BUDGETING

1. Marquette, Inc. with $20,000,000 of par stock outstanding, plans to budget earnings of
6%, before income tax, on this stock.
The Marketing Department budgets sales at $12,000,000.
The budget director approves the sales budget and expenses as follows:

Marketing …………………………………………. 15% of sales

Administrative……………………………………. 5%
Financial………………………………………………1%

Labor is expected to be 50% of the total manufacturing cost; materials issued for the
budgeted production will cost $2,500,000; therefore, any savings in manufacturing cost
will have to be in factory overhead.
Inventories are to be as follows:

BEGINNING OF YEAR END OF YEAR

Finished goods………………………………… $800,000 $1,000,000
Work in Process……………………………….. 100,000 300,000
Materials………………………….......................... 500,000 400,000

Required: The projected cost of goods sold statement, showing the budgeted purchases of
materials and the adjustments for inventories of materials, work in process, and finished
goods.

2. Estimated sales percentages for the first three-month period of the coming year of the
Midlands Company are;

DISTRICT JANUARY FEBRUARY MARCH TOTAL

Colorado………………………………….. 50% 30% 20% 100%
Kansas………………………………………. 55 30 15 100
Nebraska…………………………………… 50 25 25 100
Missouri…………………………………….. 50 25 25 100

Estimated unit sales (@ $2 per unit) b districts for the three months are:

DISTRICT UNIT SALES

Colorado……………………………………….. 20,000
Kansas…………………………………………… 30,000
Nebraska……………………………………….. 10,000
Missouri…………………………………………. 40,000

Total……………………………………………… 100,000
Company policy expects an inventory of 10,000 units at the beginning and the end of each
three-month period. The production schedule is:
January………………………………………………… 55%
February………………………………………………. 30%
March.............................................................................15%

Required:
(1) An estimate of sales by units and dollars for each of the first three months for each
district and in total.
(2) A schedule of the end-of-month inventories by units.

3. Sales budgets by territories and product lines. Yost Electronic Corporation has two
product lines, high-speed printers and electronic typewriters. The company’s Market
Research Department prepared the following sales forecast for the coming year:

HIGH-SPEED ELECTRONIC
PRINTERS TYPEWRITERS
Industry’s total sales forecast…………………………… 25,000 90,000
Company’s share of the market………………………… 20% 10%
Sales price per unit………………………………………....... $1,800 $500

The sales representatives submitted these territorial sales estimates:

New England…………………………………………………… 1,200 2,000

Middle Atlantic…………………………………………............. 3,000 4,000
Southern States………………………………………………..... 1,800 2,000
Total………………………………………………………………...... 6,000 8,000

To establish an acceptable forecast, the budget director averages the two estimates. The
resulting forecast is then broken down by territories in the same ratio as reflected in the
estimates of the sale forces.

Required: A sales forecast showing unit sales and total sales revenue by sales territory and
the product lines.

The Harrison Company’s sales forecast for the next quarter, ending June 30, indicates the
following:

PRODUCT EXPECTED SALES

Ceno……………………….......... 21,000 units
Nepo……………………………. 37,500
Teno…………………………….. 54,300

Inventories at the beginning and desired quantities at the end of the quarter are as follows:

PRODUCT MARCH 31 JUNE 30

 Ceno…………………………………………………….. 5,800 units 6,200 units
Nepo…………………………………………………….. 10,600 10,500
Teno………………………………………………………… 13,000 12,200

Required: A production budget for the second quarter.

5. Production budget. The Padre Island Canning Company produces frozen and condensed
soup products. Frozen soups come in three principal varieties: snapper, shrimp, and pea.
The condensed soups come in two principal varieties: tomato and chicken noodle. The
Sales Division prepared the following tentative sales budget for the first six months of the
coming year:

PRODUCT BUDGETED FOR SALES

Frozen soups:
Snapper……………………………………. 250,000 cans
Shrimp……………………………………... 150,000
Pea…………………………………………… 350,000
Condensed soups:
Tomato…………………………………….. 1,000,000
Chicken noodle………………………….. 750,000

The following inventory levels have been decided upon:

WORK IN PROCESS FINISHED GOODS

Beginning Ending Beginning Ending
Units % Processed Units % Processed Units Units
Frozen soups:
Snapper……………….. 5,000 80 4,000 75 15,000 20,000
Shrimp………………… 3,000 70 3,000 75 8,000 5,000
Pea………………………. 4,000 75 5,000 80 20,000 20,000
Condensed soups:
Tomato………………… 25,000 60 40,000 75 75,000 60,000
Chicken noodle……… 15,000 60 25,000 80 30,000 20,000

Required: A production budget for the six-month period.

 6. Production, Inventory and purchase requirements. The following estimates and
information have been gathered as part of the budget preparation of the Hobby craft Co.
The company manufactures a hobby shop sales item, consisting of two types of material
which the company precuts and preshapes for sales to hobbyists. The sales for the second
and third quarter of the coming year have been estimated as follows:

SECOND QUARTER THIRD QUARTER

Massachusetts……………………….... 10,000 kits 35,000 kits
Vermont………………………................... 8,000 25,000
New Hampshire………………………... 5,000 20,000
Total………………………………………… 23,000 kits 80,000 kits

It is decided that finished kits inventories are to be 25,000 at the end of the second quarter
and 5,000 at the end of the third quarter. The inventory at the beginning of the second
quarter will consist of 8,000 finished kits.

Each kit is packaged in a colorful cardboard box and contains two units of Material A and 5
units of Material B. The inventory of materials at the beginning of the second quarter will
be:
Boxes……………………………………………………… 125,000
Material A………………………………………………… 15,000 units
Material B………………………………………………… 45,000 units

There are sufficient boxes on hand for both quarters; none will be purchased during the
two periods. Material A can be bought whenever needed and in any quantity desired. The
15,000 units on hand is considered to be the ideal inventory quantity. Material B must be
purchased in quantities of 10,000 or multiples of 10,000. At the end of both the second and
third quarters, a minimum quantity of 30,000 units should be on hand, or as close thereto
as the standard purchase quantity will permit.

Required:

(1) Schedule of ending inventories and budgeted production of kits for each quarter.
(2) Schedule of production requirements and purchase requirements for each quarter for
each of the three types of materials.

7. Production budget, purchase requirement and manufacturing budget. The

Amsterdam Co. prepared the following figures as the basis for its 19-- budget.

PRODUCT EXPECTED ESTIMATED PER UNIT REQUIRED

SALES SALES PRICE MATERIALS PER UNIT
A B
Tribolite……………….. 80,000 units $1.50 1 kg 2 kg
Polycal………………….. 40,000 2.00 2 -
Powder X………………. 100,000 .80 - 1
Estimated inventories at the beginning and desired quantities at the end of 19—are:

MATERIAL BEGINNING ENDING PURCHASE PRICE

PER KILOGRAM
A…………………. 10 000 kg 12 000 kg $.20
B………………….. 12 000 15 000 .10

PRODUCT BEGINNING ENDING DIRECT LABOUR HOURS PER

1,000 UNITS
Tribolite 5,000 units 5,000 units 50.0
Polycal 4,000 2,000 125.0
Powder X 10,000 8,000 12.5

The direct labor cost is budgeted at $8 per hour and variable factory overhead at $6 per
hour of direct labor. Fixed factory overhead, estimated to be $40,000 is a joint cost and is
not allocated to specific products in developing the manufacturing budget for internal
management use.

Required:
(1) Production budget
(2) The budgeted quantities and dollar amounts of purchase requirements for each
material.
(3) Manufacturing budget, by product and in total.

8. Labor cost budget. The Galway Company produces numerous related small parts. Its
Cost Department has always prepared a labor budget in dollars only, since no information
regarding the number of parts manufactured is available. During the past year, direct labor
costs by quarters were reported as follows:

QUARTERS MACHINING DEPARTMENT FINISHING DEPARTMENT TOTAL

First………………… $15,813 21% $4,416 23% $20,229
Second…………….. 18,072 24 4,608 24 22,680
Third………………. 20,331 27 4,992 26 25,323
Fourth……………... 21,084 28 5,184 27 26,268
Total………………… $75,300 100% $19,200 100% 94,500

The ratios of direct labor to total manufacturing cost during the past year averaged:
Manufacturing Department…………………………………….. 23.75%
Finishing Department…………………………………………… 25.00%

These ratios are expected to remain the same for the coming year. The manufacturing cost
excluding direct labor has been budgeted for the coming year with $244,000 for the
Machining Department and $90,000 for the Finishing Department. The percentage
distribution of labor requirements for each quarter will be the same for the coming year.
Required: The direct labor cost requirements for each quarter of the coming budget
period.