Chapter 8
EX.8-2 - page 364
1
Crystal Telecom has budgeted the sales of its innovative mobile phone
over the next four months as follows:
Sales in Unit
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 finished goods
inventories 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.
Solution:
July August September Quarter
Budget sales unit 30,000 45,000 60,000 135,000
+ Ending inventory (45,000Χ10%) (60,000Χ10%) (50,000Χ10%) 5,000
4,500 6,000 5,000
= Total need 34,500 51,000 65,000 140,000
- Beginning inventory 3,000 4,500 6,000 3,000
= Required production 31,500 46,500 59,000 137,000
Nora Aldawood
Chapter 8
EX8-3 - page 365
2
Micro Products, Inc., has developed a very powerful electronic .
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 first quarter of year 3, as shown
below:
Year 2 Year 3
Budgeted production, First Second Third Fourth First
in calculator 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 inventory as a precaution against stock
outs.
For this reason, the inventory of chips at the end of a quarter must
equal 20% of the following quarter's production needs.
A total of 36,00 chips will be on hand to start the first 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.
Nora Aldawood
Chapter 8
Solution:
3
Year 2 Year 3
First Second Third Fourth First
Required production of calculators 60,000 90,000 150,000 100,000 80,000
Χ Number of chips per calculators 3 3 3 3 3
= Total production needs chips 180,000 270,000 450,000 300,000 240,000
Year 2
Year
First Second Third Fourth
production needs chips 180,000 270,000 450,000 300,000 1,200,000
+ Desired ending inventory chips (270.000χ20%) (450,000Χ20%) (300,000Χ20%) (240,000Χ20%)
48,000
54,000 90,000 60,000 48,000
= Total need chips 234,000 360,000 510,000 348,000 1,248,0000
- Beginning inventory chips 36,000 54,000 90,000 60,000 36,000
= Required purchases chips 198,000 306,000 420,000 288,000 1,212,000
Year 2
Year
First Second Third Fourth
Required purchases chips 198,000 306,000 420,000 288,000 1,212,000
Χ Cost per chips $2 $2 $2 $2
= Cost of purchases 396,000 612,000 840,000 576,000 2,424,000
Nora Aldawood
Chapter 8
EX8-5 - page 365
4
The direct labor budget of Krispin Corporation for the upcoming fiscal
year includes the following budgeted direct labor hours.
1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
Budgeted direct labor hours 5,000 4,800 5,200 5,400
The company's variable manufacturing overhead rate is $1.75 per
direct labor hour and the company's fixed manufacturing overhead is
depreciation, which is $15,000 per quarter.
Required:
1. Construct the company's manufacturing overhead budget for the
upcoming fiscal year.
2. Construct the company's manufacturing overhead rate (including
both variable and fixed manufacturing overhead) for the upcoming
fiscal year.
Round off to the nearest whole cent.
Nora Aldawood
Chapter 8
Solution:
5
1st 2nd 3rd 4th Year
Budgeted direct labor hours 5,000 4,800 5,200 5,400 $20,400
Χ Variable manufacturing
$1.75 $1.75 $1.75 $1.75 $1.75
overhead rate
= Variable manufacturing
$8,750 $8,400 $9,100 $9,450 $35,700
overhead cost
+ Fixed manufacturing overhead $35,000 $35,000 $35,000 $35,000 $140,000
= Total manufacturing overhead $43,750 $43,400 $44,100 $44,450 $175,700
- Non cash cost $15,000 $15,000 $15,000 $15,000 $60,000
= Cash disbursements for
$28,750 $28,400 $29,100 $29,450 $115,700
manufacturing overhead
Nora Aldawood
