1. Production and Direct Labor Cost Budgets

Two-Leg Company manufactures slacks and jeans under a variety of brand names, such as Dockers and 501 Jeans. Slacks and jeans are assembled by a variety of different sewing operations. Assume that the sales budget for Dockers and 501 Jeans shows estimated sales of 21,610 and 41,710 pairs, respectively, for May. The finished goods inventory is assumed as follows:

	Dockers		501 Jeans
May 1 estimated inventory	970		1,180
May 31 desired inventory	360		1,470

Assume the following direct labor data per 10 pairs of Dockers and 501 Jeans for four different sewing operations:

	Direct Labor per 10 Pairs
	Dockers		501 Jeans
Inseam	18	minutes	12	minutes
Outerseam	22		15
Pockets	7		9
Zipper	10		6
Total	57	minutes	42	minutes

Question Content Area

a. Prepare a production budget for May. Prepare the budget in two columns: Dockers and 501 Jeans. For those boxes in which you must enter subtracted or negative numbers use a minus sign.

b. Prepare the May direct labor cost budget for the four sewing operations, assuming a $9 wage per hour for the inseam and outerseam sewing operations and a $19 wage per hour for the pocket and zipper sewing operations. Prepare the direct labor cost budget in four columns: inseam, outerseam, pockets, and zipper.

2. Schedule of Cash Payments for a Service Company

EastGate Physical Therapy Inc. is planning its cash payments for operations for the first quarter (JanuaryMarch). The Accrued Expenses Payable balance on January 1 is $26,600. The budgeted expenses for the next three months are as follows:

	January		February		March
Salaries	$61,200		$74,500		$82,500
Utilities	5,100		5,600		6,700
Other operating expenses	46,500		50,700		55,800
Total	$112,800		$130,800		$145,000

Other operating expenses include $3,400 of monthly depreciation expense and $800 of monthly insurance expense that was prepaid for the year on May 1 of the previous year. Of the remaining expenses, 75% are paid in the month in which they are incurred, with the remainder paid in the following month. The Accrued Expenses Payable balance on January 1 relates to the expenses incurred in December.

Prepare a schedule of cash payments for operations for January, February, and March. Enter all amounts as positive numbers.

3. Capital Expenditures Budget

On January 1, 20Y6, the controller of Omicron Inc. is planning capital expenditures for the years 20Y620Y9. The following interviews helped the controller collect the necessary information for the capital expenditures budget:

Director of Facilities: A construction contract was signed in late 20Y5 for the construction of a new factory building at a contract cost of $10,000,000. The construction is scheduled to begin in 20Y6 and be completed in 20Y9.

Vice President of Manufacturing: Once the new factory building is finished, we plan to purchase $1.5 million in equipment in late 20Y7. I expect that an additional $200,000 will be needed early in the following year (20Y8) to test and install the equipment before we can begin production. If sales continue to grow, I expect we'll need to invest another $1,000,000 in equipment in 20Y9.

Chief Operating Officer: We have really been growing lately. I wouldn't be surprised if we need to expand the size of our new factory building in 20Y9 by at least 35%. Fortunately, we expect inflation to have minimal impact on construction costs over the next four years. Additionally, I would expect the cost of the expansion to be proportional to the size of the expansion.

Director of Information Systems: We need to upgrade our information systems to wireless network technology. It doesn't make sense to do this until after the new factory building is completed and producing product. During 20Y8, once the factory is up and running, we should equip the whole facility with wireless technology. I think it would cost us $800,000 today to install the technology. However, prices have been dropping by 25% per year, so it should be less expensive at a later date.

Chief Financial Officer: I am excited about our long-term prospects. My only short-term concern is managing our cash flow while we expend the $4,000,000 of construction costs in 20Y6 and $6,000,000 in 20Y7 on the portion of the new factory building scheduled to be completed in 20Y9.

Use this interview information to prepare a capital expenditures budget for Omicron Inc. for the years 20Y620Y9.

Two-Leg Company Production Budget For Month Ending May 31 (assumed data) Dockers 501 Jeans Expected units to be sold May 31 desired inventory Total units available bon. book May 1 estimated inventory Total units to be produced Two-Leg Company Direct Labor Cost Budget For Month Ending May 31 (assumed data) Inseam Outerseam Pockets Zipper Total Dockers 501 Jeans Total minutes Total direct labor hours Direct labor rate X $ X $ X $ X $ Total direct labor cost $ EastGate Physical Therapy Inc. Schedule of Cash Payments for Operations For the Three Months Ending March 31 January February Payments of prior month's expense X $ March $ Payments of current month's expense Total cash payments Omicron Inc. Capital Expenditures Budget For the Four Years Ending December 31, 2016-2049 2016 2017 20Y8 2049 Building $ Equipment Information systems Total $