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.

REQUIRED

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 – 9,292 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 – 9,292 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
• Para 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

Para Corp
Answer 1- Production Budget	Jan	Feb	March	Jan-Mar	April	Note
Budgeted sales (Units)	75,000.00	100,000.00	90,000.00	265,000.00	9,292.00	A
Add: Closing	25,000.00	22,500.00	2,323.00	2,323.00		F=25% of A of next month.
Less: Opening	7,500.00	25,000.00	22,500.00	7,500.00		G=25% of A of same month. For January its given in the problem.
Production Budget	92,500.00	97,500.00	69,823.00	259,823.00		H
Answer 2- Direct Material Budget	Jan	Feb	March	Jan-Mar	April
Production Budget	95,000.00	120,000.00	110,000.00	325,000.00	9,292.00	B
Material required per unit	3.00	3.00	3.00		3.00	C
Material Usage Budget	285,000.00	360,000.00	330,000.00	975,000.00	27,876.00	D=B*C
Add: Closing	36,000.00	33,000.00	2,788.00	2,788.00		E=10% of D of next month.
Less: Opening	30,000.00	36,000.00	33,000.00	30,000.00		I=10% of D of same month. For January its given in the problem.
Material Purchase Budget (gallon)	291,000.00	357,000.00	299,788.00	947,788.00		J
Cost per gallon	2.00	2.00	2.00			K
Material Purchase Budget ($)	582,000.00	714,000.00	599,576.00	1,895,576.00		L=J*K

Answer 3- Material Payment Budget	Jan	Feb	March	Jan-Mar
Material Purchase Budget	350,000.00	400,000.00	450,000.00	1,200,000.00
Beginning accounts Payable	40,000.00	-	-	40,000.00
Current month (40%)	140,000.00	160,000.00	180,000.00	480,000.00
Last month (50%)	-	175,000.00	200,000.00	375,000.00
Last second month (10%)	-	-	35,000.00	35,000.00
Expected cash disbursements for materials	180,000.00	335,000.00	415,000.00	930,000.00
Answer 4- Direct Labor Budget	Jan	Feb	March	Jan-Mar	Note
Production Budget	95,000.00	120,000.00	110,000.00	325,000.00	See B
Labor Hour required per unit	0.50	0.50	0.50		M
Labor Hour required	47,500.00	60,000.00	55,000.00	162,500.00	N=B*M
Cost per Hour	20.00	20.00	20.00		O
Direct Labor Budget	950,000.00	1,200,000.00	1,100,000.00	3,250,000.00	P=N*O

Workings for Answer 5
Direct Material cost unit	Amount $	Note
Material required per unit	3.00	See C
Cost per gallon	2.00	See K
Direct Material cost unit	6.00	Q=C*K
Direct labor cost per unit	Amount $
Labor Hour required per unit	0.50	See M
Cost per Hour	20.00	See O
Direct labor cost per unit	10.00	R=M*O
Manufacturing overhead cost per unit	Amount $
Labor Hour required per unit	0.50	See M
Cost per Hour	10.00	S
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