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1. Explain how both small and large organizations can benefit from budgeting.
2. Discuss some of the reasons for budgeting.
3. Explain the role of a sales forecast in budgeting. What is the difference between a sales forecast
and a sales budget?
7. What is participative budgeting? Discuss some of its advantages.
13. Freshaire, Inc., produces two types of air fresheners: Mint Freshener and Lemon Freshener.
Both produces are sold in 32-ounce bottles. Mint sell for $3.00 per bottle, and Lemon sells for $
3.50 per bottle. Projected sales (in bottles) for the coming four quarters are as follows:
First quarter, 2008
Second quarter, 2008
Third quarter, 2008
Fourth quarter. 2008
First quarter, 2009
Mint
80,000
110,000
124,000
140,000
90,000
Lemon
100,000
100,000
120,000
140,000
110,000
The vice president of sales believes that the projected sales are realistic and can be achieved by the
company.
Required
a) Prepare a sales budget for each quarter of 2008 and for the year in total. Show sales by
product and in total for each time period.
b) How will Freshaire, Inc., use this sales budget?
14. Refer to question 13. Freshaire, Inc., next prepared a production budget for each product.
Beginning inventory of Mint Freshener on January 1 was 4,000 bottles. The companys policy is to
have 10 percent of the next quarters sales of Mint Freshener in ending inventory. Beginning
inventory of Lemon Freshener on January 1 was 6,400 bottles. The companys policy is to have 20
percent of the next quarters sales of Lemon Freshener in ending inventory.
Required
Prepare a production budget for each product by quarter and in total for the year.
17. Marvel Company provided the following information relating to cash payments.
a) Marvel purchased direct materials on account in the following amounts.
June
July
August
20,000
25,000
30,000
Marvel pays 25 percent of accounts payable in the month of purchase, and the remaining 75
percent in the following month.
b) In July, direct labour cost $40,000. August direct labour cost was $50,000. The company
find that typically 90 percent of direct labour cost is paid in cash during the month, with the
remainder paid in the following month.
c) August overhead amounted to $70,000, including $5,500 of depreciation.
d) Marvel took out a loan of $10,000 on May 1. Interest, due with payment of principal,
accrued at the rate of 12 percent per year. The loan and all interest was repaid on August 31.
Required
Prepare a schedule of cash payments for Marvel Company for the month of August.
21. Briggs Manufacturing produces a subassembly used in the production of jet aircraft engines.
The assembly is sold to engine manufacturers and to aircraft maintenance facilities. Projected sales
for the coming four months follow:
January
February
March
April
40,000
50,000
60,000
60,000
The following data pertain to production policies and manufacturing specifications followed by
Briggs Manufacturing:
a) Finished goods inventory on January 1 is 32,000 units, each costing $148.71. The desired
ending inventory for each month is 80 percent of the next months sales.
b) The data on materials used are as follows:
Direct Material
Metal
Components
Per-Unit Usage
10 lbs.
6
Inventory policy dictates that sufficient materials be on hand at the beginning of the month
to produce 50 percent of that months estimated sales. This is exactly the amount of material
on hand on January 1.
c) The direct labour used per unit of output is four hours. The average direct labour cost per
hour is $9.25.
d) Overhead each month is estimated using a flexible budget formula. (Activity is measured in
direct labour hours.)
Supplies
Power
Maintenance
Fixed-Cost Component
$30,000
Variable-Cost Component
$1.00
0.50
0.40
Supervision
Depreciation
Taxes
Other
Fixed-Cost Component
16,000
200,000
12,000
80,000
Variable-Cost Component
1.50
e) Monthly selling and administrative expenses are also estimated using a flexible budgeting
formula. (Activity is measured in units sold.)
Salaries
Commissions
Depreciation
Shipping
Other
Fixed Costs
$50,000
40,000
20,000
Variable Costs
$2.00
1.00
0.60
Freshaire, Inc.
Sales Budget
For the Year 2008
Mint:
st
1 Qtr.
80,000
$3.00
$240,000
nd
2
Qtr.
110,000
$3.00
$330,000
rd
3 Qtr.
124,000
$3.00
$372,000
th
4 Qtr.
140,000
$3.00
$420,000
Total
454,000
$3.00
$ 1,362,000
Units
Price
Sales
100,000
$3.50
$350,000
100,000
$3.50
$350,000
120,000
$3.50
$420,000
140,000
$3.50
$490,000
460,000
$3.50
$ 1,610,000
Total sales
$590,000
$680,000
$792,000
$910,000
$ 2,972,000
Units
Price
Sales
Lemon:
2. Freshaire, Inc., will use the sales budget in planning as the basis for the production budget and the succeeding budgets of the master budget. At the end
of the year, the company can compare actual sales against the budget to see
if expectations were achieved.
(6)
Freshaire, Inc.
Production Budget for Mint Freshener
For the Year 2008
Sales
Des. ending inventory
Total needs
Less: Beginning inventory
Units produced
st
1 Qtr.
80,000
11,000
91,000
4,000
87,000
nd
2
Qtr.
110,000
12,400
122,400
11,000
111,400
rd
3 Qtr.
124,000
14,000
138,000
12,400
125,600
th
4 Qtr.
140,000
9,000
149,000
14,000
135,000
Total
454,000
9,000
463,000
4,000
459,000
th
4 Qtr.
140,000
22,000
162,000
28,000
134,000
Total
460,000
22,000
482,000
6,400
475,600
Freshaire, Inc.
Production Budget for Lemon Freshener
For the Year 2008
Sales
Des. ending inventory
Total needs
Less: Beginning inventory
Units produced
st
1 Qtr.
100,000
20,000
120,000
6,400
113,600
nd
2
Qtr.
100,000
24,000
124,000
20,000
104,000
rd
3 Qtr.
120,000
28,000
148,000
24,000
124,000
(7)
MarvelI agree with comment Company
Schedule of Cash Payments for August
Payments on accounts payable:
From July purchases
(0.75 x $25,000)
From August purchases
(0.25 x $30,000)
Direct labor payments:
From July (0.10 x $40,000)
From August (0.90 x $50,000)
Overhead ($70,000 - $5,500)
Loan repayment [$10,000 + ($10,000 x 0.12 x 4/12)]
Cash payments
$ 18,750
7,500
4,000
45,000
64,500
10,400
$150,150
.
(8)
Briggs Manufacturing
For the Quarter Ended March 31, 20XX
1. Schedule 1: Sales Budget
Units
Selling price
Sales
January
40,000
$215
$8,600,000
February
50,000
$215
$10,750,000
March
60,000
$215
$12,900,000
Total
150,000
$215
$32,250,000
February
March
Total
Sales (Schedule 1)
Desired ending inventory
Total needs
Less: Beginning inventory
Units to be produced
40,000
40,000
80,000
32,000
48,000
50,000
48,000
98,000
40,000
58,000
60,000
48,000
108,000
48,000
60,000
150,000
48,000
198,000
32,000
166,000
Units to be produced
(Schedule 2)
Direct materials
per unit (lbs.)
Production needs
Desired ending
inventory
Total needs
Less: Beginning
inventory
Direct materials to
be purchased
Cost per pound
Total cost
Metal
January
Components
February
Components
48,000
48,000
58,000
58,000
10
480,000
6
288,000
10
580,000
6
348,000
250,000
730,000
150,000
438,000
300,000
880,000
180,000
528,000
200,000
120,000
250,000
150,000
530,000
$8
$4,240,000
318,000
$2
$636,000
630,000
$8
$5,040,000
378,000
$2
$756,000
March
Metal
Components
Units to be produced
(Schedule 2)
Direct materials
per unit (lbs.)
Production needs
Desired ending
inventory
Total needs
Less: Beginning
inventory
Direct materials to
be purchased
Cost per pound
Total cost
Metal
Metal
Total
Components
60,000
60,000
166,000
166,000
10
600,000
6
360,000
10
1,660,000
6
996,000
300,000
900,000
180,000
540,000
300,000
1,960,000
180,000
1,176,000
300,000
180,000
200,000
120,000
600,000
$8
$4,800,000
360,000
$2
$720,000
1,760,000
$8
$14,080,000
1,056,000
$2
$2,112,000
February
48,000
March
58,000
60,000
Total
166,000
4
192,000
232,000
240,000
664,000
$9.25
$9.25
$9.25
$9.25
$1,776,000
$2,146,000
$2,220,000
$6,142,000
$3.40
Budgeted variable overhead $652,800
Budgeted fixed overhead
338,000
Total overhead
$990,800
February
March
Total
232,000
$3.40
$ 788,800
338,000
$1,126,800
240,000
$3.40
$ 816,000
338,000
$1,154,000
664,000
$3.40
$2,257,600
1,014,000
$3,271,600
January
40,000
February
50,000
March
60,000
Total
150,000
$3.60
$540,000
$150,000
120,000
60,000
$330,000
$254,000
$870,000
$290,000
$326,000
$ 92.00
37.00
13.60
6.11
$148.71
= 48,000 $148.71
= $7,138,080
8. Schedule 8: Cost of Goods Sold Budget
Direct materials used (Schedule 3)
Metal (1,660,000 $8)
$13,280,000
Components (996,000 $2)
1,992,000
Direct labor used (Schedule 4)
Overhead (Schedule 5)
Budgeted manufacturing costs
Add: Beginning finished goods (32,000 $148.71)
Goods available for sale
Less: Ending finished goods (Schedule 7)
Budgeted cost of goods sold
9.
$15,272,000
6,142,000
3,271,600
$24,685,600
4,758,720
$29,444,320
7,138,080
$22,306,240
$ 32,250,000
22,306,240
$ 9,943,760
870,000
$ 9,073,760
January
$ 378,000
8,600,000
$8,978,000
February
$ 1,321,200
10,750,000
$12,017,200
March
$ 2,952,400
12,900,000
$15,852,400
Total
$ 378,000
32,250,000
$32,628,000
$4,876,000
1,776,000
790,800
214,000
$7,656,800
$5,796.000
2,146,000
926,800
250,000
$9,118.800
$ 5,520,000
2,220,000
954,000
286,000
$ 8,980,000
$16,192,000
6,142,000
2,671,600
750,000
$25,755,600
$1,321,200
2,952,400
$ 6,872,400
$6,872,400
Ending balance
6,872,400
$1,321,200
$ 2,952,400
$ 6,872,400
10