Budget Problems

1. Medford Company estimates that unit sales will be 10,000 in quarter 1; 12,000 in quarter 2; 14,000 in quarter 3; and 18,000 in quarter 4. (For the first quarter of next year, the unit sales are expected to be 21,000). Using a sales price of $70 per unit, create a sales budget by quarters.

2. Medford Company desires to have an ending finished goods inventory equal to 25% of next quarter's expected unit sales. The beginning inventory for the year is 2500 units. Prepare a production budget by quarters.

Quarter

1

2

3

4

Year

Unit Sales

xxx

xxx

xxx

xxx

 
+ Desired Ending Inventory

xxx

xxx

xxx

xxx

 
Units Required

xxx

xxx

xxx

xxx

 
- Beginning Inventory

xxx

xxx

xxx

xxx

 
Required Production

xxx

xxx

xxx

xxx

xxx

 

3. Medford Company uses 2 pounds of direct materials for each unit they produce, at a cost of $5.00 per pound. The company begins the year with 5000 pounds of material in the raw materials inventory. Management desires an ending inventory of 25% of next quarter's materials requirements. Prepare a direct materials budget for Quarters 1, 2 and 3. Use the production budget from item 2.

Quarter

1

2

3

4

Year

Units to be Produced

xxx

xxx

xxx

xxx

 
Direct Material Per Unit

xxx

xxx

xxx

xxx

 
Pounds Needed for Production

xxx

xxx

xxx

xxx

 
+Desired Ending DM in Pounds

xxx

xxx

xxx

xxx

 
Total Material Required

xxx

xxx

xxx

xxx

 
-Beginning Material Inventory

xxx

xxx

xxx

xxx

 
Direct Material Purchases

xxx

xxx

xxx

xxx

 
Cost Per Pound

xxx

xxx

xxx

xxx

 
Total Cost of Direct Materials

xxx

xxx

xxx

xxx

xxx

4. Medford Company's workers require 15 minutes of labor to produce each unit of product. The labor cost is $20 per hour. Create a direct materials budget, using the production budget from item 2.

5. Medford Company prepares its Manufacturing Overhead Budget. For each direct labor hour, the variable overhead costs are:

Indirect Materials = $1.00 per DLH

Indirect Labor Cost = $2.00 per DLH

Maintenance = $1.20 per DLH

The Fixed Overhead Costs per quarter are:

Salaries of $40,000, Depreciation =$20,000 and Maintenance = $10,000.

6. Compute the Predetermined Overhead Rate using Direct Labor Hours as the cost driver.