EYK 9-1. BUSINESS DECISION CASE The sales department of Donovan Manufacturing, I
ID: 2558148 • Letter: E
Question
EYK 9-1. BUSINESS DECISION CASE The sales department of Donovan Manufacturing, Inc. has completed the following sales forecast for the months of January through MArch 2016 for its only two products: 50,000 units of J to be sold at $90 each and 30,000 units of K to be sold at $70 each. The desired unit inventories at March 31, 2016, are 10% of next quarter's unit sales forecast, which are 60,000 units of J and 30,000 units of K. The January 1, 2016, unit inventories were 5,000 units of J and 2,000 units of K.
Each unit of J requires 3 pounds of material A and 2 pounds of material B for its manufacture; K requires 2 pounds of A and 4 pounds of B. The purchase cost of A is $9 per pound and the purchase cost of B is $5 per pound. Materials A and B on hand at January 1, 2016, are 14,000 pounds of A and 8,000 pounds of B.
Each unit of J requires 0.5 hour of direct labor in the factory; each unit of K requires 1.0 hour of direct labor. The average hourly rate for direct labor is $12 per hour. Estimated manufacturing overhead cost is $6 per direct labor hour plus $90,000 per month. Selling and administrative expenses are estimated to be 10% of sales revenue plus $180,000 per month.
Cash sales for the first quarter are estimated to be $300,000 per month. It is forecast that 30% of credit sales for the quarter ended March 31, 2016, will occur in January, 30% in February, and 40% in March. Of credit sales ( December through MArch), 40% will be collected as cash in the month of sale and 55% will be collected in the following month. The remainder will be uncollectable. Cash collected in January 2016 from December 2015 sales will be $1,050,000.
The January 1, 2016, cash balance was $70,000. The minimum acceotable cash balance at the end of each month is $60,000. Short-term borrowing (6-month term) are made in multiples of $10,000. Interest is charged at a rate of 1% per month on short-term borrowings. The first interest payment is made the month following the borrowing. Cash disbursements (excluidng interest on short-term borrowings) are estiamted as follows:
January February March
Manufacturing costs $1,500,000 $1,300,000 $1,400,000
Selling and administrative expenses 390,000 410,000 400,000
Interest expense 90,000 90,000 90,000
Income tax payment 0 0 210,000
Capital expenditures 124,000 110,000 50,000
Cash dividends 300,000 0 0
Required
a. Prepare the sales budget for the quarter ended March 31, 2016.
b. Prepare the production budget for the quarter ended March 31, 2016.
c. Prepare the direct material budget for the quarter ended March 31, 2016.
d. Prepare the direct labor budget for the quarter ended March 31, 2016.
e. Prepare the manufacturing overhead budget for the quarter ended March 31, 2016.
f. Prepare the selling and administrative expenses budget for the quarter ended March 31, 2016.
g. Prepare a schedule of ash collected from customers for the quarter ended March 31, 2016.
h. Prepare the cash budget for the quarter ended March 31, 2016.
Explanation / Answer
As per Chegg policy, solution for only 4 subpart is allowed.
Statement Showing Sales Budget Product J Product K Total Sales ( in units) $50,000.00 $30,000.00 Sales ($/Unit) $90.00 $70.00 Sales Revenue $4,500,000.00 $2,100,000.00 $6,600,000.00 Statement Showing Production Budget Product J Product K Sales 50000 30000 Desired Ending inventory (10% of Next Qtr Sale) 6000 30000 Total Unit Needed 56000 60000 Less: Beg. Inventory -5000 -2000 Production required 51000 58000 Statement Showing Direct Labour Budget Product J Product K Total Prod Req. 51000 58000 Direct Labout Hour Require/Unit 0.5 1 Total Direct Labour Hour Reqired 25500 58000 83500 Direct Labour Rate 12 12 $12 Total Direct Labour Cost 306000 696000 $1,002,000 Statement Showing Raw material Purchase Budget Material A Material B Total Required For Product J ( Pound /Unit) 3 2 RM Required for Product J , Production 51000 Unit ( in Pounds) (a) 153000 102000 Required For Product K ( Pound /Unit) 2 4 RM Required for Product K Production58000 Unit ( in Pounds) (b) 116000 232000 Total Raw material Required ( in Pound) (a+b) 269000 334000 Less: Opening Inventory -14000 -8000 Purchase Quantity Required 255000 326000 Purchase Cost /Pound $9 $5.00 Total Purchase Cost $2,295,000 $1,630,000 $3,925,000 Statement Showing Manufacturing Overhead Budget Product J Product K Total Prod Req. 51000 58000 Direct Labout Hour Require/Unit 0.5 1 Total Direct Labour Hour Reqired 25500 58000 83500 Manufacturing Overhead @ $6 Per Hour (a) $501,000.00 Fixed Manuafuring Overhead ( $90000*3) (b) $270,000.00 Total Manufacturing Overhead Cost (a+b) $771,000.00 Statement Showing Selling & Administrative Budget Product J Product K Total Sales Revenue $4,500,000.00 $2,100,000.00 $6,600,000.00 Variable Selling & Administrative Cost (a) $660,000.00 Fixed Selling & Administrative Cost ($180000*3) (b) $540,000.00 Total Selling & Administrative Cost (a+b) $1,200,000.00
As per Chegg policy, solution for only 4 subpart is allowed.
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