Chapter 6 Exercises

Step-by-Step Exercises

Revenue Budget

Question 1

Carwood Company expects to sell 30,000 units next period at a selling price of $400 per unit.

Prepare a revenue budget for next period.

Question 2

Humbole, Inc. sells two products, a regular model and a deluxe model. Sales of the regular model next month are expected to be 400,000, while sales of the deluxe model are expected to be 100,000. The regular model sells for $14, and the deluxe model sells for $25.

Prepare a revenue budget for next month.

Question 3

Bibbin Corporation manufactures a component they expect to be able to sell for $1,500 per unit. Expected sales next period are 10,000 units.

Prepare a revenue budget for next period.

Production Budget

Question 4

Loki Manufacturing expects to sell 50,000 units next period. Expected beginning finished goods inventory is 12,000 units and expected ending finished goods inventory is 9,500 units.

Prepare a production budget for next period.

Question 5

Jimper Corporation expects to sell 10,000 units in April; 13,000 units in May; 9,000 units in June; and 11,000 units in July. Jimper’s finished goods inventory policy is to carry 15% of the following month’s sales as ending inventory.

Prepare a production budget for second quarter.

Question 6

Penke Company has projected sales for next month to be 10,000 and expects that sales will increase by 10% each month over the next year. Penke’s policy is to carry finished goods inventory equal to 10% of the following month’s sales.

Prepare a production budget for each of the next three months.

Direct Materials Usage Budget

Question 7

Liaca Company has budgeted production of 20,000 units in June and 22,000 units in July. Each unit of product requires 2 feet of wood, which costs $5 per foot.

Prepare a direct materials usage budget for June.

Question 8

Evenson Corporation has budgeted production of 3,000 units in February and 2,800 units in March. Each unit requires 40 components costing $145 each, and a casing costing $5,000.

Prepare a direct materials usage budget for February.

Question 9

Hula Company is planning to produce 10,000 units this month, and then increase production by 10% the following month. Hula uses 14 yards of canvas costing $4.80 per yard and 30 embellishments costing $2.50 when producing a unit.

Prepare a direct materials usage budget for this month.

Direct Labor Budget

Question 10

Quammel, Inc. plans to produce 100,000 units next period. Each unit requires 3 hours of direct labor to manufacture, and Quammel pays their direct labor $15 per hour.

Prepare a direct labor budget for next period.

Question 11

Veline Company has budgeted to produce 20,000 units in May. A worker earning $25 per hour can make 4 units in an hour.

Prepare a direct labor budget for May.

Question 12

Slidell, Inc., employs two kinds of direct labor: assembly workers, who are paid $18 per hour, and skilled workers, who are paid $35 per hour. Slidell expects to produce 400 units next period, each of which will require 4 hours of assembly time and 3 hours of skilled labor.

Prepare a direct labor budget for next period.

Manufacturing Overhead Budget

Question 13

Polkiss Corporation expects that variable overhead costs will be $17.50 per direct labor hour in November. Direct labor hours are budgeted to be 100,000, and fixed overhead costs are budgeted to be $2,300,000.

Prepare a manufacturing overhead budget for November.

Question 14

Culbreath and Sons expects that per-unit variable overhead cost, which they have always budgeted at $5 per machine hour, will increase next year by 10%. Fixed overhead costs, which were $130,000 last year, are expected to increase by 20% next year. Culbreath and Sons plans to use 80,000 machine hours next year.

Prepare a manufacturing overhead budget for next year.

Question 15

Spinker Company expects that variable overhead will cost 200% of direct labor cost, which is budgeted to be $800,000 next period. Fixed overhead is budgeted to be $3,000,000 next period.

Prepare a manufacturing overhead budget for next year.

Ending Finished Goods Inventory Budget

Question 16

Godfrey Industries plans to spend $2,610,000 on wood, $2,320,000 on steel, $6,960,000 on direct labor, and $4,060,000 on manufacturing overhead next year, which will allow them to produce 145,000 units. Finished goods inventory is budgeted to be 1,500 units on December 31.

Prepare an ending finished goods inventory budget for December.

Question 17

Flagman Enterprises plans to spend $1,075,000 on direct materials, $625,000 on direct labor, and $250,000 on manufacturing overhead to manufacture 50,000 units during second quarter. Ending finished goods inventory is budgeted to be 4,700 units.

Prepare an ending finished goods inventory budget for the second quarter.

Question 18

Bailey Company plans to spend $3,360,000 on direct materials, $5,600,000 on direct labor, and $2,800,000 on manufacturing overhead to manufacture 2,800,000 units during the month of October. Finished goods inventory is budgeted to be 300,000 units on October 31.

Prepare an ending finished goods inventory budget for October.

Cost of Goods Sold Budget

Question 19

Direct materials usage is budgeted to cost $450,000 in February. Direct labor is budgeted to cost $500,000. Manufacturing overhead is budgeted to cost $380,000. Finished goods inventory value is budgeted to be $200,000 February 1 and $270,000 February 28.

Prepare a cost of goods sold budget for February.

Question 20

Marquis Corporation prepared the following budgets for next month:

Prepare a cost of goods sold budget for next month.

Question 21

Casson Industries expects August direct materials costs to total $50,600, direct labor costs to total $38,100, and manufacturing overhead costs to total $41,600. Finished goods inventory is expected to increase by $7,300 during August.

Prepare a cost of goods sold budget for next month.

Period Expense Budget

Question 22

Mason Industries expects that selling expenses will be $500,000 next month, and general and administrative expenses will be $1,300,000.

Prepare a period expense budget for next month.

Question 23

Carter Company pays their salespeople a commission of 10% of sales value. Other selling costs are expected to be $200,000 in July, and general and administrative costs are expected to be $850,000 in July. Budgeted revenue for July is $7,300,000.

Prepare a period expense budget for July.

Question 24

Infaria Corporation expects that selling expenses will be $8,000,000 next year and that general and administrative costs will increase 5% over last year’s cost of $5,300,000.

Prepare a period expense budget for next year.

Budgeted Income Statement

Question 25

Budgeted revenues for fourth quarter are $18,000,000. Cost of goods sold is budgeted to be $12,000,000. Budgeted period expenses are $5,500,000.

Prepare a budgeted income statement for the fourth quarter.

Question 26

Imbeni Corporation prepared the following budgets for April:

Budgeted revenues	800,000
Budgeted cost of goods sold	620,000
Budgeted period expenses	100,000

Prepare a budgeted income statement for April.

Question 27

For next period, Lombard Company budgeted revenues of $2,000,000, cost of goods sold of $1,200,000, and period expenses of $370,000.

Prepare a budgeted income statement for next period.

 

Complete Problems

Question 28

Murqua Enterprises manufactures many products, including wooden spoons. Each spoon requires 1.5 feet of wood, costing $1 per foot. An assembly worker can supervise the machine carving and sanding process of 40 spoons an hour. Assembly labor is paid $18 per hour. Variable overhead is applied at a rate of $9.00 per direct labor hour, and fixed overhead is expected to be $42,500 next year. General, selling, and administrative costs allocated to the wooden spoon product line are expected to be $65,000 next year. Murqua expects to sell 90,000 spoons next year for $3.50 per spoon. At the end of the current year, there should be 15,000 spoons in finished goods inventory worth $40,125. Ending finished goods inventory next year is expected to consist of 10,000 spoons.

Prepare all budgets necessary to result in a budgeted income statement for next year.

Flumber, Inc., projects the following sales in units, which sell for $130 each:

March	April	May	June	July
16,000	12,000	14,000	13,500	15,000

Flumber’s policy is to end each month with 10% of the following month’s sales needs in finished goods inventory. March 1 finished goods inventory of 1,200 units is estimated to be worth $157,000. Each unit requires 10 pounds of raw material, which costs $2 per pound, and 2.5 hours of labor, which costs $16 per hour. Variable overhead is estimated to cost 80% of direct labor cost. Fixed costs are estimated to be $100,000 for manufacturing overhead and $280,000 in selling, general, and administrative costs per month.

Question 29

Prepare all budgets necessary to result in a budgeted income statement for March.

Question 30

Prepare all budgets necessary to result in a budgeted income statement for April.

Question 31

Prepare all budgets necessary to result in a budgeted income statement for May.

Question 32

Jenfries Corporation manufactures robots that sell for $3,800. Each robot contains raw materials costing $1,500 and requires 12 hours of labor to manufacture. Labor is paid $20 per hour. Variable manufacturing overhead is applied to products at a rate of $50 per hour. Fixed manufacturing overhead is estimated at $100,000 next period, and fixed period expenses are estimated at $200,000. In addition, variable selling costs are 10% of revenue. Jenfries manufactures robots as orders come in, using a just-in-time inventory system, so no finished goods inventories are kept on hand. Jenfries plans to sell 500 robots next period.

Prepare all budgets necessary to result in a budgeted income statement for next period.

Question 33

CatTreez, Inc. is a small company that manufactures cat trees from wood and sisal rope. CatTreez has projected that sales will be 240 units in April and 210 units in May. Each unit sells for $140.00. CatTreez’s policy is to keep 20% of the following month’s projected sales in finished goods inventory each month.

CatTreez pays direct labor $15/hour to manufacture its units, which each require two hours of direct labor to manufacture. Each unit requires 30 board-feet of wood and 100 feet of sisal rope. Wood costs $0.40 per board-foot, and sisal rope costs $0.10 per foot. Variable overhead is estimated at 120% of direct labor costs.

Each month, fixed manufacturing overhead costs $6,500 and period expenses cost $4,000. Beginning finished goods inventory for April is budgeted to be $3,200.00.

Prepare all budgets necessary to result in a budgeted income statement for April.

 

Assignment Problem

Note: Check figures are not provided for assignment problems so your instructor may use them for homework.

Question 34

Monker Dining Room Furniture manufactures two models of dining table sets: Traditional and Contemporary. Manufacturing requirements are as follows:

	Traditional	Contemporary
Materials	Oak: 100 square feet	Oak: 60 square feet Glass top: 1
Labor	15 hours	20 hours

Cost of:

Glass tops	$200 each
Oak	$15 per square foot
Direct labor	$25 per direct labor hour
Variable manufacturing overhead	$10 per direct labor hour

This year, Monker sold 1,000 Traditional sets at $2,500 each and 900 Contemporary sets at $3,000 each. Fixed manufacturing overhead was $500,000, and period expenses (all fixed) were $700,000.

Monker estimates that sales of both products will increase 10% each year in the future, and that total fixed costs and per-unit variable costs will remain the same as this year. Monker’s inventory policy is to end each period with 10% of the following year’s sales needs in finished goods inventory. Ending finished goods inventory this year is worth $450,000.

Prepare all budgets necessary to result in a budgeted income statement for next year.

Challenge Problem

Question 35

Caroline manufactures pillar candles in three sizes, which she sells directly from a website. Six-inch candles require 1 pound of wax, 0.5 ounce of fragrance, and 8 inches of wick. Nine-inch candles require 1.5 pounds of wax, 0.75 ounce of fragrance, and 11 inches of wick. Twelve-inch candles require 2 pounds of wax, 1 ounce of fragrance, and 14 inches of wick.

Wax costs $1.50 per pound, fragrance costs $2.50 per ounce, and wicks cost $0.25 per yard (there are 36 inches in a yard). Six-inch candles sell for $18 each plus tax and shipping, nine-inch candles sell for $25 each plus tax and shipping, and twelve-inch candles sell for $30 each plus tax and shipping.

Caroline can make a batch of 100 six-inch candles in 2 hours, 50 nine-inch candles in 2.5 hours, or 40 twelve-inch candles in 3 hours. Caroline is the only worker, and she pays herself $20 per hour for her manufacturing time. Caroline pays $500 per month for manufacturing space, $100 per month for utilities in the manufacturing space, $100 per month for supplies and depreciation on molds and other equipment, and $0.25 per pound of wax used for heating. She pays $100 per month for website access and design, $200 per month for office rent, $100 per month for office supplies and equipment depreciation, and $0.20 per click for a pay-per-click advertising campaign. Caroline estimates that 1 in 10 clicks generates a candle sale. Caroline also pays herself $10 per hour for office time, and she works about 40 hours per month in the office. Caroline likes to keep 10% of the next month’s projected sales needs on hand in all ending finished goods inventories. The total value of ending finished goods inventories for July is $192.64. Planned sales for the next 3 months are as follows:

Prepare all budgets necessary to result in a budgeted income statement for August.

Pre-Assessment Problem

Use this problem to check whether you are fully prepared for the assessment. Work the problem under assessment conditions – don’t use any notes or other materials!

Question 36

Merrypippin, Inc. budgeted sales of 120,000 units next month and 125,000 the month after that. Each month, Merrypippin keeps 20% of the next month’s sales in ending FG inventory, and keeps no raw materials inventory. Merrypippin estimated the following amounts:

Item	Total Amount	Per unit
Direct materials		4 pounds @ $8.00/pound
Direct labor		2.5 hours @ $18.00/hour
Variable MOH		$15.00/DL hour
Selling price		$315.00
Fixed MOH	8,375,000
Period Costs	10,290,000
Beginning finished goods inventory	2,000,000

Prepare budgets for revenue, production, direct materials, direct labor, manufacturing overhead, ending finished goods inventory, cost of goods sold, and income.