Ateneo de Zamboanga University COSMAN3 – STRATEGIC BUSINESS ANALYSIS

School of Management and Accountancy Midterm Activity

Accountancy Department

Name: _______________________________________________ ID No. _________________ Score: ______

Problems. Read each of the problems/cases below. Solve for what is/are required. Write your solutions on yellow sheets
of paper and submit them on or before 5:00 PM of March 20, 2023 at the SMA Office.

PROBLEM 1. A sales budget is given below for one of the products manufactured by the Key Co.:

January 21,000 units

February 36,000 units
March 61,000 units
April 41,000 units
May 31,000 units
June 25,000 units

The inventory of finished goods at the end of each month should equal 20% of the next month's sales. However, on
December 31 the finished goods inventory totaled only 4,000 units.

Each unit of product requires three specialized electrical switches. Since the production of these specialized switches by
Key's suppliers is sometimes irregular, the company has a policy of maintaining an ending inventory at the end of each
month equal to 30% of the next month's production needs. This requirement had been met on January 1 of the current
year.

Required: Prepare a budget showing the quantity of switches to be purchased each month for January, February, and
March and in total for the quarter.

PROBLEM 2. Sara Hall is the production manager of a specialty toy manufacturer. The business has grown significantly
over the past several years. As the company grows, Sara has found it more difficult to manage all the various activities of
purchasing, production and quality control. In addition, the accounting department requires more and more feedback
each month as costs rise in the growing business. Hall attended a manufacturing conference where she heard about
budgeting. The toy manufacturer does not have a formal budgeting process and Sara thinks it might help the growing
business. Hall is not an accountant but is putting together a report to discuss the topic of budgeting with accounting.

Hall has done some studies on the current production processes. She has found that the company can produce a
maximum number of toys each month, but never actually reaches that level of production. One of the areas that has
become a significant issue in the growing business is stock-outs. Although Hall has been increasing the number of units
produced each month, the toy manufacturer’s sales department complains that they run out of toys at the beginning of
each month. The sales department has provided the following projections for sales over the next quarter.
Anticipated toy sales in units
October 10,000
November 12,000
December 15,000
January 11,000

Hall has determined that the production should reach a level so that there will be an ending inventory equal to 30% of
the next month’s sales.

Required: Based on information provided, prepare the toy company’s production budget for each month and for the
quarter in total.

PROBLEM 3. Wentworth Company manufactures three products (A, B, and C) from three raw materials (X, Y, and Z). The
following table indicates the number of pounds of each material that is required to manufacture each type of product:

Product Material X Material Y Material Z

A 2 3 2
B 2 1 2
C 3 2 2

The company has a policy of maintaining an inventory of finished goods on all three products equal to 25 percent of the
next month's budgeted sales. Listed below is the sales budget for the first quarter of 2001:
 Month Product A Product B Product C
Jan. 10,000 11,000 12,000
Feb. 9,000 12,000 8,000
Mar. 11,000 10,000 10,000

Required:
1. Assuming that the company meets its required inventory policy, prepare a production budget for the first 2
months of 2001 for each of the three products.
2. Unit costs of materials X, Y, and Z are respectively $4, $3, and $5. The Wentworth Company has a policy of
maintaining its raw material inventories at 50 percent of the next month's production needs. Assuming that this
policy is satisfied, prepare a material purchases budget for all three materials in both pounds and dollars for
January.

PROBLEM 4. Farkel Fabricators is in the process of preparing its budget for the coming year. The following data are
provided:

Beginning inventory 15,000 units

Estimated sales 175,000 units
Desired ending inventory 20,000 units
Estimated production losses due to spoilage 5,000 units
Units produced per direct labor hour 5 units

Each employee works a total of 2,000 hours per year. A supervisor is required for every five employees. Since fractional
employees and supervisors are not available, the number of employees and supervisors to be employed must always be
rounded to the next highest number whenever it is a fraction.

Each unit will yield a revenue of $5, while each unit produced (including spoiled units) costs $1.50.

Required:

1. Prepare the production budget in units for the coming year.

2. Determine the number of direct labor employees and supervisors required for the coming year.

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