Budgeting Handout # 2

Q.2) M/s. ABC and Company has a cash balance of PKR 45,000 at the ending of the January, 2017 and the following
information is available:-

 Creditors give on month credit

 Salaries are paid in the current month.
 Fixed costs are paid in one month arrears and include a charge for depreciation of PKR 15,000/month
 Credit Sales are settled as follows;
- 33% in the month of sales
- 33% in the next month
- 34% in the following month, and the balance represents bad debts.
 Company acquired a building in June 2016 for PKR 10,000,000/-. PKR 20,000 is paid as rental at the end of each
month, and will be paid for 20 years.
 Dividend is payable in June 2017.
Month Cash Sales Credit Sales Purchases Salaries Fixed OH
Nov’16 15,000 165,000 90,000 25,000 65,000
Dec’16 15,000 160,000 99,000 21,000 70,000
Jan’17 15,000 155,000 120,000 26,000 65,000
Feb’17 20,000 180,000 135,000 30,000 70,000
Mar’17 18,000 150,000 170,000 28,000 65,000

Required: Prepare Cash Budget for Jan, Feb and March 2017

Q.3) AAA Company has a cash balance of PKR 8400 at the beginning of the January and the following information is
available:-

 Creditors are settled as follows;

25% in the month of purchase
25% in the next month
50% in the next following month
 Salaries are paid in the next month.
 Fixed costs are paid in same month.
 Charge for depreciation is PKR 5,600/month and is included in the Fixed OH.
 Credit Sales are settled as follows;
22% in the month of sales
44% in the next month
32% in the following month, and the balance represents bad debts.
 A dividend of $ 100,000 in payable July.
 Capital expenditure for buying a plant will be incurred in January of PKR 60,000.
 Building monthly rentals of PKR 8000 are paid every month.
 Manufacturing expenses are paid in one month arrears.

Month Cash Credit Sales Purchase Cash Purchases Salarie Fixed Manufacturing Expenses
Sales s s OH
JAN 6500 28000 11500 5800 22000 45000 15000
FEB 5500 23000 12500 6600 23000 50000 15000
MAR 4500 26000 11440 4700 24000 65000 15000
APR 8400 27000 18860 9600 25000 60000 15000
MAY 8400 18000 15650 8500 26000 75000 15000
JUNE 5500 23000 12500 6600 23000 50000 15000

Required: Prepare Cash Budget for FEB, MARCH, APRIL and MAY

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Budgeting Handout # 2

Q.4) The Sabat Corporation manufactures and sells two products: Thingone and Thingtwo. In July 2013, Sabat’s
budget department gathered the following data to prepare budgets for 2014:

2014 Projected Sales

Product Units Price

Thingone 62,000 $172
Thingtwo 46,000 $264

2014 Inventories in Units Expected Target

Product January 1, 2014 December 31, 2014

Thingone 21,000 26,000
Thingtwo 13,000 14,000

The following direct materials are used in the two products: Amount Used per Unit

Direct Unit Thingone Thingtwo

Material
A pound 5 6
B pound 3 4
C each 0 2

Projected data for 2014 for direct materials are:

Direct Materials Anticipated Purchase Expected Inventories Target Inventories

Price January 1, 2014 December 31, 2014
A $11 37,000 lb. 40,000 lb.
B 6 32,000 lb. 35,000 lb.
C 5 10,000 lb. 12,000 lb.

Projected direct manufacturing labor requirements and rates for 2014 are:

Product Hours per Unit Rate per Hour

Thingone 3 $11
Thingtwo 4 14

Based on the preceding projections and budget requirements for Thingone and Thingtwo, prepare the following
budgets for 2014:

I. Sales budget
II. Production budget
III. Direct materials purchases budget
IV. Direct labor budget

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Budgeting Handout # 2

Q.5) Roletter Company makes and sells artistic frames for pictures of weddings, graduations, christenings, and other
special events. Lynn Anderson, controller, is responsible for preparing Roletter's budget and has accumulated the
following information for 2017.

Januar February March April May

y
Estimated Unit Sales 10,000 12,000 8,000 9,000 9,000
Sales Price / Unit $54.0 $51.50 $51.50 $51.50 $51.50
Direct Labor Hours per unit 2 2 2 2 2
Wage per direct labor 10.0 10.0 10.0 11.0 11.0

Labor-related costs include pension contributions of 0.50 per hour, workers' compensation insurance of 0.15 per
hour, employee medical insurance of 0.40 per hour, and social security taxes of 7.50% of wages. The cost of
employee benefits paid by Roletter on its employees is treated as a direct labor cost.

Roletter has a labor contract that calls for a wage increase to $11 per hour on April 1, 2017. New labor saving
machinery has been installed and will be fully operational by March 1, 2017.

Roletter expects to have 16,000 frames on hand at December 31, 20A, and has a policy of carrying an end-of-month
inventory of 100% of the following month's sales plus 50% of the second following month's sales.

Required:
Prepare a production budget and a direct labor budget for Roletter Company by month and for the first quarter of
2017. Both budgets can be combined in one schedule. The direct labor budget should include direct labor hours and
show the detail for each direct labor cost category.

Q.6) The following data are provided for Hanska Corporation;

Sales:
Sales through June 30, 2017, the first six months of the current year, are 24000 units. Expected Sales for the
full year are 60,000 units. Actual sales in units for May and June and estimated unit sales for the next four months
are; May 4000, June 4000, July 5000, August 6000, September 7000, October 7000.

Direct Labor:
Process Hours Per Unit Hourly Labor Rate
Forming 0.80 $8.00
Assembly 2.00 5.50
Finishing 0.25 6.00

Factory Overhead:
The company produced 27000 units during the six months period through June 30, 2017, and expects to
produce 60,000 units during the year. The actual variable factory overhead costs incurred during the six months
period are as follows. The controller believes that these costs will be incurred at the same rate during the remainder
of year.
Supplies: $59,400, Electricity: $27,000, Indirect Labor: $54,000, Others: $21,600.
The fixed factory overhead costs incurred during the first six months of 2017 amounted to $93,000. Fixed
overhead costs are budgeted for the full year are; Supervision $60,000, Property Tax: $7,200, Depreciation: 86,400,
Other: 32,400. Total Fixed overhead costs are $186,000.

The desired monthly ending FG inventory in units is 80% of the next month’s estimated sales. There are 5,600 FG
units in June 2017.

Required:
1. Prepare production budget
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Budgeting Handout # 2

2. Prepare DM purchases budget

3. Prepare Direct labor budget