Budgeting for Sales, Production, Direct Materials, Direct Labor, and Manufacturing Overhead. Hershels Chocolate produces chocolate bars and sells them by the case (1 unit = 1 case). Information to be used for the operating budget this coming year follows:

Average sales price for each case is estimated to be $25. Sales units for this year are expected to be:

First quarter Second quarter Third quarter Fourth quarter

80,000 84,000

88,000 97,000

• Finished goods inventory is maintained at a level equal to 15 percent of the next quarters sales. Finished goods inventory at the end of the fourth quarter budget period is estimated to be 13,000 units.

• Each unit of product requires 5 pounds of cocoa beans for direct materials, at a cost of $3 per pound. Management prefers to maintain ending raw materials inventory equal to 10 percent of next quarters materials needed in production. Raw materials inventory at the end of the fourth quarter budget period is estimated to be 43,000 lbs.

• Each unit of product requires 0.10 direct labor hours at a cost of $14 per hour.

• Variable manufacturing overhead costs are

Indirect materials Indirect labor Other

$0.20/unit $0.15/unit $0.10/unit

Fixed manufacturing overhead costs per quarter are

Salaries Other Depreciation

$80,000 $70,000 $55,625

Quarterly selling and administrative cost estimates for the coming year are:

Salaries Rent Advertising Depreciation Other

$170,000 65,000 120,000 75,000 36,000

All sales are made on credit. The company expects to collect 60 percent of sales in the quarter of sale and 40 percent the quarter following the sale. Accounts receivable at the end of last year totaled $770,000, all of which will be collected during the first quarter of this coming year.

All direct materials purchases are on credit. The company expects to pay 80 percent of purchases in the quarter of purchase and 20 percent the following quarter. Accounts payable at the end of last year totaled $257,000, all of which will be paid during the first quarter of this coming year.

Required:

1. Prepare a sales budget

2. Prepare a production budget

3. Prepare a direct material purchases budget

4. Prepare a direct labor budget

5. Prepare a manufacturing overhead budget

6. Prepare a selling and administrative budget

7. Prepare a budgeted income statement

8. Prepare a budget for cash collections from sales.

9. Prepare a budget for cash payments for purchases of materials.