Question

Please prepare a production budget with the following master budget information: Projected unit sales for each...

Please prepare a production budget with the following master budget information:

  1. Projected unit sales for each quarter for 2013 are as follows:

Quarter 1            60,000

Quarter 2            70,000

Quarter 3            80,000

Quarter 4            65,000

  1. The selling price is $500 per unit. All sales are on credit (no cash sales). 70% of all sales are collected within the quarter they are sold. The other 30% are collected in the following quarter. There are no bad debts.
  2. There is no beginning inventory of finished goods. The projected ending finished goods inventories are as follows:

Quarter 1            15,000 units

Quarter 2            20,000 units

Quarter 3            10,000 units

Quarter 4            5,000 units

  1. There are no beginning or ending inventories of work-in-process.
  2. Each unit produced uses 10 hours of direct labor. Laborers are paid $15 per hour.
  3. Each unit produced uses 5 units of direct materials. One unit of direct materials costs $50.
  4. There are 100,000 units of direct materials in beginning inventory as of January 1, 2013. There is estimated to be 70,000 units of direct materials in beginning inventory as of January 1, 2014 (what is ending inventory December 31, 2013?). At the end of each quarter, the desired ending inventory is 30% of the direct materials needed for production for the next quarter.
  5. Direct materials are purchased on account. 60% are paid for in the quarter of purchase, and the remaining 40% are paid for in the next quarter.
  6. Fixed overhead totals $500,000 each quarter. Of this total, $100,000 is depreciation. The remaining $400,000 is paid for in cash in the quarter incurred. The fixed overhead rate for the Finished Goods inventory budget is calculated by dividing the year’s total fixed overhead by the year’s budgeted production in units.
  7. Variable overhead is budgeted at $5 per direct labor hour. All variable overhead expenses are paid for in the quarter incurred.
  8. Fixed selling and administrative expenses total $200,000 per quarter, including $50,000 depreciation.
  9. Variable selling and administrative expenses are budgeted at $10 per unit sold. All selling and administrative expenses are paid for in the quarter incurred.
  10. The balance sheet as of December 31, 2012 is

Assets:

Cash                                            $300,000,000

Direct Materials Inventory                     $5,000,000

Accounts Receivable                     $0

Plant & Equip, net                           $20,000,000

        Total Assets                                   $325,000,000

Liabilities & Stockholders’ Equity:

Accounting Payable                        $0

Capital Stock                                      $175,000,000

Retained Earnings                                        $150,000,000

Total Liab & Stckhldrs’ Equity          $325,000,000

  1. Quarterly dividends of $100,000 will be paid.
  2. At the end of Quarter 4, 2013, equipment costing $500,000 will be purchased.
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Answer #1

Solution:

Production Budget
Particulars Quarter 1 Quarter 2 Quarter 3 Quarter 4 Year
Projected Sales units 60000 70000 80000 65000 275000
Add: Desired ending inventory 15000 20000 10000 5000 5000
Less: Opening Inventory 0 15000 20000 10000 0
Budgeted Production units 75000 75000 70000 60000 280000
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