1.

At the beginning of the period, the Assembly Department budgeted direct labor of $123,500
and property tax of $10,000 for 6,500 hours of production. The department actually completed 7,300 hours
of production. Determine the budget for the department, assuming that it uses flexible budgeting.
2. At the beginning of the period, the Fabricating Department budgeted direct labor of $9,280 and equipment
depreciation of $2,300 for 640 hours of production. The department actually completed 600 hours of
production. Determine the budget for the department, assuming that it uses flexible budgeting.
3. LifeTyme Publishers Inc. budgeted production of 191,900 diaries in 2014. Paper is required
to produce a diary. Assume seven square yards of paper are required for each diary. The
estimated January 1, 2014, paper inventory is 29,100 square yards. The desired December
31, 2014, paper inventory is 32,900 square yards. If paper costs $0.80 per square yard,
determine the direct materials purchases budget for 2014.
4. Sweet Tooth Candy Company budgeted the following costs for anticipated production
for August 2014:
Advertising expenses----------- $232,000 Production supervisor wages------ $135,000
Manufacturing supplies----------- 14,000 Production control wages ------------32,000
Power and light --------------------48,000 Executive officer salaries----------- 310,000
Sales commissions ---------------298,000 Materials management wages -------39,000
Factory insurance ------------------30,000 Factory depreciation ------------------22,000
Prepare a factory overhead cost budget, separating variable and fixed costs. Assume that
factory insurance and depreciation are the only fixed factory costs

5. Great Company manufactures and sells a product whose peak sales occur in the third quarter.
Management is now preparing detailed budgets for 20x4- the coming year and has assembled the
following information to assist in the budget preparation:

The company’s product selling price is Br. 20 per unit. The marketing department has estimated sales in
units as follows for the next six quarters.

20x4 Quarters 20x5 Quarters

Quarter 1 10000 15000
Quarter 2 30000 15000
Quarter 3 40000
Quarter 4 20000
Sales are collected in the following pattern: 70% of sales are collected in the quarter in which the sales are
made and the remaining 30% are collected in the following quarter. On January1, 20x4, the company’s
balance sheet showed Br.90, 000 in account receivable, all of which will be collected in the first quarter of
the year. Bad debts are negligible and can be ignored.

The company maintains an ending inventory of finished units equal to 20% of the next quarter’s sales. The
requirement was met on December 31, 20x3, in that the company had 2, 000 units on hand to start the new
year.

Fifteen pounds of raw materials are needed to complete one unit of product. The company requires an
ending inventory of raw materials on hand at the end of each quarter equal to 10% of the following
quarter’s production needs of raw materials. This requirement was met on December 31, 20x3 in that the
company had 21, 000 pounds of raw materials to start the New Year.

The raw material costs Br.0.20 per pound. Raw material purchases are paid for in the following pattern:
50% paid in the quarter the purchases are made, and the remainder is paid in the following quarter. On
January 1,20x4, the company’s balance sheet showed Br.25, 800 in accounts payable for raw material
purchases, all of which be paid for in the first quarter of the year.
Each unit of Great’s product requires 0.8 hour of labor time. Estimated direct labor cost per hour is Br.7.50.
Variable overhead is allocated to production using labor hours as the allocation base as follows:
Indirect materials Br.0.40

Indirect labor 0.75

Fringe benefits 0.25

Payroll taxes 0.10

Utilities 0.15

Maintenance 0.35

Fixed overhead for each quarter was budgeted at Br. 60, 600. Of the fixed overhead amount, Br. 15, 000
each quarter is depreciation. Overhead expenses are paid as incurred.

The company’s quarterly budgeted fixed selling and administrative expenses are as follows:

20X4 Quarters

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 1 2 3 4

Advertising Br.20, 000 Br.20, 000 Br.20, 000 Br.20, 000

Executive salaries 55, 000 55, 000 55, 000 55, 000

Insurance - 1, 900 37,750 -

Pr;operty taxes - - - 18, 150

Depreciation 10, 000 10, 000 10, 000 10, 000

The only variable selling and administrative expense, sales commission, is budgeted at Br.1.80 per unit of
the budgeted sales. All selling and administrative expenses are paid during the quarter, in cash, with
exception of depreciation. New equipment purchases will be made during each quarter of the budget year
for Br. 50, 000, Br. 40, 000, & Br.20, 000 each for the last two quarter in cash, respectively. The company
declares and pays dividends of Br.8, 000 cash each quarter. The company’s balance sheet at December 31,
20x3 is presented below:

ASSETS

Current assets:

Cash Br. 42, 500

Accounts Receivable 90, 000

Raw Materials Inventory (21, 000 pounds) 4, 200

Finished Goods Inventory (2, 000 units) 26, 000

Total current assets Br.162, 700

Plant and Equipment:

Land Br.80, 000

Building and Equipment 700, 000

Accumulated Depreciation (292, 000)

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Plant and Equipment, net 488, 000

Total assets Br.650, 700

LIABILTIES AND STOCKHOLDERS’ EQUITY

Current liabilities:

Accounts payable (raw materials) Br.25, 800

Stockholders’ equity:

Common stock, no par Br.175, 000

Retained earnings 449, 900

Total stockholders’ equity 624, 900

Total liabilities and stockholders’ equity Br.650, 700

The company can borrow money from its bank at 10% annual interest. All borrowing must be done at the
beginning of a quarter, and repayments must be made at the end of a quarter. All borrowings and all
repayments are in multiples of Br. 1,000.

The company requires a minimum cash balance of Br.40, 000 at the end of each quarter. Interest is
computed and paid on the principal being repaid only at the time of repayment of principal. The company
whishes to use any excess cash to pay loans off as rapidly as possible.

Instructions: Prepare a master budget for the four-quarter period ending December 31. Include the
following detailed budget and schedules:

1. a) A sales budget, by quarter and in total

b) A schedule of budgeted cash collections, by quarter and in total

c) A production budget

d) A direct materials purchase budget

e) A schedule of budgeted cash payments for purchases by quarter and in total

f) A direct labor budget

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 g) A manufacturing overhead budget

h) Ending finished goods inventory budget

i) A selling and administrative budget

2. A cash budget, by quarter and in total

3. A budgeted income statement for the four- quarter ending December 31, 20x4

4. A budgeted balance sheet as of December 31, 20x4.

6. Gorgeous Company is contemplating its fifth year operation and is preparing to build its master budget for
the coming year (2007). The budget will detail each quarter’s activity and the activity for the year in total.
The master budget is based on the following information.
a. Fourth quarter sales for 2006 are Br. 55,000 units
b. Unit sale by quarter for 2007 are projected as follows
First Quarter 65000

Second Quarter 70000

Third Quarter 75000

Fourth Quarter 90000

The selling price is Br. 400 per unit. 85% of sales are on cash basis and 15% of sales are on credit basis.
Credit sale are collected in the following quarter.

c. There is no beginning inventory of finished goods. And the company is planning the following ending
finished goods inventories for each quarter:
First Quarter 13000 units

Second Quarter 15000 units

Third Quarter 20000 units

Fourth Quarter 10000 units

d. Each unit uses five hours of direct labour and three units of direct materials. Labourers are paid Br. 10 per
hour and one unit of material costs Br. 80

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 e. There are 65700 units of direct materials as of January 1,2007. At end of each quarter, gorgeous plans to have
30% of raw materials needed for next quarter’s unit sales. On December 31,2007 gorgeous will end with the
same level of inventory as o f January 1,2007
f. Gorgeous buys the materials on account. Half of the purchases are paid in the quarter and the remaining half
in the following quarter. Wage and salary maid at end of each month.
g. Variable over head is budgeted at Br. 6 per direct labour hour and paid as incurred
h. Fixed overhead totals Br 1 million each quarter. Of this total Br. 350000 represents depreciation. All other
fixed overhead paid as incurred. The fixed overhead allocated by dividing the total by the expected unit
produced per year.
i. Variable selling and administrative expenses are budgeted at Br.10 per unit sold.
j. Fixed selling and administrative expenses total Br. 250000 per quarter, including Br. 50000 depreciation. All
selling and administrative expenses are paid as incurred.
k. The balance sheet as of December 31,2006 is as follows:
Assets

Cash Br. 250,000

Account receivable 3,300,000

Inventory 5,256,000

Plant &equipment 33,500,000

Total Assets Br. 42,306,000

Liabilities and capital

Accounts payable (for material purchase) Br. 7248,000

X-capital 35058,000

Total Liability and Capital Br. 42,306,000

j. Mr. X withdraws Br. 300000 pre quarter. At end of the fourth quarter, Br. 2 million of equipment will be
purchased.
Required: prepare a master budget for Gorgeous company for each quarter of 2007 and for the year in total. The
following component budgets must be included:

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A. Sales budget
B. Production budget
C. Direct materials purchase budget
D. Direct labour budget
E. Over head budget
F. Selling and administrative expense budget
G. Ending finished goods inventory budget
H. Cost of goods sold budget
I. Cash budget
J. Performa (budgeted) income statement
K. Performa (budgeted) balance sheet