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EXERCISE 8-3 Direct Materials Budget LO8-4 Three grams of musk oil are required for each bottle of Mink Caress, a very popular perfume made by a small company in western Siberia. The cost of the musk oil is $1.50 per gram. Budgeted production of Mink Caress is given below by quarters for Year 2 and for the first quarter of Year 3: Chapter 8 Musk oil has become so popular as a perfume ingredient that it has become necessary to carry large inventories as a precaution against stock-outs. For this reason, the inventory of musk oil at the end of a quarter must be equal to 20% of the following quarter's production needs. Some 36,000 grams of musk oil will be on hand to start the first quarter of Year 2. Required: Using Schedule 3 as your guide, prepare a direct materials budget for musk oil, by quarter and in total, for Year 2. EXERCISE 8-10 Production and Direct Materials Budgets LO8-3, LO8-4 Pearl Products Limited of Shenzhen, China, manufactures and distributes toys throughout Southeast Asia. Three cubic centimeters (cc) of solvent H300 are required to manufacture each unit of Supermix, one of the company's products. The company now is planning raw materials needs for the third quarter, the quarter in which peak sales of Supermix occur. To keep production and sales moving smoothly, the company has the following inventory requirements: a. The finished goods inventory on hand at the end of each month must equal 3,000 units of Supermix plus 20% of the next month's sales. The finished goods inventory on June 30 is budgeted to be 10,000 units. b. The raw materials inventory on hand at the end of each month must equal one-half of the following month's production needs for raw materials. The raw materials inventory on June 30 is budgeted to be 54,000cc of solvent H300. c. The company maintains no work in process inventories. A monthly sales budget for Supermix for the third and fourth quarters of the year follows. Required: 1. Prepare a production budget for Supermix for the months July, August, September, and October. 2. Examine the production budget that you prepared in (1) above. Why will the company produce more units than it sells in July and August, and fewer units than it sells in September and Oetober? 3. Prepare a direct materials budget showing the quantity of solvent H300 to be purchased for July. August, and September, and for the quarter in total. EXERCISE 8-9 Budgeted Balance Sheet L08-10 The management of Mecca Copy, a photocopying center located on University Avenue, has compiled the following data to use in preparing its budgeted balance sheet for next year: The beginning balance of retained earnings was $28,000, net income is budgeted to be $11,500, and dividends are budgeted to be $4,800. Required: Prepare the company's budgeted balance sheet: EXERCISE 88 Budgeted Income Statement LO8-9 Jig Harbor Boating is the wholesale distributor of a small recreational catamaran sailboat. Management tas prepared the following summary data to use in its annual budgeting process: EXERCISE 8-7 Cash Budget LO8-8 Garden Depot is a retailer that is preparing its budget for the upcoming fiscal year. Management has prepared the following summary of its budgeted cash flows: The company's beginning cash balance for the upcoming fiscal year will be $20,000. The company requires a minimum cash balance of $10,000 and may borrow any amount needed from a local bank at a quarterly interest rate of 3%. The company may borrow any amount at the beginning of any quarter and may repay its loans, or any part of its loans, at the end of any quarter. Interest payments are due on any principal at the time it is repaid. For simplicity, assume that interest is not compounded. Required: Using Schedule 8 as your guide, prepare the company's cash budget for the upcoming fiscal year. EXERCISE 8-6 Selling and Admlnistrative Expense Budget LOB-7 Weller Company's budgeted unit sales for the upcoming fiscal year are provided below: The company's variable selling and administrative expense per unit is $2.50. Fixed selling and administrative expenses include advertising expenses of $8,000 per quarter, executive salaries of $35,000 per quarter, and depreciation of $20,000 per quarter. In addition, the company will make insurance payments of $5,000 in the first quarter and $5,000 in the third quarter. Finally, property taxes of $8,000 will be paid in the second quarter. Master Budgeting Required: Using Schedule 7 as your guide, prepare the company's selling and administrative expense budget for the upcoming fiscal year. BXERCISE 8-5 Manufacturing Overhead Budget Los-6 The direct labor budget of Yuvwell Corporation for the upcoming fiscal year contains the following details concerning budgeted direct labor-hours: The company uses direct labor-hours as its overhead allocation base. The variable portion of its predetermined manufacturing overhead rate is $3.25 per direct labor-hour and its total fixed manufacturing overhead is $48.000 per quarter. The only noncash item included in fixed manufacturing overhead is depreciation, which is $16,000 per quarter. Required: 1. Using Schedule 5 as your guide, prepare the company's manufacturing overhead budget for the upcoming fiscal year. 2. Compute the company's predetermined overhead rate (including both variable and fixed manufacturing overhead) for the upcoming fiscal year. Round off to the nearest whole cent. EXERCISE 8-4 Direct Labor Budget LO8-5 The production manager of Rordan Corporation has submitted the following quarterly production forecast for the upcoming fiscal year: Each unit requires 0.35 direct labor-hours, and direct laborers are paid $12.00 per hour. Required: 1. Using Schedule 4 as your guide, prepare the company's direct labor budget for the upcoming fiscal year. Assume that the direct labor workforce is adjusted each quarter to match the number of hours required to produce the forecasted number of units produced. 2. Prepare the company's direct labor budget for the upcoming fiscal year, assuming that the direct labor workforce is not adjusted each quarter. Instead, assume that the company's direct labor workforce consists of permanent employees who are guaranteed to be paid for at least 2.600 hours of work each quarter. If the number of required direct labor-hours is less than this number, the workers are paid for 2.600 hours anyway. Any hours worked in excess of 2,600 hours in a quarter are paid at the rate of 1.5 times the normal hourly rate for direct labor. EXERCISE 8-2 Production Budget LO8-3 Down Under Products, Lad., of Australia has budgeted sales of its popular boomerang for the next four months as follows: The company is now in the process of preparing a production budget for the second quarter. Past experience has shown that end-of-month inventory levels must equal 10% of the following month's unit sales. The inventory at the end of March was 5,000 units. Required: Using Schedule 2 as your guide, prepare a production budget by month and in total, for the second quarter. EXERCISE 8-1 Schedule of Expected Cash Collections LO8-2 Silver Company makes a product that is very popular as a Mother's Day gift. Thus, peak sales occur in May of each year, as shown in the company's sales budget for the second quarter given below: From past experience, the company has learned that 20% of a month's sales are collected in the month of sale, another 70% are collected in the month following sale, and the remaining 10% are collected in the second month following sale. Bad debts are negligible and can be ignored. February sales totaled $230,000, and March sales totaled $260.000. Required: 1. Using Schedule l-as your guide, prepare a schedule of expected cash collections from sales, by month and in total, for the second quarter. 2. What is the accounts receivable balance on June 30 th