Question
The East Division of Kensic Company manufactures a vital component that is used in one of Kensics major product lines. The East Division has been
The East Division of Kensic Company manufactures a vital component that is
used in one of Kensics major product lines. The East Division has been
experiencing some difficulty in coordinating activities between its various
departments, which has resulted in some shortages of the component at critical
times. To overcome the shortages, the manager of East Division has decided to
initiate a monthly budgeting system that is integrated between departments.
The first budget is to be for the second quarter of the current year (April, May and
June). To assist in developing the budget figures, the divisional controller has
accumulated the following information.
Sales:
Sales through the first three months of the current year were 30,000
units. Actual sales in units for January, February, and March, and planned sales
in units over the next five months, are given below:
January (actual) 6,000
February (actual) 10,000
March (actual) 14,000
April (planned) 20,000
May (planned) 34,000
June (planned) 51,000
July (planned) 45,000
August (planned) 30,000
In total, the East Division expects to produce and sell 250,000 units during the
current year.
Direct Material:
Two different materials are used in production of the
component. Data regarding these materials are given below:
Material 208:
Materials per Finished Component: 4 pounds
Cost per pound: $5.00
Inventory at March 13: 46,000 pounds
Material 311:
Materials per Finished Component: 9 feet
Cost per foot: $2.00
Inventory at March 31: 69,000 feet
Material No. 208 is sometimes in short supply. Therefore, the East Division
requires that enough of the material be on hand at the end of each month to
provide for 50% of the following months production needs. Material No. 311 is
easier to get, so only one-third of the following months production needs must be
on hand at the end of each month.
Direct Labor:
The East Division has three department through which the
components must past before they are completed. Information relating to direct
labor in these departments is given below:
Department: Shaping
Direct Labor Hours per Finished Component: .25
Cost per Direct Labor Hour: $18.00
Department: Assembly
Direct Labor Hours per Finished Component: .70
Cost per Direct Labor Hour: $16.00
Department: Finishing
Direct Labor Hours per Finished Component: .10
Cost per Direct Labor Hour: $20.00
Direct labor is adjusted to the workload each month.
Manufacturing Overhead
: East Division manufactured 32,000 components
during the first three months of the current year. The actual variable overhead
costs incurred during this three-month period are shown below. Each Divisions
controller believes that the variable overhead costs incurred during the last nine
months of the year will be at the same rate per component as experienced during
the first three months.
Utilities $57,000
Indirect Labor $31,000
Supplies $16,000
Other $8,000
Total variable overhead $112,000
The East Division has planned fixed manufacturing overhead costs for the entire
year as follows:
Supervision $872,000
Property Taxes $143,000
Depreciation $2,910,000
Insurance $631,000
Other $72,000
Total fixed manufacturing
Overhead $4,628,000
Finished Goods Inventory:
The desired monthly ending inventory of completed
components is 20% of the next months estimated sales. The East Division has
4,000 units in the finished goods inventory on March 31.
Selling and Administrative Expenses
: Selling and Administrative Expenses are
budgeted at $400,000 per month plus 1% of total credit sales for the month.
REQUIRED:
1. Prepare a production budget for the East Division for the second quarter
ending June 30. Show computations by month and in total for the quarter.
(5 pts.) _____
2. Prepare a direct materials purchases budget in units and dollars for each
type of material for the second quarter ending June 30. Again show
computations by month and in total for the quarter.
(5 pts.) _____
3. Prepare a schedule of cash payments for direct materials for the second
quarter. Assume that all direct materials are purchased on account and
the East Division pays for of the amount purchased in the month of
purchase and the other in the month following the purchase. The
balance in the Accounts Payable account at 3/31 was $351,200.
(5 pts.) _____
4. Prepare a direct labor budget in hours and in dollars for the second
quarter ending June 30. Again show computations by month in total for the
quarter.
(5 pts.) _____
5. Prepare a manufacturing overhead budget for the second quarter. Show
computations by month and in total for the quarter.
(5 pts.) _____
6. Compute a new selling price per unit for the East Division that will enable
them to accumulate a balance of $100,000 in their cash account by the
end of the second quarter. Assume that the cash balance at March 31 was
$10,000.
(5 pts.) _____
7. Using the selling price per unit computed in #6 prepare a sales budget for
the second quarter. Show computations by month and in total for the
quarter.
(5 pts.) _____
8. Prepare a schedule of expected cash collections for the second quarter
using the selling price per unit calculated in question #6. Assume that the
East Division collects on its credit sales as follows; 70% in the month of
sale, 20% in the month following the credit sale, 10% in the second month
following the credit sale. To compute the balance in Accounts Receivable
at 3/31 assume that the selling price per unit prior to 3/31 was $75.00.
(5 pts.) _____
9. Prepare a cash budget for the second quarter in month and in total for the
East Division.
(10 pts.)
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Just In Time Accounting How To Decrease Costs And Increase Efficiency
Authors: Steven M. Bragg
3rd Edition
0470403721, 978-0470403723
