Preparing an operating budget—inventory, purchases, and cost of goods sold budget
Slate, Inc. sells tire rims. Its sales budget for the nine months ended September 30, 2018, follows:
Quarter Ended Nine-Month Total
March 31 June 30 September 30 Cash sales, 20% $ 28,000 $ 38,000 $ 33,000 $ 99,000
Credit sales, 80% 112,000 152,000 132,000 396,000 Total sales $ 140,000 $ 190,000 $ 165,000 $ 495,000
In the past, cost of goods sold has been 40% of total sales. The director of marketing and the financial vice president agree that each quarter’s ending inventory should not be below $5,000 plus 10% of cost of goods sold for the following quarter. The marketing director expects sales of $240,000 during the fourth quarter. The January 1 inventory was $38,000. Prepare an inventory, purchases, and cost of goods sold budget for each of the first three quarters of the year. Compute cost of goods sold for the entire nine-month period.
The total budgeted inventory is $471,600 and budgeted cost of goods sold is $198,000.
Plus: Desired ending inventory
Total required inventory
Less: Beginning inventory
Budgeted cost of goods sold
Preparing an operating budget—cost of goods sold budget Butler Company expects to sell 1,650 units in January and 1,550 units in February. The company expects to incur the following product costs:
Direct materials cost per unit $ 85
Direct labor cost per unit 60
Manufacturing overhead cost per unit 55
The beginning balance in Finished Goods Inventory is 250 units at $200 each for a total of $50,000. Butler uses FIFO inventory costing method. Prepare the cost of goods sold budget for Butler for January and February.
Question: Preparing a financial budget—schedule of cash receipts, schedule of cash payments, cash budget
Puckett Company has provided the following budget information for the first quarter of 2018:
Total sales $ 216,000
Budgeted purchases of direct materials 40,600
Budgeted direct labor cost 36,800 Budgeted manufacturing overhead costs:
Variable manufacturing overhead 1,025
Insurance and property taxes 6,650
Budgeted selling and administrative expenses:
Salaries expense 14,000
Rent expense 2,500
Insurance expense 2,000
Depreciation expense 350
Supplies expense 4,320
Additional data related to the first quarter of 2018 for Puckett Company:
a. Capital expenditures include $41,000 for new manufacturing equipment to be purchased and paid in the first quarter.
b. Cash receipts are 75% of sales in the quarter of the sale and 25% in the quarter following the sale.
c. Direct materials purchases are paid 50% in the quarter purchased and 50% in the next quarter.
d. Direct labor, manufacturing overhead, and selling and administrative costs are paid in the quarter incurred.
e. Income tax expense for the first quarter is projected at $49,000 and is paid in the quarter incurred.
f. Puckett Company expects to have adequate cash funds and does not anticipate borrowing in the first quarter.
g. The December 31, 2017, balance in Cash is $25,000, in Accounts Receivable is $21,600, and in Accounts Payable is $16,500.
1. Prepare Puckett Company’s schedule of cash receipts from customers and schedule of cash payments for the first quarter of 2018.
2. Prepare Puckett Company’s cash budget for the first quarter of 2018.
Preparing an operating budget—manufacturing overhead budget Bennett Company expects to produce 2,030 units in January that will require 8,120 hours of direct labor and 2,210 units in February that will require 8,840 hours of direct labor. Bennett budgets $10 per unit for variable manufacturing overhead; $2,100 per month for depre000ciation; and $78,460 per month for other fixed manufacturing overhead costs. Prepare Bennett’s manufacturing overhead budget for January and February, including the predetermined overhead allocation rate using direct labor hours as the allocation base.
Match the budget types to the definitions.
Budget Types Definitions
5. Financial a. Includes sales, production, and cost of goods sold budgets
6. Flexible b. Long-term budgets
7. Operating c. Includes only one level of sales volume
8. Operational d. Includes various levels of sales volumes
9. Static e. Short-term budgets
10. Strategic f. Includes the budgeted financial statements
Computing and journalizing standard cost variances
Moss manufactures coffee mugs that it sells to other companies for customizing with their own logos. Moss prepares flexible budgets and uses a standard cost system to control manufacturing costs. The standard unit cost of a coffee mug is based on static budget volume of 59,800 coffee mugs per month:
Direct material (0.2 lbs. @$0.25 per lb)
Direct Labor (3 minutes @ $0.11 per minute)
Variable (3 minutes @ $0.06 per minute)
Fixed (3 minutes @ $0.13 per minute)
Total Cost per Coffee Mug
Actual cost and production information for July 2018 follows:
a. There were no beginning or ending inventory balances. All expenditures were on account.
b. Actual production and sales were 62,500 coffee mugs.
c. Actual direct materials usage was 11,000 lbs. at an actual cost of $0.17 per lb.
d. Actual direct labor usage was 197,000 minutes at a total cost of $25,610.
e. Actual overhead cost was $10,835 variable and $29,765 fixed.
f. Selling and administrative costs were $95,000.
1. Compute the cost and efficiency variances for direct materials and direct labor.
2. Journalize the purchase and usage of direct materials and the assignment of direct labor, including the related variances.
3. For manufacturing overhead, compute the variable overhead cost and efficiency variances and the fixed overhead cost and volume variances.
4. Journalize the actual manufacturing overhead and the allocated manufacturing overhead. Journalize the movement of all production costs from Work-in-Process Inventory. Journalize the adjusting of the Manufacturing Overhead account.
5. Moss intentionally hired more highly skilled workers during July. How did this decision affect the cost variances? Overall, was the decision wise?
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