Scenario

Roletter Company Budgets for the five months 2007

Particulars Jan Feb Mar Apr May

Estimated sales in units 10,000 12,000 8,000 9,000 9,000

Selling price 54.00 51.50 51.50 51.50 51.50
Direct Manufacturing labour hrs per unit 2 2 1.5 1.5 1.5
Wage per direct manufacturing labour 10.00 10.00 10.00 11.00 11.00
hour

Besides wages, labour cost includes the following:

Pension contribution 0.50 per hour

Workers compensation insurance 0.15 per hour
Employee medical insurance 0.40 per hour
Social security tax 7.50%

From April wages has been increased to 11 per hour

Roletter expected to have 16000 frames on hand on December 31, 2006 and it has a policy of
carrying on ending inventory of 100% of the following month sales and 50% of second month
following sales.

Required

Prepare a production budget and direct manufacturing labour budget for Roletter Company by
month and for the first quarter of 2007.
 Roletter Company
Production budget for the first quarter ended 31, March 2007

Particulars Jan Feb Mar

10,00 12,00
Targeted sales in units (given) 0 0 8,000
Add: Targeted closing inventory
12,00 8,00
100% of next month sales 0 0 9,000

50% of second next month sales 4,000 4,500 4,500

26,00 24,50 21,50
Units required 0 0 0
(16,00 (16,00 (12,50
Less: beginning from inventory 0) 0) 0)
10,00 8,50
Finished units to be produced 0 0 9,000

Roletter Company
Direct Manufacturing labour cost budget for the first quarter ended 31, March 2007

Particulars Jan Feb Mar

Labour Hours budget $ $ $
Units to be produced from production budget 10,000 8,500 9,000
Hrs per unit 2.00 2.00 1.50
13,50
Total hrs (a) 20,000 17,000 0

Labour cost budget

Per hour
Wage per direct manufacturing labour hour 10.00 10.00 10.00
Social security tax 0.75 0.75 0.75
Pension contribution 0.50 0.50 0.50
Workers compensation insurance 0.15 0.15 0.15
Employee medical insurance 0.40 0.40 0.40
Total cost per hour (b) 11.80 11.80 11.80
 236,000.0 200,600.0 159,300.0
Total labour cost (a*b) 0 0 0

Scenario

Tab Comp Inc

The company prepares annual sales forecasts of which the first six months for 2006 are
presented here.

Cash sales account for 25% of tab comp's total sales, 30% of the total sales are paid by bank
credit card , and the remaining 45% are on open account

The cash sales and bank credit sales are received in the month of sale. Bank credit card are
subject to 4% discount deducted at the time of daily deposit.

The cash sales from open account are 70% in the month following the sale and 28% in the
second month after the sale. Remaining are uncollectible.

Software
Sales
Hardware sales Support Total Revenues

Units Dollars Dollars Dollars

$ $ $
160,000
Jan 130 390,000.00 .00 550,000.00
140,000
Feb 120 360,000.00 .00 500,000.00
Mar 110 330,000.00 150,000 480,000.00
 .00
130,000
Apr 90 270,000.00 .00 400,000.00
125,000
May 100 300,000.00 .00 425,000.00
225,000
Jun 125 375,000.00 .00 600,000.00
930,000
Total 675.00 2,025,000.00 .00 2,955,000.00

Tabcorps month end Inventory requirements for computer hardware units are 30% of the next
month's sales. A one - month lead time is required for delivery from the manufacturer. Thus,
orders for computer hardware units are placed on the 25 th of each month to assure that they will
be in the store by the first day of the month needed. The computer hardware units are
purchased under terms of n/45 measured from the time the units are delivered to Tabcomp.
Tabcomp's purchase price is 60% of selling price.

Required
1. Calculate the cash that TabComp, Inc can expect to collect during April 2006. Be sure to show
all of your calculations.

2. TabComp Inc is determining how many MZB-33 computer hardware units to order on January
25, 2006. Determine the projected number of computer hardware units that were that will be
ordered and dollar amount that the company will place for these hardware units.

Solution
TabComp

1. Cash collections from receivables during April 2006

Particulars Amount Amount

$ $
Cash sales
25% of April sales 100,000.00

Credit card sales 120,000.00

Less: 4% discount 4,800.00 115,200.00

Open account
70% of 45% of March sales 151,200.00
28% of 45% of Feb. sales 63,000.00 214,200.00

Total cash collections from receivables during April 2006 429,400.00

2. Projected number of computer hardware to be ordered during Jan 2006

 Particulars Units Dollars
$
March Budgeted sales in units (given)* 110 330,000.00
Add: Targeted closing inventory (30% of next month sales) 27 81,000.00
Total units required 137 411,000.00
Less: Beginning inventory (30% of current month sales) -33 (99,000.00)
Total units to be ordered 104 312,000.00
Dollar value of units @ 60% of sale value 187,200.00

* Since the lead time is one month therefore march month sales was considered if the units were
to be ordered by Jan 25.

Scenario

Scarborough Corporation

2007
Projected sales
Product Units Price
Thing one 60,000 165
Thing two 40,000 250

Inventories in units
Product Jan, 2007 Dec 31,2007
Thing one 20,000 25,000
Thing two 8,000 9,000

The following direct materials are used in the two products

Amount used per unit

Direct material Units Thing one Thing two
A pound 4 5
B pound 2 3
C each 0 1

Projected data for 2007 with respect to direct materials are as follows
 Expected Expected
Anticipated inventory, Jan inventory,
Direct material Purchase price 07 Dec 07
A 12.00 32,000 36,000
B 5.00 29,000 32,000
C 3.00 6,000 7,000

Projected date for 2007 with respect to manf labour

Product Hours per unit Rate per Hour

Thing one 2 12
Thing two 3 16

Manufacturing overhead is allocated at the rate of $20 per direct manufacturing labour

Based on the preceding projections and budget requirements for Thing one and Thing two.
Prepare the following budgets for 2007

Required
1. Revenue Budget (in dollars)
2. Production Budget (in units)
3. Direct material purchases budget (in quantities)
4. Direct material purchase budget (in dollars)
5. Direct manufacturing labor budget (in dollars)
6. Budgeted finished goods inventory at December 31, 2007

Solution

1. Revenue Budget for the year ending December 31,2007

Product Units sold Selling price Total Revenues

$ $
Thing one 60,000 165 9,900,000.00
Thing two 40,000 250 10,000,000.00
Total 19,900,000.00

2. Budget in units for the year ending December 31,2007 Production

Particulars Thing one Thing two Total

Units Units Units
60,00 40 100
Sales (in units) from Revenue budget 0 ,000 ,000
Add: Targeted closing finished goods 25,00 9 34
inventory 0 ,000 ,000
85,00 49 134
Total required units 0 ,000 ,000
(20,000.0 (8 (28
Less: Beginning finished goods inventory 0) ,000) ,000)
65,00 41 106
Total finished goods to be produced 0 ,000 ,000
 3. Direct Material purchases budget (in quantities) for the year ended December 31,2007

Particulars A B C
Finished units to be produced from
production budget
65
Thing one ,000
41
Thing two ,000
Units used for each finished unit
Thing one 4 2 0
Thing two 5 3 1
260, 130
Total units used in Thing one 000 ,000 -
205, 123 41,
Total units used in Thing two 000 ,000 000
465, 253 41,
Total units used in production 000 ,000 000
36, 32, 7,
Add: Target closing inventory of materials 000 000 000
Total units required 501,000 285,000 48,000
Less: Available from beginning inventory (32, (29 (6
of materials 000) ,000) ,000)
Total materials to be purchased in 469, 256 42,
units 000 ,000 000

4. Direct Material purchase budget (in dollars) for the year ended December 31,2007

Particulars A B C Total
Units to be purchased from 256,00 767,00
purchase budget schedule 469,000 0 42,000 0
Per unit price 12.00 5.00 3.00
5,628,000.0 1,280,000.0 126,000.0 7,034,000.
Dollar value of purchases 0 0 0 00

5. Direct Manufacturing Labor budget ( in dollars) for the year ended December 31,2007

Particulars Thing one Thing two Total

Labour Hours budget

Hours per unit 2 3

Finished units from Production Budget 65,000 41,000

___________________________________
Total Hours used in production 130,000 123,000 253,000
 ________________________________

Labour cost Budget

Total hours used in production 130,000 123,000 253,000

Rate per hour 12 16

____________________________________
Total labour cost 1,560,000 1,968,000 3,528,000
_________________________________

6. Budgeted Finished goods inventory as at December 31,2007

Particulars Thing one Thing two Total

Cost per unit $ $ $
Direct materials
A 48.00 60.00
B 10.00 15.00
C - 3.00
Direct materials (a) 58.00 78.00

Direct labour
Hours per unit 2 3
Rate per hour 12.00 16.00
Direct labour (b) 24.00 48.00

Manufacturing overheads
Hours per unit 2 3
Rate per hour 20.00 20.00
Manufacturing overheads (c ) 40.00 60.00
Total cost per unit (a+b+c) 122.00 186.00

Units in closing finished goods inventory 25,000 9,000

Budgeted finished goods inventory 3,050,000.00 1,674,000.00 4,724,000.00

Scenario
Easecom Company
Income statement for the year ended, December 31, 2007 (in thousands)

Revenues Amount Amount

$ $

Equipment 6,000.00
Maintenance contracts 1,800.00

Total revenues 7,800.00

Cost of goods sold (4,600.00)
Gross margin 3,200.00

Operating costs
Marketing 600.00
Distribution 150.00
Customer Maintenance 1,000.00
Administration 900.00

Total operating costs 2,650.00

Operating income 550.00

Following changes were made

Selling price of equipment increase by 10% and equipment sales in units increase by 6% with
corresponding
growth in maintenance contracts
Cost of each unit sold is expected to increase by 3%
Marketing costs increase by 250,000 but administration costs remain constant
Distribution costs vary in proportion in units sold
Two maintenance staffs were hired for total cost of $130000
There is no beginning or ending inventory

Required
Prepare a budgeted income statement for the year December 31,2008

Solution:

Easecom Company

Income statement for the year ended, December 31, 2008 (in thousands)

Revenues Note Amount Amount

$ $
Equipment 1 6,996.00
Maintenance contracts 1 1,908.00
Total revenues 8,904.00
Cost of goods sold 1 (5,022.28)
Gross margin 3,881.72
Operating costs
Marketing 1 850.00
Distribution 1 159.00
Customer Maintenance 1 1,130.00
Administration 900.00
Total operating costs 3,039.00

Operating income 842.72

Note 1
Sales 6,000.00
Increase in sales price 10%
Growth rate 6%
Increase sales 6,996.00

Maintenance contracts 1,800.00

Growth rate 6%
Increase contracts 1,908.00

Cost of goods sold (4,600.00)

Increase in price 3%
Growth rate 6%
Increase in cost of goods sold (5,022.28)

Increase in Marketing costs 250

Distribution 150.00
Proportion to unit sales 6%
Increase in distribution 159.00

Increase in Customer maintenance 130.00