Question

Davies shows the following information for the Sales Budget for next quarter: Month            Units           Sales January    

Davies shows the following information for the Sales Budget for next quarter:

Month            Units           Sales

January           10,000      $200,000

February        30,000      $600,000

March             40,000      $800,000

Requirement 1: Assume Davies plans to begin January with 2,000 units and requires ending inventory to be equal to 20% of next month's sales. Compute the required number of units to be produced in February. Show your computations.

Requirement 2: Assume each unit requires .4 hours of labor costing $15.00 per hour. Compute the Direct Labor budget for February. Show your computations.

Requirement 3: Assume all sales are on credit. Credit sales are collected at the rate of 60% in the month of sale and 40% in the month following the sale. Accounts receivable at December, 31 is expected to be $40,000. Compute the cash collected from customers for the month of February. Show your work.

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Answer #1
Req1: Production budgeted for Feb:
Feb budgeted sale 30000
Add: Ending Inventory (40000*20%) 8000
38000
Less: Beginning inventory (30000*20%) 6000
Budgeted Production units 32000
Req 2:
Labour budget for Feb:
Production units budgeted 32000
Required hours per unit 4
Total labour hours 128000
Labour rate per hour 15
Budgeted labour cost in Feb in $ 1920000
Req 3:
Budgeted cash collection for Feb:
Collection from Jan sales (200000*40%) 80000
Collection from Feb sales (600000*60%) 360000
Budgeted cash collection for Feb: 440000
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