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Alex Incorporated manufactures a product with a selling price of $50 per unit. Units and monthly cost data follow: (20 points)

Variable:

Selling and administrative . . . . . . . . . . . . . . . . . . $ 0.4 per unit sold

Direct materials . . . . . . . . . . . . . . . . . . . . . . . . . . 10 per unit manufactured

Direct labor. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .10 per unit manufactured

Variable manufacturing overhead . . . . . . . . . . . . . . 5 per unit manufactured

Fixed:

Selling and administrative . . . . . . . . . . . . . . . . . $15,000 per month

Manufacturing (including depreciation of $10,000). . .30,000 per month

The company pays 75% of the bills in the month incurred and 25% in the following month. All sales are on account with 50 percent collected the month of sale and the balance collected the following month. There are no sales discounts or bad debts.

The company desires to maintain an ending finished goods inventory equal to 20 percent of the following months sales and a raw materials inventory equal to 10 percent of the following months production. January 1, 2018, inventories are in line with these policies.

Actual unit sales for December and budgeted unit sales for January, February, and March of 2018 are as follows:

Alex INCORPORATED

Sales Budget For the Months of January, February, and March 2018

Month Dec Jan Feb Mar

SalesUnits 6,250 5,000 10,000 8,000

SalesDollars $312,500 $250,000 $500,000 $400,000

Additional information:

The January 1 beginning cash is projected as $5,000.

For the purpose of operational budgeting, units in the January 1 inventory of finished goods are valued at variable manufacturing cost.

Each unit of finished product requires one unit of raw materials.

ALEX intends to pay a cash dividend of $10,000 in January

R e q u i r e d

1. A production budget for January and February.

2. A purchases budget in units for January.

3. A manufacturing cost budget for January.

4. A cash budget for January.

5. A budgeted contribution income statement for January.

6. Management is concerned that their supplier of raw materials will have a strike. Determine the budget implications if management plans to increase the January-end raw materials inventory to 100 percent of Februarys production needs. Offer any recommendations you believe appropriate

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