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.)

SALES BUDGET April May June Total July Units Sales price per unit Total Sales PRODUCTION BUDGET April May June Total July August Sales in Units Desired units of ending inventory 0 Desired Total Units Less: desired units of beginning inventory Total production units DIRECT MATERIALS BUDGET (No. 208) April May June Quarter July Units to be produced x 4 lbs. 4 4 Total material needs Add: desired end. Inv Less: Beginning Inventory Total materals to be purchased x $5.00 $5.00 S5.00 $5.00 $5.00 Total cost of purchases