kluyste1
Apr 11, 2011, 07:12 AM
Info below and my attempts so far are attached. Thanks for any help or pointers.
Island Beverages bottles a soft drink. Island uses a lot size of 1,000 cases as the unit of analysis in its budgeting. Each case contains 24 bottles. All inventories are in direct materials and finished goods at the end of each working day. The firm uses the FIFO method to determine the finished goods inventory balance and the cost of goods sold. No work-in-process inventory. Direct materials are expressed in terms of lots, in which one lot of direct materials is the input necessary to yield one lot (1,000 cases) of beverage.
Summary data used in developing budgets for the 3rd quarter (July – Sept.) of 2011 are as follows:
1. Jane Morrison, Island’s general manager of marketing, recently completed a sales forecast for the 3rd quarter of 2011. She believes the firm’s sales during the 2nd half of 2011 will increase by 5% each month over the previous month’s sales. The selling price will remain stable for the rest of 2011. The projected sales for June 2011 are 90 lots at a price of $9,000 per lot.
2. The expected beginning inventory of finished goods on July 1, 2011 contains 18 lots at $5,500 per lot. Target ending inventory of finished goods is 20 percent of the next month’s sales.
3. The expected beginning inventories of direct material on July 1, 2011 include:
Syrup: 24 lots at $1,100 purchase price per lot
Containers: 20 lots at $950 purchase price per lot
Packaging materials: 18 lots at $900 purchase price per lot
Target ending inventory of syrup is 25% of the next month’s production requirement. Target ending inventories of containers and packaging materials are 20% of the next month’s production requirement. Direct material costs are expected to remain stable for the rest of 2011.
4. Each lot requires 20 direct labor hours at $25 per hour. Direct labor costs are paid at the end of each month.
5. Variable manufacturing overhead is expected to be $600 per hour of bottling time. Bottling time is the time the filing equipment is in operation. It takes two hours to bottle one lot. All variable manufacturing overhead costs are paid as incurred.
6. Fixed manufacturing overhead is expected to be $100,000 per month. Included in the monthly fixed manufacturing overhead is $30,000 for depreciation of manufacturing assets. All other fixed overhead costs are paid as incurred.
7. Sales terms call for a 3 percent discount if payment is made in the month of sale with the balance due by the end of the following month. Island collects, on average, 40 percent of the billings in the month of sale and 60 percent by the end of the following month. It records sales and receivables at gross amounts. The firm reports sales discounts in the income statement as a contra sales account.
8. All direct material purchases are on account. The firm pays its accounts payable over a two-month period with 55 percent in the month of purchase and the remaining in the month following the month of purchase.
9. Island’s monthly selling and administrative expenses for the 3rd quarter of 2011 will be:
Sales salaries $ 52,000
Sales commissions 2% of gross sales
Advertising and promotion 7% of gross sales
Administrative salaries $ 45,000
Depreciation of non-manufacturing assets $ 15,000
Property taxes $ 1,800
Insurance $ 6,000
Rent $ 9,000
Property taxes are paid semiannually on February 28 and August 31 for the preceding six month period. For example, the property taxes for March to August are paid on August 31. Insurance for office buildings and S&A assets are prepaid semiannually on January 31 and July 31 for the following six month period. For example, the insurance expenses for August to January are prepaid on July 31. Rental costs for office buildings are prepaid on August 1 for the following 12-month period (Aug. to July). Except for the depreciation of non-manufacturing assets, the other S&A expenses are paid at the end of each month.
10. Island’s president, Gladys McMaster, has indicated that the firm will purchase a new bottling machine for $1,000,000 on September 30, 2011. The equipment purchase will be financed using a five-year loan. The interest rate on the loan is expected to be 8% per year at the time of the purchase. The new machine will be depreciated using the straight-line method for 10 years. At the end of its useful life, the machine would have no salvage value.
11. The interests on the company’s bonds are accrued monthly. The interests are paid semiannually on January 31 and July 31 for the preceding six-month period.
12. Island’s board of directors has indicated its intention to declare and pay dividends of $100,000 on the last day of each quarter.
13. Budgeted balance sheet as of June 30, 2011:
Cash $ 53,000
Accounts receivable (from sales) $ 486,000
Prepaid insurance $ 6,000
Prepaid rent $ 9,000
Direct material inventory $ 61,600
Finished goods inventory $ 99,000
Buildings, equipment, and other long-term assets (net of accumulated depreciation) $ 1,304,400
Total assets $ 2,019,000
Accounts payable (from raw material purchases) $ 135,000
Property taxes payable $ 7,200
Bond interest payable $ 15,625
Bonds payable (7.5% interest rate; due on June 30, 2015) $ 500,000
Common stock $ 952,000
Retained earnings $ 409,175
Total liabilities and stockholders’ equity $ 2,019,000
Required Prepare the following:
1. Sales budget
2. Production budget
3. DL budget
4. MOH budget
Island Beverages bottles a soft drink. Island uses a lot size of 1,000 cases as the unit of analysis in its budgeting. Each case contains 24 bottles. All inventories are in direct materials and finished goods at the end of each working day. The firm uses the FIFO method to determine the finished goods inventory balance and the cost of goods sold. No work-in-process inventory. Direct materials are expressed in terms of lots, in which one lot of direct materials is the input necessary to yield one lot (1,000 cases) of beverage.
Summary data used in developing budgets for the 3rd quarter (July – Sept.) of 2011 are as follows:
1. Jane Morrison, Island’s general manager of marketing, recently completed a sales forecast for the 3rd quarter of 2011. She believes the firm’s sales during the 2nd half of 2011 will increase by 5% each month over the previous month’s sales. The selling price will remain stable for the rest of 2011. The projected sales for June 2011 are 90 lots at a price of $9,000 per lot.
2. The expected beginning inventory of finished goods on July 1, 2011 contains 18 lots at $5,500 per lot. Target ending inventory of finished goods is 20 percent of the next month’s sales.
3. The expected beginning inventories of direct material on July 1, 2011 include:
Syrup: 24 lots at $1,100 purchase price per lot
Containers: 20 lots at $950 purchase price per lot
Packaging materials: 18 lots at $900 purchase price per lot
Target ending inventory of syrup is 25% of the next month’s production requirement. Target ending inventories of containers and packaging materials are 20% of the next month’s production requirement. Direct material costs are expected to remain stable for the rest of 2011.
4. Each lot requires 20 direct labor hours at $25 per hour. Direct labor costs are paid at the end of each month.
5. Variable manufacturing overhead is expected to be $600 per hour of bottling time. Bottling time is the time the filing equipment is in operation. It takes two hours to bottle one lot. All variable manufacturing overhead costs are paid as incurred.
6. Fixed manufacturing overhead is expected to be $100,000 per month. Included in the monthly fixed manufacturing overhead is $30,000 for depreciation of manufacturing assets. All other fixed overhead costs are paid as incurred.
7. Sales terms call for a 3 percent discount if payment is made in the month of sale with the balance due by the end of the following month. Island collects, on average, 40 percent of the billings in the month of sale and 60 percent by the end of the following month. It records sales and receivables at gross amounts. The firm reports sales discounts in the income statement as a contra sales account.
8. All direct material purchases are on account. The firm pays its accounts payable over a two-month period with 55 percent in the month of purchase and the remaining in the month following the month of purchase.
9. Island’s monthly selling and administrative expenses for the 3rd quarter of 2011 will be:
Sales salaries $ 52,000
Sales commissions 2% of gross sales
Advertising and promotion 7% of gross sales
Administrative salaries $ 45,000
Depreciation of non-manufacturing assets $ 15,000
Property taxes $ 1,800
Insurance $ 6,000
Rent $ 9,000
Property taxes are paid semiannually on February 28 and August 31 for the preceding six month period. For example, the property taxes for March to August are paid on August 31. Insurance for office buildings and S&A assets are prepaid semiannually on January 31 and July 31 for the following six month period. For example, the insurance expenses for August to January are prepaid on July 31. Rental costs for office buildings are prepaid on August 1 for the following 12-month period (Aug. to July). Except for the depreciation of non-manufacturing assets, the other S&A expenses are paid at the end of each month.
10. Island’s president, Gladys McMaster, has indicated that the firm will purchase a new bottling machine for $1,000,000 on September 30, 2011. The equipment purchase will be financed using a five-year loan. The interest rate on the loan is expected to be 8% per year at the time of the purchase. The new machine will be depreciated using the straight-line method for 10 years. At the end of its useful life, the machine would have no salvage value.
11. The interests on the company’s bonds are accrued monthly. The interests are paid semiannually on January 31 and July 31 for the preceding six-month period.
12. Island’s board of directors has indicated its intention to declare and pay dividends of $100,000 on the last day of each quarter.
13. Budgeted balance sheet as of June 30, 2011:
Cash $ 53,000
Accounts receivable (from sales) $ 486,000
Prepaid insurance $ 6,000
Prepaid rent $ 9,000
Direct material inventory $ 61,600
Finished goods inventory $ 99,000
Buildings, equipment, and other long-term assets (net of accumulated depreciation) $ 1,304,400
Total assets $ 2,019,000
Accounts payable (from raw material purchases) $ 135,000
Property taxes payable $ 7,200
Bond interest payable $ 15,625
Bonds payable (7.5% interest rate; due on June 30, 2015) $ 500,000
Common stock $ 952,000
Retained earnings $ 409,175
Total liabilities and stockholders’ equity $ 2,019,000
Required Prepare the following:
1. Sales budget
2. Production budget
3. DL budget
4. MOH budget