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Chapter 20: Q6E (page 917)

Rida, Inc., a manufacturer in a seasonal industry, is preparing its direct materials budget for the second quarter. It plans production of 240,000 units in the second quarter and 52,500 units in the third quarter. Raw material inventory is 43,200 pounds at the beginning of the second quarter. Other information follows. Prepare a direct materials budget for the second quarter.

Short Answer

Expert verified

The budgeted cost of direct materials will be $19,293,750.

Step by step solution

01

Introduction

Direct materials are those raw materials used in an organization directly related to manufacturing and production.

02

Preparation of a direct materials budget

Rida Inc
Direct materials budget
For the second quarter

Particulars

Amount

Units to be produced

240,000 units

Multiply: Materials requirement

0.60 pounds

Materials needed

144,000 pounds

Add: Ending inventory (52,500×0.60×30%)

9,450 pounds

Total inventory required

153,450 pounds

Less: Beginning inventory

43,200 pounds

Materials to be purchased

110,250 pounds

Multiply: Materials price

$175

Budgeted direct materials

$19,293,750

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Most popular questions from this chapter

The management of Nabar Manufacturing prepared the following estimated balance sheet for June 2017:

NABAR MANUFACTURING

Estimated Balance Sheet

June 30, 2017

Assets

Liabilities and Equity

Cash

\( 40,000

Accounts payable

\) 51,400

Accounts receivable

249,900

Income taxes payable.

10,000

Raw materials inventory

35,000

Short-term notes payable

24,000

Finished goods inventory

241,080

Total current liabilities

85,400

Total current assets

565,980

Long-term note payable

300,000

Equipment

720,000

Total liabilities

385,400

Accumulated depreciation

(240,000)

Common stock

600,000

Equipment, net.

480,000

Retained earnings

60,580

Total stockholders’ equity

660,580

Total assets.

\(1,045,980

Total liabilities and equity

\)1,045,980

To prepare a master budget for July, August, and September of 2017, management gathers the following information:

  1. Sales were 20,000 units in June. Forecasted sales in units are as follows: July, 21,000; August, 19,000; September, 20,000; and October, 24,000. The product’s selling price is \(17 per unit and its total product cost is \)14.35 per unit.
  2. Company policy calls for a given month’s ending finished goods inventory to equal 70% of the next month’s expected unit sales. The June 30 finished goods inventory is 16,800 units, which does not comply with the policy.
  3. Company policy calls for a given month’s ending raw materials inventory to equal 20% of the next month’s materials requirements. The June 30 raw materials inventory is 4,375 units (which also fails to meet the policy). The budgeted September 30 raw materials inventory is 1,980 units. Raw materials cost \(8 per unit. Each finished unit requires 0.50 units of raw materials.
  4. Each finished unit requires 0.50 hours of direct labor at a rate of \)16 per hour.
  5. Overhead is allocated based on direct labor hours. The predetermined variable overhead rate is \(2.70 per direct labor hour. Depreciation of \)20,000 per month is treated as fixed factory overhead.
  6. Monthly general and administrative expenses include \(9,000 administrative salaries and 0.9% monthly interest on the long-term note payable.
  7. Sales representatives’ commissions are 10% of sales and are paid in the month of the sales. The sales manager’s monthly salary is \)3,500.
  8. The company expects 30% of sales to be for cash and the remaining 70% on credit. Receivables are collected in full in the month following the sale (none are collected in the month of the sale).
  9. All raw materials purchases are on credit, and no payables arise from any other transactions. One month’s raw materials purchases are fully paid in the next month.
  10. Dividends of \(20,000 are to be declared and paid in August.
  11. Income taxes payable at June 30 will be paid in July. Income tax expense will be assessed at 35% in the quarter and paid in October.
  12. Equipment purchases of \)100,000 are budgeted for the last day of September.
  13. The minimum ending cash balance for all months is $40,000. If necessary, the company borrows enough cash using a short-term note to reach the minimum. Short-term notes require an interest payment of 1% at each month-end (before any repayment). If the ending cash balance exceeds the minimum, the excess will be applied to repaying the short-term notes payable balance.

Required

Prepare the following budgets and other financial information as required. All budgets and other financial information should be prepared for the third calendar quarter, except as otherwise noted below. Round calculations to the nearest whole dollar.

  1. Sales budget.
  2. Production budget.
  3. Raw materials budget.
  4. Direct labor budget.
  5. Factory overhead budget.
  6. Selling expense budget.
  7. General and administrative expense budget.
  8. Cash budget.
  9. Budgeted income statement for the entire quarter (not for each month separately).
  10. Budgeted balance sheet as of September 30, 2017.

Walker Company prepares monthly budgets. The current budget plans for a September ending merchandise inventory of 30,000 units. Company policy is to end each month with merchandise inventory equal to 15% of budgeted sales for the following month. Budgeted sales and merchandise purchases for the next three months follow. The company budgets sales of 200,000 units in October. Prepare the merchandise purchases budgets for the months of July, August, and September.

Use the following information to prepare the July cash budget for Acco Co. It should show expected cash receipts and cash payments for the month and the cash balance expected on July 31.

a. Beginning cash balance on July 1: \(50,000.

b. Cash receipts from sales: 30% is collected in the month of sale, 50% in the next month, and 20% in the second month after sale (uncollectible accounts are negligible and can be ignored). Sales amounts are: May (actual), \)1,720,000; June (actual), \(1,200,000; and July (budgeted), \)1,400,000.

c. Payments on merchandise purchases: 60% in the month of purchase and 40% in the month following purchase. Purchases amounts are: June (actual), \(700,000; and July (budgeted), \)750,000.

d. Budgeted cash payments for salaries in July: \(275,000.

e. Budgeted depreciation expense for July: \)36,000.

f. Other cash expenses budgeted for July: \(200,000.

g. Accrued income taxes due in July: \)80,000.

h. Bank loan interest paid in July: $6,600.

Identify at least two potential negative outcomes of budgeting

Does the manager of a Samsung distribution center participate in long-term budgeting? Explain.
See all solutions

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