EXERCISE 9-2 Production Budget [ LO3 ] Crystal Telecom has budgeted the sales of its innovative mobile phone over the next four months as follows: Sales in Units 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 inventories of fi nished goods must equal 10% of the next months 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. EXERCISE 9-3 Direct Materials Budget [ LO4 ] Micro Products, Inc., has developed a very powerful electronic calculator. 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 fi rst quarter of Year 3, as shown below: Year 2 Year 3 First Second Third Fourth First Budgeted production, in calculators . . . . . . . . . . . . 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 inventories as a precaution against stockouts. For this reason, the inventory of chips at the end of a quarter must be equal to 20% of the following quarters production needs. Some 36,000 chips will be on hand to start the fi rst 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. EXERCISE 9-4 Direct Labor Budget [ LO5 ] The Production Department of the Riverside Plant of Junnen Corporation has submitted the following forecast of units to be produced at the plant for each quarter of the upcoming fi scal year. The plant produces high-end outdoor barbecue grills. 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter Units to be produced . . . . . . . . 5,000 4,400 4,500 4,900 Each unit requires 0.40 direct labor-hours and direct labor-hour workers are paid $11 per hour. Required: 1. Construct the companys direct labor budget for the upcoming fi scal year, assuming that the direct labor workforce is adjusted each quarter to match the number of hours required to produce the forecasted number of units produced. 2. Construct the companys direct labor budget for the upcoming fi scal year, assuming that the direct labor workforce is not adjusted each quarter. Instead, assume that the companys direct labor workforce consists of permanent employees who are guaranteed to be paid for at least 1,800 hours of work each quarter. If the number of required direct labor-hours is less than this number, the workers are paid for 1,800 hours anyway. Any hours worked in excess of 1,800 hours in a quarter are paid at the rate of 1.5 times the normal hourly rate for direct labor. Profi t Planning 401 EXERCISE 9-5 Manufacturing Overhead Budget [ LO6 ] The direct labor budget of Krispin Corporation for the upcoming fi scal year contains the following details concerning budgeted direct labor-hours. The companys variable manufacturing overhead rate is $1.75 per direct labor-hour and the companys fi xed manufacturing overhead is $35,000 per quarter. The only noncash item included in the fi xed manufacturing overhead is depreciation, which is $15,000 per quarter. Required: 1. Construct the companys manufacturing overhead budget for the upcoming fi scal year. 2. Compute the companys manufacturing overhead rate (including both variable and fi xed manufacturing overhead) for the upcoming fi scal year. Round off to the nearest whole cent. EXERCISE 9-6 Selling and Administrative Expense Budget [ LO7 ] The budgeted unit sales of Haerve Company for the upcoming fi scal year are provided below: 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter Budgeted direct labor-hours . . . . . . . 5,000 4,800 5,200 5,400 The companys variable selling and administrative expenses per unit are $2.75. Fixed selling and administrative expenses include advertising expenses of $12,000 per quarter, executive salaries of $40,000 per quarter, and depreciation of $16,000 per quarter. In addition, the company will make insurance payments of $6,000 in the 2nd Quarter and $6,000 in the 4th Quarter. Finally, property taxes of $6,000 will be paid in the 3rd Quarter. Required: Prepare the companys selling and administrative expense budget for the upcoming fi scal year. EXERCISE 9-7 Cash Budget Analysis [ LO8 ] A cash budget, by quarters, is given below for a retail company (000 omitted). The company requires a minimum cash balance of $5,000 to start each quarter. 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter Budgeted unit sales . . . . . . . . 12,000 14,000 11,000 10,000 Required: Fill in the missing amounts in the table above. Quarter 1 2 3 4 Year Cash balance, beginning . . . . . . . . . . . . . . . . . $ 9 $ ? $ ? $ ? $ ? Add collections from customers . . . . . . . . . . . . ? ? 125 ? 391 Total cash available . . . . . . . . . . . . . . . . . . . . . 85 ? ? ? ? Less disbursements: Purchases of inventory. . . . . . . . . . . . . . . . . 40 58 ? 32 ? Operating expenses . . . . . . . . . . . . . . . . . . . ? 42 54 ? 180 Equipment purchases. . . . . . . . . . . . . . . . . . 10 8 8 ? 36 Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 2 2 2 ? Total disbursements . . . . . . . . . . . . . . . . . . . . . ? 110 ? ? ? Excess (defi ciency) of cash available over disbursements . . . . . . . . . . . . . . . . . . . (3) ? 30 ? ? Financing: Borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . ? 20 ? Repayments (including interest)* . . . . . . . . . (?) (7) (?) Total fi nancing . . . . . . . . . . . . . . . . . . . . . . . . . ? ? ? ? ? Cash balance, ending . . . . . . . . . . . . . . . . . . . $ ? $ ? $ ? $ ? $ ? *Interest will total $4,000 for the year.