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) 35,000 June (planned) 50,000 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:

Units of Direct Cost Direct Materials per per Inventory at Material Finished Component lb/ft March 31

No. 208 4 pounds $5.00 46,000 pounds No. 311 9 feet 2.00 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:

Direct Labor-Hours Cost per Per Finished Direct Department Component Labor-Hour

Shaping .25 $18.00 Assembly .70 16.00 Finishing .10 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:

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.)