CHAPTER 11 – PROBLEMS WORKED IN CLASS



CHAPTER 11 – PROBLEMS WORKED IN CLASS

The following information is taken from Osage Company’s production budget for 3 models of fax machines in October 2002:

| |Model 101 |Model 201 |Model 301 |

|Beginning FG inventory |11 |8 |? |

|Target ending FG inventory |? |6 |33 |

|Budgeted production |? |? |855 |

|Budgeted sales |180 |? |867 |

|Total required units (End FG + sales) |194 |199 |? |

DETERMINE THE MISSING VALUES

Production budget (in units), fill in the missing numbers.

| |Model 101 |Model 201 |Model 301 |

|Budgeted sales | 180G | 193 c | 867 G |

|Adding target ending FGI | 14 a | 6 G | 33 G |

|Total requirements | 194 G | 199 G | 900 e |

|Deduct beginning FGI | 11 G | 8 G | 45 f |

|Units to be produced | 183 b | 191 d | 855 G |

a 194-180=14 b 194-11=183 c 199-6=193 d 199-8=191 e 867+33=900 f 900-855=45

The Mahoney Company has prepared a sales budget of 42,000 units for a 3-month period starting from January 1. The company has an inventory of 22,000 units of finished goods on hand at December 31 and has a target finished goods inventory of 24,000 units at the end of the succeeding quarter.

It takes 3 gallons of direct materials to make 1 unit of finished product. The company has an inventory of 90,000 gallons of direct materials at December 31 and has a target ending inventory of 110,000 gallons.

Required:

How many gallons of direct materials should be purchased during the 3 months ending March 31?

| |Finished Goods (Units) |

|Budgeted sales |42,000 |

|Add target ending finished goods inventory |24,000 |

|Total requirements |66,000 |

|Deduct beginning finished goods inventory |22,000 |

|Units to be produced |44,000 |

| |Direct Materials (Gallons) |

|DM needed for production (44,000 x 3) |132,000 |

|Add target ending DM inventory |110,000 |

|Total requirements |242,000 |

|Deduct beginning DM inventory | 90,000 |

|DM to be purchased |152,000 |

Furniture, Inc., estimates the following mattress sales for the first four months of 2003:

Month Sales

January 5,000

February 7,000

March 6,500

April 8,000

Finished goods inventory at December 31 was 1,500 units. Target ending finished goods inventory is 30% of next month's sales.

Required:

(1) How many mattresses need to be produced in January 2003?

| |Mattresses |

|Budgeted sales – January |5,000 |

|Add target ending inventory (.30 * 7,000) |2,100 |

|Total requirements |7,100 |

|Deduct beginning inventory |1,500 |

|Units to be produced |5,600 |

(2) How many mattresses need to be produced in the 1st quarter of 2003?

| |Mattresses |

|Budgeted sales – January, February & March |18,500 |

|Add target ending inventory (.30 * 8,000) | 2,400 |

|Total requirements |20,900 |

|Deduct beginning inventory | 1,500 |

|Units to be produced |19,400 |

Picture Pretty manufactures picture frames. Sales for August are expected to be 10,000 units. Historically, the average frame requires four feet of framing, one square foot of glass, and two square feet of backing. Beginning inventory includes 1,500 feet of framing, 500 square feet of glass, and 500 square feet of backing. Current prices are $0.30 per foot of framing, $6.00 per square foot of glass, and $2.25 per square foot of backing. Ending inventory should be 150% of beginning inventory. Purchases are paid for in the month acquired.

Required:

(1) Determine the quantity of framing, glass, and backing that is to be purchased during August.

Framing Glass Backing

Desired ending inventory* 2,250 750 750

Production needs (10,000 units)** 40,000 10,000 20,000

Total needs 42,250 10,750 20,750

Less: Beginning inventory 1,500 500 500

Purchases required 40,750 10,250 20,250

*1,500 x 1.5 = 2,250

500 x 1.5 = 750

**10,000 x 4 = 40,000

10,000 x 1 = 10,000

10,000 x 2 = 20,000

(2) Determine the total costs of direct materials for August purchases.

Cost of direct materials:

Framing (40,750 x $0.30) $12,225.00

Glass (10,250 x $6.00) 61,500.00

Backing (20,250 x $2.25) 45,562.50

Total $119,287.50

Fiscal Company has the following sales budget for the last six months of 20x3:

|July |$100,000 |October |$90,000 |

|August |80,000 |November |100,000 |

|September |110,000 |December |94,000 |

Historically, cash collections of sales have been as follows:

65% of sales collected in the month of sale,

25% of sales collected in the month following the sale,

8% of sales collected in the second month following the sale, and

2% of sales are uncollectible

Required:

(1) Determine total cash collections for September.

September Sales (65% * 110,000) 71,500

August Sales (25% * 80,000) 20,000

July Sales (8% * 100,000) 8,000

99,500

(2) Determine total cash collections for October.

October Sales (65% * 90,000) 58,500

September Sales (25% * 110,000) 27,500

August Sales (8% * 80,000) 6,400

92,400

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