ACCT-312: Solutions to Class Home Study Problems (Chapter 6)

6-16 Sales budget, service setting.

1.
2011 At 2011 Expected 2012 Expected 2012
Rouse & Sons Volume Selling Prices Change in Volume Volume
Radon Tests 12,200 $290 +6% 12,932
Lead Tests 16,400 $240 -10% 14,760

Rouse & Sons Sales Budget

For the Year Ended December 31, 2012
       
Selling Units Total
  Price Sold Revenues
Radon Tests $290 12,932 $3,750,280
Lead Tests $240 14,760 3,542,400
      $7,292,680
2.
2011 Planned 2012 Expected 2012 Expected
Rouse & Sons Volume Selling Prices Change in Volume 2012 Volume
Radon Tests 12,200 $290 +6% 12,932
Lead Tests 16,400 $230 -7% 15,252

Rouse & Sons Sales Budget

For the Year Ended December 31, 2012
       
Selling Total
  Price Units Sold Revenues
Radon Tests $290 12,932 $3,750,280
Lead Tests $230 15,252 3,507,960
  $7,258,240

Expected revenues at the new 2012 prices are $7,258,240, which is lower than the expected 2012 revenues of
$7,292,680 if the prices are unchanged. So, if the goal is to maximize sales revenue and if Jim Rouse’s
forecasts are reliable, the company should not lower its price for a lead test in 2012.
6-20 Revenues and production budget.
1.
Selling Units Total
Price Sold Revenues
12-ounce bottles $0.25 4,800,000a $1,200,000
4-gallon units 1.50 1,200,000b 1,800,000
$3,000,000
a
400,000 × 12 months = 4,800,000
b
100,000 × 12 months = 1,200,000

2. Budgeted unit sales (12-ounce bottles) 4,800,000

Add target ending finished goods inventory 600,000
Total requirements 5,400,000
Deduct beginning finished goods inventory 900,000
Units to be produced 4,500,000

Beginning = Budgeted + Target Budgeted

3. inventory sales ending inventory  production
= 1,200,000 + 200,000  1,300,000

6-23: Budgets for production and direct manufacturing labor.

Roletter Company
Budget for Production and Direct Manufacturing Labor
for the Quarter Ended March 31, 2013

January February March Quarter

Budgeted sales (units) 10,000 12,000 8,000 30,000
Add target ending finished goods
inventorya (units) 16,000 12,500 13,500 13,500
Total requirements (units) 26,000 24,500 21,500 43,500
Deduct beginning finished goods
inventory (units) 16,000 16,000 12,500 16,000
Units to be produced 10,000 8,500 9,000 27,500
Direct manufacturing labor-hours
(DMLH) per unit × 2.0 × 2.0  1.5
Total hours of direct manufacturing
labor time needed 20,000 17,000 13,500 50,500
Direct manufacturing labor costs:
Wages ($10.00 per DMLH) $200,000 $170,000 $135,000 $505,000
Pension contributions
($0.50 per DMLH) 10,000 8,500 6,750 25,250
Workers’ compensation insurance
($0.15 per DMLH) 3,000 2,550 2,025 7,575
Employee medical insurance
($0.40 per DMLH) 8,000 6,800 5,400 20,200
 Social Security tax (employer’s share)
($10.00  0.075 = $0.75 per DMLH) 15,000 12,750 10,125 37,875
Total direct manufacturing
labor costs $236,000 $200,600 $159,300 $595,900
a
100% of the first following month’s sales plus 50% of the second following month’s sales.
Note that the employee Social Security tax of 7.5% is irrelevant. Such taxes are withheld from employees’ wages and paid
to the government by the employer on behalf of the employees; therefore, the 7.5% amounts are not additional costs to the
employer.