2.

LO 3 Modesto Company produces and sells Product Alpha. In budgeting for production needs, the company requires that 20% of the next month's sales be on hand at the end of each month. Budgeted sales of Product Alpha over the next four months are:

	June	July	August	September
Budgeted unit sales	30,000	40,000	60,000	50,000

Budgeted production for August would be

• (a)
  44,000
• (b)
  52,000
• (c)
  58,000
• (d)
  70,000

3.

LO 3 Stacy Moore is preparing the materials purchases budget for the second quarter. The production manager has provided the following production budget: April65,000 units, May50,000 units, June70,000 units. Each unit requires 8 pounds of direct materials, and Stacy wants to maintain an ending inventory equal to 20% of the next month's production needs. How many pounds of material will Stacy budget to purchase in May?

(a)480,000

(b)456,000

(c)432,000

(d)400,000

4.

LO 3 Martin Bradstone is gathering information to complete the direct labor budget for next quarter. Which of the following will he not need to complete the budget?

(a)Budgeted production

(b)Standard hourly labor rate

(c)Standard direct labor hours per unit

(d)Predetermined overhead rate

UNIT 5.3 PRACTICE EXERCISE

Hurtt's Java Seeds is an independent roaster of specialty coffee beans. The company budgets two months ahead, so that in early January, it is time to plan for March. During March, the company plans to sell 10,000 pounds of beans. At the end of February, the company expects to have 2,000 pounds of raw green coffee beans (costing $4,000) and 800 pounds of roasted beans (costing $4,000) in inventory. Hurtt's would like to have 1,000 pounds of green coffee beans and 500 pounds of roasted beans in inventory at the end of March. Hurtt's purchases green coffee beans from the grower at $2.00 per pound and sells the roasted beans for $12 per pound.

Hurtt's roasters hold 25 pounds of green coffee beans. It takes 15 minutes to roast the beans to perfection. Because the roaster must be monitored by an employee at all times, each batch requires 0.25 direct labor hours. During the roasting process, the green beans lose 20% of their weight, so that 1.25 pounds of green (raw) beans must be used to produce one pound of roasted beans. The standard direct labor rate is $12 per direct labor hour. Variable overhead is applied at the rate of $80 per direct labor hour, and fixed overhead is budgeted at $13,095 per month, including $1,500 in equipment depreciation.

Required

1.

Prepare Hurtt's sales budget for March.

2.

Prepare Hurtt's production budget for March.

3.

Prepare Hurtt's coffee bean purchases budget for March.

4.

Prepare Hurtt's direct labor budget for March.

5.

Prepare Hurtt's overhead budget for March.

6.

Compute Hurtt's ending inventory balances and cost of goods sold for March.