Comprehensive budgets Shredder Manufacturing has the following projected unit sales (at $18 per unit) for four months of operations: Month Unit Sales January 60,000 February 72,000 March 76,800 April 84,000 Twenty-five percent of the customers are expected to pay in the month of sale and take a 3 percent discount; 70 percent of the customers are expected to pay in the month following sale. The remaining 5 percent will never pay. It takes two pounds of raw material (costing $0.75 per pound) to produce a unit of product. In January, no raw material is in beginning inventories, but management wants to end each month with enough material for 20 percent of the next month’s production. (April’s production is assumed to be 81,600 units.) Shredder Manufacturing pays for 60 percent of its material purchases in the month of purchase and 40 percent in the following month. Each unit of product requires 0.5 hours of labor time. Labor is paid $15 per hour and is paid in the same month as worked. Overhead is estimated to be $2 per unit plus $60,000 per month (including depreciation of $28,800). Overhead costs are paid as incurred. Shredder will begin January with no Work in Process or Finished Goods Inventory. Inventory policy for these two accounts is set at zero ending WIP and 25 percent of the following month’s sales for FG. Note: Do not use negatives signs in any of the schedules below. a. Prepare a sales budget for January, February, and March. Jan. Feb. March Total Unit sales Answer Answer Answer Answer Selling price Answer Answer Answer Answer Total sales Answer Answer Answer Answer b. Prepare a production budget for January, February, and March. Note: Do not use a negative sign with your answers. Jan. Feb. March Total Unit sales Answer Answer Answer Answer EI Answer Answer Answer Answer Less BI Answer Answer Answer Answer Production Answer Answer Answer Answer c. Prepare a purchases budget for January, February, and March. Note: Do not use negative signs with your answers. Jan. Feb. March Total Production Answer Answer Answer Answer EI Answer Answer Answer Answer Less BI Answer Answer Answer Answer Units Answer Answer Answer Answer Pounds per unit Answer Answer Answer Answer Total lbs. Answer Answer Answer Answer Price per lb. Answer Answer Answer Answer Purchases Answer Answer Answer Answer d. Prepare a direct labor budget for January, February, and March. Jan. Feb. March Total Production Answer Answer Answer Answer DL time per unit Answer Answer Answer Answer DLHs Answer Answer Answer Answer DL rate Answer Answer Answer Answer DL cost Answer Answer Answer Answer e. Prepare an overhead budget for January, February, and March. Jan. Feb. March Total Production Answer Answer Answer Answer VOH unit rate Answer Answer Answer Answer Total VOH Answer Answer Answer Answer FOH cost Answer Answer Answer Answer Total OH Answer Answer Answer Answer f. Prepare a cash receipts schedule for sales and a cash payments schedule for material purchased. Cash Receipts Schedule Jan. Feb. March Total Jan. Answer Answer Answer Answer Feb. Answer Answer Answer Answer March Answer Answer Answer Answer Total Answer Answer Answer Answer Cash Payments Schedule Jan. Feb. March Total Jan. Answer Answer Answer Answer Feb. Answer Answer Answer Answer March Answer Answer Answer Answer Total Answer Answer Answer Answer
Master Budget
A master budget can be defined as an estimation of the revenue earned or expenses incurred over a specified period of time in the future and it is generally prepared on a periodic basis which can be either monthly, quarterly, half-yearly, or annually. It helps a business, an organization, or even an individual to manage the money effectively. A budget also helps in monitoring the performance of the people in the organization and helps in better decision-making.
Sales Budget and Selling
A budget is a financial plan designed by an undertaking for a definite period in future which acts as a major contributor towards enhancing the financial success of the business undertaking. The budget generally takes into account both current and future income and expenses.
Comprehensive budgets
Shredder Manufacturing has the following projected unit sales (at $18 per unit) for four months of operations:
| Month | Unit Sales |
|---|---|
| January | 60,000 |
| February | 72,000 |
| March | 76,800 |
| April | 84,000 |
Twenty-five percent of the customers are expected to pay in the month of sale and take a 3 percent discount; 70 percent of the customers are expected to pay in the month following sale. The remaining 5 percent will never pay.
It takes two pounds of raw material (costing $0.75 per pound) to produce a unit of product. In January, no raw material is in beginning inventories, but management wants to end each month with enough material for 20 percent of the next month’s production. (April’s production is assumed to be 81,600 units.) Shredder Manufacturing pays for 60 percent of its material purchases in the month of purchase and 40 percent in the following month.
Each unit of product requires 0.5 hours of labor time. Labor is paid $15 per hour and is paid in the same month as worked. Overhead is estimated to be $2 per unit plus $60,000 per month (including
Shredder will begin January with no Work in Process or Finished Goods Inventory. Inventory policy for these two accounts is set at zero ending WIP and 25 percent of the following month’s sales for FG.
Note: Do not use negatives signs in any of the schedules below.
a. Prepare a sales budget for January, February, and March.
| Jan. | Feb. | March | Total | |
|---|---|---|---|---|
| Unit sales | Answer | Answer | Answer | Answer |
| Selling price | Answer | Answer | Answer | Answer |
| Total sales | Answer | Answer | Answer | Answer |
b. Prepare a production budget for January, February, and March.
Note: Do not use a negative sign with your answers.
| Jan. | Feb. | March | Total | |
|---|---|---|---|---|
| Unit sales | Answer | Answer | Answer | Answer |
| EI | Answer | Answer | Answer | Answer |
| Less BI | Answer | Answer | Answer | Answer |
| Production | Answer | Answer | Answer | Answer |
c. Prepare a purchases budget for January, February, and March.
Note: Do not use negative signs with your answers.
| Jan. | Feb. | March | Total | |
|---|---|---|---|---|
| Production | Answer | Answer | Answer | Answer |
| EI | Answer | Answer | Answer | Answer |
| Less BI | Answer | Answer | Answer | Answer |
| Units | Answer | Answer | Answer | Answer |
| Pounds per unit | Answer | Answer | Answer | Answer |
| Total lbs. | Answer | Answer | Answer | Answer |
| Price per lb. | Answer | Answer | Answer | Answer |
| Purchases | Answer | Answer | Answer | Answer |
d. Prepare a direct labor budget for January, February, and March.
| Jan. | Feb. | March | Total | |
|---|---|---|---|---|
| Production | Answer | Answer | Answer | Answer |
| DL time per unit | Answer | Answer | Answer | Answer |
| DLHs | Answer | Answer | Answer | Answer |
| DL rate | Answer | Answer | Answer | Answer |
| DL cost | Answer | Answer | Answer | Answer |
e. Prepare an overhead budget for January, February, and March.
| Jan. | Feb. | March | Total | |
|---|---|---|---|---|
| Production | Answer | Answer | Answer | Answer |
| VOH unit rate | Answer | Answer | Answer | Answer |
| Total VOH | Answer | Answer | Answer | Answer |
| FOH cost | Answer | Answer | Answer | Answer |
| Total OH | Answer | Answer | Answer | Answer |
f. Prepare a cash receipts schedule for sales and a cash payments schedule for material purchased.
Cash Receipts Schedule
| Jan. | Feb. | March | Total | |
|---|---|---|---|---|
| Jan. | Answer | Answer | Answer | Answer |
| Feb. | Answer | Answer | Answer | Answer |
| March | Answer | Answer | Answer | Answer |
| Total | Answer | Answer | Answer | Answer |
Cash Payments Schedule
| Jan. | Feb. | March | Total | |
|---|---|---|---|---|
| Jan. | Answer | Answer | Answer | Answer |
| Feb. | Answer | Answer | Answer | Answer |
| March | Answer | Answer | Answer | Answer |
| Total | Answer | Answer | Answer | Answer |
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