The East Division of Kensic Company manufactures a vital component that is used

Question

The East Division of Kensic Company manufactures a vital component that is used in one of Kensic’s major product lines. The East Division has been experiencing some difficulty in coordinating activities between its various departments, which has resulted in some shortages of the component at critical times. To overcome the shortages, the manager of East Division has decided to initiate a monthly budgeting system that is integrated between departments.

The first budget is to be for the second quarter of the current year (April, May and June). To assist in developing the budget figures, the divisional controller has accumulated the following information.

Sales: Sales through the first three months of the current year were 30,000 units. Actual sales in units for January, February, and March, and planned sales in units over the next five months, are given below:

January (actual) 6,000
February (actual) 10,000
March (actual) 14,000
April (planned) 20,000
May (planned) 35,000
June (planned) 50,000
July (planned) 45,000
August (planned) 30,000

In total, the East Division expects to produce and sell 250,000 units during the current year.

Direct Material: Two different materials are used in production of the component. Data regarding these materials are given below:

Units of Direct Cost
Direct Materials per per Inventory at
Material Finished Component lb/ft March 31

No. 208 4 pounds $5.00 46,000 pounds
No. 311 9 feet 2.00 69,000 feet

Material No. 208 is sometimes in short supply. Therefore, the East Division requires that enough of the material be on hand at the end of each month to provide for 50% of the following month’s production needs. Material No. 311 is easier to get, so only one-third of the following month’s production needs must be on hand at the end of each month.

Direct Labor: The East Division has three department through which the components must past before they are completed. Information relating to direct labor in these departments is given below:

Direct Labor-Hours Cost per
Per Finished Direct
Department Component Labor-Hour

Shaping .25 $18.00
Assembly .70 16.00
Finishing .10 20.00

Direct labor is adjusted to the workload each month.

Manufacturing Overhead: East Division manufactured 32,000 components during the first three months of the current year. The actual variable overhead costs incurred during this three-month period are shown below. Each Division’s controller believes that the variable overhead costs incurred during the last nine months of the year will be at the same rate per component as experienced during the first three months.

Utilities $ 57,000
Indirect Labor 31,000
Supplies 16,000
Other 8,000

Total variable overhead $112,000

The East Division has planned fixed manufacturing overhead costs for the entire year as follows:

Supervision $ 872,000
Property Taxes 143,000
Depreciation 2,910,000
Insurance 631,000
Other 72,000

Total fixed manufacturing
Overhead $4,628,000

Finished Goods Inventory: The desired monthly ending inventory of completed components is 20% of the next month’s estimated sales. The East Division has 4,000 units in the finished goods inventory on March 31.

Selling and Administrative Expenses: Selling and Administrative Expenses are budgeted at $400,000 per month plus 1% of total credit sales for the month.

REQUIRED:

1.   Prepare a production budget for the East Division for the second quarter ending June 30. Show computations by month and in total for the quarter.
(5 pts.) _____

2.   Prepare a direct materials purchases budget in units and dollars for each
type of material for the second quarter ending June 30. Again show computations by month and in total for the quarter.
(5 pts.) _____

3.   Prepare a schedule of cash payments for direct materials for the second quarter. Assume that all direct materials are purchased on account and the East Division pays for ½ of the amount purchased in the month of purchase and the other ½ in the month following the purchase. The balance in the Accounts Payable account at 3/31 was $351,200.
(5 pts.) _____

4.   Prepare a direct labor budget in hours and in dollars for the second quarter ending June 30. Again show computations by month in total for the quarter.
(5 pts.) _____

5.   Prepare a manufacturing overhead budget for the second quarter. Show computations by month and in total for the quarter.
(5 pts.) _____

6.   Compute a new “selling price per unit” for the East Division that will enable them to accumulate a balance of $100,000 in their cash account by the end of the second quarter. Assume that the cash balance at March 31 was $10,000.
(5 pts.) _____

7.   Using the selling price per unit computed in #6 prepare a sales budget for the second quarter. Show computations by month and in total for the quarter.
(5 pts.) _____

8.   Prepare a schedule of expected cash collections for the second quarter using the selling price per unit calculated in question #6. Assume that the East Division collects on its credit sales as follows; 70% in the month of sale, 20% in the month following the credit sale, 10% in the second month following the credit sale. To compute the balance in Accounts Receivable at 3/31 assume that the selling price per unit prior to 3/31 was $75.00.
(5 pts.) _____

9.   Prepare a cash budget for the second quarter in month and in total for the East Division.
(10 pts.)

Explanation / Answer

Production Budget April May June Total July Bugeted Unit Sales 20000 35000 50000 105000 45000 Add: Desired ending Inventory(20% of next month sales) 7000 10000 9000 9000 6000 Required units of available production 27000 45000 59000 114000 51000 Less: beginning Inventory 4000 7000 10000 4000 9000 Units to be Produced 23000 38000 49000 110000 42000 Direct material Budget (No.208) Budgeted Production 23000 38000 49000 110000 42000 Material per components 4 4 4 4 Materai needed for production 92000 152000 196000 440000 Add: Desired endingRaw Material Inventory (50% of net month production) 76000 98000 21000 21000 Totl Material requirement 168000 250000 217000 461000 Less; beginning Raw material Inventory 46000 76000 98000 46000 Material to be purchased 122000 174000 119000 415000 Cost per pound $5 5 5 5 Total cost of diret Material Purchses A $610,000 $870,000 $595,000 $2,075,000 Ans 2 Direct material Budget (No.311) Budgeted Production 23000 38000 49000 110000 42000 Material per components 9 9 9 9 Materai needed for production 207000 342000 441000 990000 Add: Desired endingRaw Material Inventory (1/3 of net month production) 11400 14700 14000 14000 Totl Material requirement 218400 356700 455000 1004000 Less; beginning Raw material Inventory 69000 11400 14700 69000 Material to be purchased 149400 345300 440300 935000 Cost per pound $2 $2 $2 $2 Total cost of diret Material Purchses B $298,800 $690,600 $880,600 $1,870,000 Ans 3 Budgeted Cash Disbursement Total prchases A+B $908,800 $1,560,600 $1,475,600 $3,945,000 50% same month   $454,400.0 $780,300.0 $737,800.0 $1,972,500.0 50% in next month 351200 $454,400.0 $780,300.0 1585900 Total B 805600 1234700 1518100 3558400 Ans 4 Direct Labor Budget Units to Be produced 23000 38000 49000 110000 Required hour per unit production (.25+.7+.1) 1.05 1.05 1.05 1.05 Total labour hours needed 24150 39900 51450 115500 Labour cost per hour (.25*18)+(.7*16)+(.1*20) 17.7 17.7 17.7 17.7 Labour $ 427455 706230 910665 2044350 Ans 5 Factory Overhead Budget Total labour hours needed 24150 39900 51450 115500 Variable Labour cost per hour 112000/32000 3.5 3.5 3.5 3.5 Variable Overhead 84525 139650 180075 404250 Fixed Overhead (4628000/12) 385667 385667 385667 1157000 Total factory Overhead 470192 525317 565742 1561250 Dear student there are various parts in the questions, I have done the first 5

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