The East Division of K Company manufactures a component that is vital to the health care Industry. This Division has been experiencing some problems in coordinating activities between various departments which resulted in acute and embarrassing shortages in the industry in the past. The divisions Manager in an effort to avoid future shortages has decided to reinforce the decision to have monthly budgets prepared to aid in the production process. To assist in preparing the second Quarters budgets, the Financial Controller has provided the following actual and budgeted information. January (actual) 8,000 February (actual) 10,000 March (actual) 14,000 April (Budget) 20,000 May (budget) 35,000 June(budget) 50,000 July (budget) 45,000 August (budget) 30,000 Direct Material Two different materials are used in the production of the component. Data related to these materials are given below: Direct material Units of Material per finished component Cost per unit Inventory at march 31 No. 210 4 pounds $ 5.00 46,000 pounds No. 312 9 feet $ 2.00 69,000 feet Material No.210 is sometimes in short supply therefore the East Division requires enough of this material on hand to provide for 50% of the following months production needs. Material No. 312 is easier to get therefore only one thirds of the following months production need is required to be kept at the end of each month. Direct Labour The East Division has three departments through which the component must past before they are completed. Information relating to direct labour in these departments is listed in the table below. Direct labour is adjust each month as required. Department Direct labour hours per component Cost per direct labour hour Shaping 0.25 $ 18.00 Assembly 0.70 16.00 Finishing 0.10 20.00 Manufacturing Overhead East Division manufactured 32,000 components during the first quarter of the current year. The actual variable cost incurred in producing the components for the first quarter is given below. The financial Controller believes that the variable cost per unit will remain unchanged for the remaining nine month of the year. Utilities $ 57,000 Indirect labour 31,000 Supplies 16,000 Other variable cost 8,000 Total variable cost $112,000 The actual fixed manufacturing overhead cost incurred during the first quarter amounted to $1,170,000. The East Division has budgeted fixed manufacturing overhead cost for the year as follows: Year budget Actual for first quarter Supervision $ 872,000 $ 224,000 Property taxes 143,000 37,750 Depreciation 2,910,000 727,500 Insurance 631,000 157,750 Other 72,000 23,000 Total fixed manufacturing overheads $ 4,628,000 $ 1,170,000 Finished Goods Inventory The desired ending inventory in completed components is 20% of the nexts months estimated sales. The East Division has 4,000 components in finished goods inventory at March 31. Required 1. Prepare the production budget foe East Division for the second quarter ending June 30 showing computations by month and in total for the quarter. 2. Prepare the direct materials purchase budget in units and dollars for each type of material for the second quarter ending June 30 also showing computations by month and in total for the quarter. 3. Prepare the direct labour budget in hours and in dollars for the second quarter ending June 30 showing only the quarter totals. 4. Assuming that the total fixed cost for the year will not change from the original estimates, prepare the variable and fixed overheard budgets for the second quarter by line item. Question 3 A cash budget is being prepared for Hotels Inc for the month of May. The following information has been gathered to assist in preparing the budget: a. Budgeted sales and production requirements are as follows: Budgeted Sales $ 650,000 Production requirements Raw material to be used $ 301,000 Direct labour cost 85,000 b. Customers are allowed a 2% cash discount on accounts paid within 10 days after the end of the month of sale. Only 50% of the payments made in the month following sale fall within the discount period. c. Accounts receivable outstanding at April 30 were as follows: Month Sales Accounts receivable at April 30 Percentage of sales Uncollected at April 30 Percentage to be collected in May January $ 340,000 $ 8,500 2.5% ? February 530,000 31,800 6.0% ? March 470,000 47,000 10.0% ? April 550,000 550,000 100.0% ? All January receivables outstanding will be collected in May and the collection pattern since the time of the sale will be the same in May as in previous months. d. Raw material purchases are paid in the month following the purchase and $ 320,000 in accounts payable for purchases was outstanding at the end of April. e. Accrued wages on April 30 were $ 11,000. All May payroll amounts will be paid within the month of May. f. Budgeted operating expenses and overhead cost for May are as follows: Overhead and other charges Total Indirect labour $ 34,000 Property taxes 1,500 Depreciation 25,000 Utilities 1,500 Wage benefits 9,000 Fire insurance expired 1,500 Amortization of patents 5,000 Spoilage of materials in the ware house 1,500 $ 79000 Sales Salaries 45,000 Administrative salaries 15,000 g. Property taxes are paid in July of each year. h. Utilities are billed and paid within the month. i. Shipping cost for May will be $ 1,000 all payable in the month. j. The cash balance at April 30th was $5,750. Required 1. Prepare a Cash collections schedule for the month of May. 2. Prepare a cash budget for May in good form. Hotels Inc require a minimum cash balance of $ 5,500 at the end of each month and therefore a line of credit is set up to allow for borrowings to cover any deficiency in the ending cash balance.