20
	Total labour expenses (IN $)	9500000	12000000	11000000
	Note
	Each unit requires .5 hours of direct labor at a rate of $20 per hour.