Question

Exercise 8-3 (Algo) Direct Materials Budget [LO8-4]

Four grams of musk oil are required for each bottle of Mink Caress, a very popular perfume made by a small company in western Siberia. The cost of the musk oil is $1.60 per gram. Budgeted production of Mink Caress is given below by quarters for Year 2 and for the first quarter of Year 3:

	Year 2					Year 3
	First	Second	Third	Fourth		First
Budgeted production, in bottles	90,000	120,000	180,000	130,000		100,000

The inventory of musk oil at the end of a quarter must be equal to 20% of the following quarter’s production needs. Some 72,000 grams of musk oil will be on hand to start the first quarter of Year 2.

Required:

Prepare a direct materials budget for musk oil, by quarter and in total, for Year 2.

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The production manager of Rordan Corporation has submitted the following quarterly production forecast for the upcoming fiscal year:

	1st Quarter	2nd Quarter	3rd Quarter	4th Quarter
Units to be produced	10,600	8,500	7,000	11,100

Each unit requires 0.35 direct labor-hours, and direct laborers are paid $20.00 per hour.

Required:

1. Prepare the company’s direct labor budget for the upcoming fiscal year. (Round "Direct labor time per unit (hours)" answers to 2 decimal places.)

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Exercise 8-7 (Algo) Cash Budget [LO8-8]

Garden Depot is a retailer that is preparing its budget for the upcoming fiscal year. Management has prepared the following summary of its budgeted cash flows:

	1st Quarter		2nd Quarter		3rd Quarter		4th Quarter
Total cash receipts	$	360,000	$	480,000	$	410,000	$	430,000
Total cash disbursements	$	400,000	$	370,000	$	360,000	$	380,000

The company’s beginning cash balance for the upcoming fiscal year will be $18,000. The company requires a minimum cash balance of $10,000 and may borrow any amount needed from a local bank at a quarterly interest rate of 3%. The company may borrow any amount at the beginning of any quarter and may repay its loans, or any part of its loans, at the end of any quarter. Interest payments are due on any principal at the time it is repaid. For simplicity, assume that interest is not compounded.

Required:

Prepare the company’s cash budget for the upcoming fiscal year. (Repayments, and interest, should be indicated by a minus sign.)

Answer 1

					First	second	third	fourth	QTR
Required production units of finished goods					90,000	120,000	180,000	130,000	520,000
units of raw materials needed per unit of finished goods					4	4	4	4	4
units of raw materials needed to meet production					360000	480000	720000	520000	2080000
Add:desired ending inventory					96000	144000	104000	80000	80000
total units of raw materials needed					456000	624000	824000	600000	2160000
less:Desired beginning inventory					72,000	96000	144000	104000	72,000
materials to be purchased					384,000	528000	680000	496000	2,088,000
cost of materials per gram					1.6	1.6	1.6	1.6	1.6
total cost of materials					614400	844800	1088000	793600	3340800
		for qtr four ending inventory = 100000*4*20%
					80000
			for qtr 1 =		480000*20%=		96000
			for qtr 2 =		720000*20%=		144000
			for Qtr 3=		520000*20%		104000

			Rordan Corporation
		Direct Labor Budget
				1st QTR	2nd QTR	3rd QTR	4th QTR	year
Required production in units				10,600	8,500	7,000	11,100
direct labor time per unit(hours)				0.35	0.35	0.35	0.35
total direct labor hours needed				3710	2975	2450	3885
direct labor cost per hour				20	20	20	20
total direct labor cost				74200	59500	49000	77700	260400

				1st qtr	2nd qtr	3rd quarter	4 th qtr	year
Beginning cash balance				18,000	10,000	86,080	136,080	18,000
total cash receipts				360,000	480,000	410,000	430,000	1,680,000
total cash available				378,000	490000	496080	566080	1,698,000
total cash disbursements				400,000	370,000	360,000	380,000	1,510,000
Excess of cash available over disbursement				-22,000	120,000	136,080	186,080	188,000
Financing:
Borrowings				32,000	0	0	0	32,000
Repayments				0	-32,000	0	0	-32,000
Interest				0	-1,920	0	0	-1,920
total financing				32,000	-33,920	0	0	-1,920
Ending cash balance				10,000	86,080	136,080	186,080	186,080
			interest = 32000*3%*2 qtrs
				1920