Prepare the following budgets for the year, showing both quarterly and total figures:

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1 Page 1 of 7 Question 1 Mynor Corporation manufactures and sells a seasonal product that has peak sales in the third quarter. The following information concerns operation for Year 2-the coming year-and for the first two quarters of Year 3: a. The company s single product sells for $8 per unit. Budgeted sales in units for the next six quarters are as follows (all sales are on credit): Budgeted Sales (Units) Year 2 Year 3 Q1 Q2 Q3 Q4 Q1 Q2 40,000 60, ,000 50,000 70,000 80,000 b. Sales are collected in the following pattern: 75% in the quarter the sales are made, and the remaining 25% in the following quarter. On January 1, Year 2, the company s balance sheet showed $65,000 in accounts receivable, all of which will be collected in the first quarter of the year. Bad debts are negligible and can be ignored. c. The company desires an ending inventory finished goods inventory at the end of each quarter equal to 30% of the budgeted sales in units for the next quarter. On December 31, Year 1, the company had 12,000 units on hand. d. Five pounds of raw materials are required to complete one unit of product. The company requires ending raw materials inventory at the end of each quarter equal to 10% of the following quarter s production needs. On December 31, Year 1, the company had 23,000 pounds of raw materials on hand. e. The raw material costs $0.80 per pound. Raw material purchases are paid for in the following pattern: 60% paid in the quarter the purchases are made, and the remaining 40% paid in the following quarter. On January 1, Year 2, the company s balance sheet showed $81,500 in accounts payable for raw material purchases, all of which will be paid for in the first quarter of the year. Prepare the following budgets for the year, showing both quarterly and total figures: 1. A sales budget and a cash receipts budget for expected cash collections. 2. A production budget. 3. A direct material budget in pounds and a cash payment budget for purchases of materials.

2 Page 2 of 7 Question 2 Powerpac Products Limited of Shenzhen, China, manufactures and distributes toys throughout South East Asia. Three cubic centimeters (cc) of solvent Hi300 are required to manufacture each unit of Superman, one of the company s products. The company is now planning raw materials needs for the third quarter and September is the month in which peak sales of Superman occur. To keep production and sales moving smoothly, the company has the following inventory requirements: a. The finished goods inventory on hand at the end of each month must be equal to 3,000 units of Superman plus 20% of the next month s sales. The finished goods inventory on June 30 is budgeted to be 10,000 units. b. The raw materials inventory on hand at the end of each month must be equal to onehalf of the following month s production needs for raw materials. The raw materials inventory on June 30 is budgeted to be 54,000 cc of solvent of Hi300. c. The company maintains no work in process inventories. d. A sales budget for Superman for the last six months of the year follows. Month Budgeted sales in units July 35,000 August 40,000 September 50,000 October 30,000 November 20,000 December 10, Prepare a production budget for Superman for the months of July to October. 2. Examine the production budget and comment why the company produce more units than it sells in July and August and fewer units than it sells in September and October. 3. Prepare a direct material budget showing the quantity of solvent Hi300 to be purchased for July, August and September and for the third quarter.

3 Page 3 of 7 Question 3 Willison Company produces stuffed toy animals, one of these is Betty Rabbit. Each rabbit takes 0.2 yards of fabric and six ounces of polyfiberfill. Fabric costs $3.50 per yard and polyfiberfill is $0.05 per ounce. Willison has budgeted production of stuffed rabbits for the next four months as follows: October 20,000 November 40,000 December 25,000 January 30,000 Inventory policy require that sufficient fabric be in ending monthly inventory to satisfy 15% of the following month s production needs and sufficient polyfiberfill be in inventory to satisfy 30% of the following month s production needs. Inventory of fabric and polyfiberfill at the beginning of October equals exactly the amount needed to satisfy the inventory policy. Each rabbit produced requires on average 0.10 direct labour hour and the average cost of direct labour is $15.50 per hour. 1. Prepare a direct material budget of fabric for the last quarter of the year, showing purchases in units and in dollars for each month and for the quarter in total. 2. Prepare a direct materials budget of polyfiberfill for the last quarter of the year, showing purchases in units and in dollars for each month and for the quarter in total. 3. Prepare a direct labour budget for the last quarter of the year, showing the hours needed and the direct labour cost for each month and for the quarter in total.

4 Page 4 of 7 Question 4 Allison Manufacturing produces a subassembly used in the production of jet aircraft engines. The assembly is sold to engine manufacturers and aircraft maintenance facilities. Projected sales in units for the coming five months follow: January 40,000 February 50,000 March 60,000 April 60,000 May 62,000 The following data pertains to production policies and manufacturing specifications followed by Allison Manufacturing: a. The finished goods inventory on January 1 is 32,000 units, each costing $ The desired ending inventory for each month is 80% of the next month s sales. b. The data on materials used are as follows: Direct material Usage Per-Unit of Cost of direct material Production Metal 10 lbs $8/lbs s 6 units $5/unit Inventory policy dictates that sufficient materials be on hand at the end of the month to produce 50% of the next month s production needs. This is exactly the amount of material on hand on December 31 of the prior year. c. The direct labour used per unit of output is three hours. The average direct labour cost per hour is $ d. Manufacturing overhead each month is budgeted using direct labour hours. Manufacturing overhead Fixed-Cost ($) Variable-Cost ($/direct labour hour) Supplies Power Maintenance 30, Supervision 16,000 - Depreciation 200,000 - Taxes 12,000 - Others 80,

5 Page 5 of 7 e. Monthly variable selling and administrative expenses are budgeted using units sold. Fixed-Cost ($) Variable-Cost ($/unit sold) Salaries 50,000 - Commissions Depreciation 40,000 - Shipping Other 20, f. The unit selling price of the subassembly is $205. g. All sales and purchases are for cash in the same month. All expenses including direct labour, overhead and selling and administrative except for depreciation, are paid in the same month. The cash balance on January 1 equals $400,000. The firm requires a minimum ending balance of $50,000. If the firm develops cash shortage by the end of the month, sufficient cash is borrowed to cover the shortage. Any cash borrowed is repaid at the end of the quarter, as is the interest due (cash borrowed at the end of the quarter is repaid at the end of the following quarter). The interest rate is 12 percent per annum. No money is owed at the beginning of January. Prepare the following budgets for the first quarter showing both the monthly and total figures. Note: Assume that the company does not maintain any work in progress inventories. 1. Sales budget 2. Production budget 3. Direct material cost budget 4. Direct labour cost budget 5. Overhead budget 6. Selling and administrative expenses budget 7. Budgeted income statement (Hint: The finished goods inventory unit cost is given in part a of the question) 8. Cash budget

6 Page 6 of 7 QUESTION 5 TTC Manufacturing produces a subassembly used in the production of microchip testing machines. The subassembly is sold to manufacturers and chip testing facilities. Projected sales for the coming four months in 2012 follow: January 45,000 February 55,000 March 65,000 April 65,000 The following data pertains to production policies and manufacturing specifications followed by TTC Manufacturing: a) Finished goods inventory on 1 st January is 32,000 units. The desired ending finished goods inventory for each month is 80% of the next month s sales. b) The data on materials used are as follows: Direct Material Per-Unit Usage Cost per Kg ($) A 10 kg 8 B 6 kg 2 Inventory policy dictates that sufficient materials be held on hand at the beginning of the month to produce 50% of that month s estimated sales. This is exactly the amount of material on hand on 1 st January. c) The direct labour used per unit of output is 5 hours for January. There is labour efficiency improvement due to training and learning curve such that the direct labour hours used per unit would decrease by 10% from 1 st February. The average direct labour cost per hour is $9 for January. Due to organizational-wide salary review, the average direct labour cost per hour would increase by 5% with effect from 1 st February. d) Manufacturing overhead each month is estimated using the below formula. Activity is measured in direct labour hours. Manufacturing overhead Fixed-cost component ($) Variable-cost component per direct labour hour ($) Miscellaneous Supplies Utilities Repairs 300, Supervisory salary 160,000 - Depreciation 200,000 - Taxes 12,000 - Others 80, e) The unit selling price of the subassembly is $180.

7 Page 7 of 7 Prepare the following budgets by month for the first quarter: 1. Sales budget (in dollars). 2. Production budget (in units). 3. Direct material budget (in dollars). 4. Direct labour budget (in dollars). 5. Manufacturing-overhead budget (in dollars).