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Financial & Managerial Accounting
Found in: Page 913
Financial & Managerial Accounting

Financial & Managerial Accounting

Book edition 7th
Author(s) John J Wild, Ken W. Shaw, Barbara Chiappetta
Pages 1096 pages
ISBN 9781259726705

Short Answer

Zortek Corp. budgets production of 400 units in January and 200 units in February. Each finished unit requires five pounds of raw material Z, which costs $2 per pound. Each month’s ending inventory of raw materials should be 40% of the following month’s budgeted production. The January 1 raw materials inventory has 130 pounds of Z.

Prepare a direct materials budget for January

The direct materials budget for the month of January will be $4,540

See the step by step solution

Step by Step Solution

Given the information as

Particulars

Amount

Total budget production in January

400 units

Total budget production in February

200 units

Cost

$2 per pound

Raw materials

40%

Raw materials required

5 pounds

Total raw materials inventory

130 pounds

Preparation od direct materials budget for January

Zortek Corp

Direct material budget

For the month of January

Particulars

Amount

Budgeted production

400

Multiply: Raw material per unit

5

Material needed for production

2000

Add: Desired ending inventory

400

Total material requirement

2,400

Less: Beginning inventory

130

Material to be purchased

2,270

Cost per pound

$2

Total cost of direct material purchase

$4,540

Most popular questions for Business-studies Textbooks

Question: Aztec Company sells its product for $180 per unit. Its actual and budgeted sales follow

All sales are on credit. Recent experience shows that 20% of credit sales is collected in the month of the sale, 50% in the month after the sale, 28% in the second month after the sale, and 2% proves to be uncollectible. The product’s purchase price is $110 per unit. 60% of purchases made in a month is paid in that month and the other 40% is paid in the next month. The company has a policy to maintain an ending monthly inventory of 20% of the next month’s unit sales plus a safety stock of 100 units. The April 30 and May 31 actual inventory levels are consistent with this policy. Selling and administrative expenses for the year are $1,320,000 and are paid evenly throughout the year in cash. The company’s minimum cash balance at month-end is $100,000. This minimum is maintained, if necessary, by borrowing cash from the bank. If the balance exceeds $100,000, the company repays as much of the loan as it can without going below the minimum. This type of loan carries an annual 12% interest rate. On May 31, the loan balance is $25,000, and the company’s cash balance is $100,000. (Round amounts to the nearest dollar.)

Required

1. Prepare a schedule that shows the computation of cash collections of its credit sales (accounts receivable) in each of the months of June and July.

2. Prepare a schedule that shows the computation of budgeted ending inventories (in units) for April, May, June, and July.

3. Prepare the merchandise purchases budget for May, June, and July. Report calculations in units and then show the dollar amount of purchases for each month.

4. Prepare a schedule showing the computation of cash payments for product purchases for June and July.

5. Prepare a cash budget for June and July, including any loan activity and interest expense. Compute the loan balance at the end of each month.

Analysis Component

6. Refer to your answer to part 5. The cash budget indicates the company will need to borrow more than $18,000 in June. Suggest some reasons that knowing this information in May would be helpful to management.

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