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RST Ltd. is preparing its budget for the coming year (20X3). The first step is ...
Jun 18, 2024
Solution by Steps
step 1
Calculate the total sales for each month by multiplying the expected unit sales by the unit selling price
step 2
For January 20X3: 113,000 units×$12=$1,356,000 113,000 \text{ units} \times \$12 = \$1,356,000
step 3
For February 20X3: 112,500 units×$12=$1,350,000 112,500 \text{ units} \times \$12 = \$1,350,000
step 4
For March 20X3: 116,000 units×$12=$1,392,000 116,000 \text{ units} \times \$12 = \$1,392,000
Answer
January: \$1,356,000, February: \$1,350,000, March: \$1,392,000
Key Concept
Sales Budget Calculation
Explanation
Multiply expected unit sales by the unit selling price for each month.
ii) Production Budget
step 1
Calculate the required production for each month using the formula: Required Production=Expected Sales+Desired Ending Inventory−Beginning Inventory \text{Required Production} = \text{Expected Sales} + \text{Desired Ending Inventory} - \text{Beginning Inventory}
step 2
For January 20X3: 113,000+(0.10×112,500)−(0.10×113,000)=113,000+11,250−11,300=112,950 units 113,000 + (0.10 \times 112,500) - (0.10 \times 113,000) = 113,000 + 11,250 - 11,300 = 112,950 \text{ units}
step 3
For February 20X3: 112,500+(0.10×116,000)−(0.10×112,500)=112,500+11,600−11,250=112,850 units 112,500 + (0.10 \times 116,000) - (0.10 \times 112,500) = 112,500 + 11,600 - 11,250 = 112,850 \text{ units}
step 4
For March 20X3: 116,000+(0.10×125,000)−(0.10×116,000)=116,000+12,500−11,600=116,900 units 116,000 + (0.10 \times 125,000) - (0.10 \times 116,000) = 116,000 + 12,500 - 11,600 = 116,900 \text{ units}
Answer
January: 112,950 units, February: 112,850 units, March: 116,900 units
Key Concept
Production Budget Calculation
Explanation
Calculate required production by adjusting expected sales for desired ending and beginning inventories.
iii) Direct Material Budget
step 1
Calculate the total material needed for production and desired ending inventory
step 2
For January 20X3: Total Material Needed=112,950 units×2 lbs/unit+(0.05×112,850 units×2 lbs/unit)=225,900+11,285=237,185 lbs \text{Total Material Needed} = 112,950 \text{ units} \times 2 \text{ lbs/unit} + (0.05 \times 112,850 \text{ units} \times 2 \text{ lbs/unit}) = 225,900 + 11,285 = 237,185 \text{ lbs}
step 3
Subtract beginning inventory to find the material to be purchased: 237,185−10,355=226,830 lbs 237,185 - 10,355 = 226,830 \text{ lbs}
step 4
Multiply by cost per pound: 226,830 lbs×$0.75=$170,122.50 226,830 \text{ lbs} \times \$0.75 = \$170,122.50
Answer
January: \$170,122.50
Key Concept
Direct Material Budget Calculation
Explanation
Calculate total material needed, adjust for beginning inventory, and multiply by cost per pound.
iv) Direct Labor Budget
step 1
Calculate the total labor hours needed for production
step 2
For January 20X3: 112,950 units×12 minutes60 minutes/hour=22,590 hours 112,950 \text{ units} \times \frac{12 \text{ minutes}}{60 \text{ minutes/hour}} = 22,590 \text{ hours}
step 3
Multiply by labor rate: 22,590 hours×$8/hour=$180,720 22,590 \text{ hours} \times \$8/\text{hour} = \$180,720
Answer
January: \$180,720
Key Concept
Direct Labor Budget Calculation
Explanation
Calculate total labor hours needed and multiply by the hourly labor rate.
v) Manufacturing Overhead Budget
step 1
Calculate the total variable overhead based on labor hours
step 2
For January 20X3: 22,590 hours×($50+$30+$25+$45)=22,590×$150=$3,388,500 22,590 \text{ hours} \times (\$50 + \$30 + \$25 + \$45) = 22,590 \times \$150 = \$3,388,500
step 3
Add fixed overhead costs: $3,388,500+$16,800+$1,200+$1,300+$2,675+$42,000=$3,452,475 \$3,388,500 + \$16,800 + \$1,200 + \$1,300 + \$2,675 + \$42,000 = \$3,452,475
Answer
January: \$3,452,475
Key Concept
Manufacturing Overhead Budget Calculation
Explanation
Calculate total variable overhead based on labor hours and add fixed overhead costs.
vi) Selling and Administrative Budget
step 1
Calculate the total variable selling and administrative costs
step 2
For January 20X3: 113,000 units×$1.60=$180,800 113,000 \text{ units} \times \$1.60 = \$180,800
step 3
Add fixed selling and administrative costs: $180,800+$15,000+$2,500+$1,400+$3,000+$72,000=$274,700 \$180,800 + \$15,000 + \$2,500 + \$1,400 + \$3,000 + \$72,000 = \$274,700
Answer
January: \$274,700
Key Concept
Selling and Administrative Budget Calculation
Explanation
Calculate total variable costs and add fixed costs.
vii) Schedule for Expected Cash Collections
step 1
Calculate the cash collections for each month based on the given percentages
step 2
For January 20X3: 85% of $1,356,000=$1,152,600 85\% \text{ of } \$1,356,000 = \$1,152,600
step 3
Add 15% of December sales: 15% of $1,225,200=$183,780 15\% \text{ of } \$1,225,200 = \$183,780
step 4
Total cash collections: $1,152,600+$183,780=$1,336,380 \$1,152,600 + \$183,780 = \$1,336,380
Answer
January: \$1,336,380
Key Concept
Cash Collections Schedule Calculation
Explanation
Calculate cash collections based on sales percentages and add previous month's collections.
viii) Schedule for Expected Payments for Materials Purchases
step 1
Calculate the payments for materials based on the given percentages
step 2
For January 20X3: 50% of $170,122.50=$85,061.25 50\% \text{ of } \$170,122.50 = \$85,061.25
step 3
Add 50% of December purchases: 50% of $120,595=$60,297.50 50\% \text{ of } \$120,595 = \$60,297.50
step 4
Total payments: $85,061.25+$60,297.50=$145,358.75 \$85,061.25 + \$60,297.50 = \$145,358.75
Answer
January: \$145,358.75
Key Concept
Payments for Materials Schedule Calculation
Explanation
Calculate payments based on purchase percentages and add previous month's payments.
ix) Cash Budget
step 1
Calculate the total cash available
step 2
For January 20X3: Beginning Cash+Cash Collections=$100,500+$1,336,380=$1,436,880 \text{Beginning Cash} + \text{Cash Collections} = \$100,500 + \$1,336,380 = \$1,436,880
step 3
Subtract total disbursements: $1,436,880−($274,700+$145,358.75+$180,720+$3,452,475)=$1,436,880−$4,053,253.75=−$2,616,373.75 \$1,436,880 - (\$274,700 + \$145,358.75 + \$180,720 + \$3,452,475) = \$1,436,880 - \$4,053,253.75 = -\$2,616,373.75
step 4
Borrow to maintain minimum cash balance: $2,616,373.75+$800,000=$3,416,373.75 \$2,616,373.75 + \$800,000 = \$3,416,373.75
Answer
January: Borrow \$3,416,373.75
Key Concept
Cash Budget Calculation
Explanation
Calculate total cash available, subtract disbursements, and borrow to maintain minimum balance.
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