Production Budget

Sales in units
Add: desired
end. inventory
Total needed
Less: beg.
inventory
Units to be
produced

April
20,000
10,000
30,000

May
50,000

June

Quarter

From sales
budget

May sales
Desired percent
Desired inventory

50,000 units
20%
10,000 units

4,000
26,000

March 31
ending inventory
12

Quick Check
What is the required production for May?
a. 56,000 units
b. 46,000 units
c. 62,000 units
d. 52,000 units

14

Production Budget
Sales in units
Add: desired
end. inventory
Total needed
Less: beg.
inventory
Units to be
produced

April
20,000

May
50,000

June
30,000

Quarter
100,000

20%

10,000
30,000

6,000
56,000

5,000
35,000

5,000
105,000

4,000

10,000

6,000

4,000

26,000

46,000

29,000

101,000

15

Direct-material Budget
Production in units
Materials per unit
Production needs
Add: desired
ending inventory
Total needed
Less: beginning
inventory
Materials to be
purchased

April
26,000
5
130,000
23,000
153,000
13,000
140,000

10% of the following

months production

May
June
46,000
29,000
5
5
How much
materials
230,000
145,000

purchased in May?
a.
221,500 pounds
14,500
11,500
244,500
b. 240,000156,500
pounds
c.
230,000 pounds
23,000
14,500
d. 211,500 pounds

221,500

142,000

March 31
inventory

Quarter
101,000
should 5be
505,000
11,500
516,500
13,000
503,500

From our
production
budget
18

Quick Check
How much materials should be purchased in May?
a. 221,500 pounds
b. 240,000 pounds
c. 230,000 pounds
d. 211,500 pounds

19

Direct-material Budget
Production in units
Materials per unit
Production needs
Add: desired
ending inventory
Total needed
Less: beginning
inventory
Materials to be
purchased

April
26,000
5
130,000

May
46,000
5
230,000

June
29,000
5
145,000

Quarter
101,000
5
505,000

23,000
153,000

14,500
244,500

11,500
156,500

11,500
516,500

13,000

23,000

14,500

13,000

140,000

221,500

142,000

503,500

10% of the following

months production

March 31
inventory

From our
production
budget
20

Direct-material Budget
Slide 11

July Production
July Sales in units
Add: assumed ending inventory (Aug sales 15,000
April
May
Total units needed
Production
in units
26,000
46,000
Less:
beginning
inventory
- F.G.
Materials in
perunits
unit
5
5
Production
Production needs
130,000
230,000

Add: desired
ending inventory
23,000
14,500
Total
153,000
244,500
Juneneeded
Ending Inventory
- Direct Material
Less:
beginning
July
production
in units
23,000
inventoryper unit
13,000
23,000
Materials
5
Materials
to be
Total
units needed
115,000
Inventory
percentage 140,000
10%
purchased
221,500
June desired ending inventory

units)
June
29,000
5
145,000

25,000
3,000
Quarter
28,000
101,000
5,000
5
23,000
505,000

11,500
156,500

11,500
516,500

14,500

13,000

142,000

503,500

11,500

21

Direct-labour Budget
April
26,000
0.10
2,600

Production in units
Direct-labor hours
Labor hours required
Guaranteed labor
hours
3,000
Labor hours paid
3,000
Wage rate
$
8
Total direct-labor cost $ 24,000

From our
production
budget

May
46,000
0.10
4,600

June
29,000
0.10
2,900

Quarter
101,000
0.10
10,100

3,000
4,600
$
8
$ 36,800

3,000
3,000
$
8
$ 24,000

10,600
$
8
$ 84,800

This is the greater of

labor hours required or
labor hours guaranteed.
24

Selling and General Administrative

Expense Budget
April

May

20,000

June

Sales in units
Variable S&A rate

0.50

0.50

0.50

0.50

Variable expense

10,000

25,000

15,000

50,000

Fixed S&A expense

Total expense
Less: noncash expenses
Cash disbursements

From our
Sales budget

50,000

Quarter

70,000
$

80,000

70,000
$

10,000
$

70,000

30,000

95,000

70,000
$

10,000
$

85,000

100,000

85,000

210,000
$

10,000
$

75,000

260,000
30,000

230,000

Try Additional Exercises Q3

30

Cash Receipts Budget

April
$ 30,000

Accounts rec. - 3/31

April sales
70% x $200,000
140,000
25% x $200,000
May sales
70% x $500,000
25% x $500,000
June sales
70% x $300,000
Total cash collections $ 170,000

May

June

140,000
50,000

$ 50,000
350,000

$ 400,000

Quarter
$ 30,000

$ 125,000

350,000
125,000

210,000
$ 335,000

210,000
$ 905,000

Slide 8

25% x $300,000 Accounts Receivable @ 30 June = $75,000

34

Cash Disbursements Budget

Accounts pay. 3/31
April purcha se s
50% x $56,000
50% x $56,000
Ma y purcha se s
50% x $88,600
50% x $88,600
June purcha se s
50% x $56,800
Total cash payments
for materials

April
$ 12,000

Ma y

June

28,000

28,000
28,000

$ 28,000
44,300

$ 40,000

$ 72,300

Required Purchase (see slide 20 )

140,000 lbs. $0.40/lb. = $56,000
221,500 lbs. $0.40/lb. = $88,600
142,000 lbs. $0.40/lb. = $56,800

Qua rte r
$ 12,000

$ 44,300

44,300
44,300

28,400

28,400

$ 72,700

$ 185,000

Accounts Payable @ 30 June

= 50% x 56800 = $28,400
37

Cash Budget
Financing and Repayment
Excess (deficiency) of
Cash available over
disbursements
Financing:
Borrowing
Repayments
Interest
Total financing
Ending cash balance

Borrowing @
month end
$
35,000
13,800

April

May

June

$ (5,000)

$ 16,200

$ 86,000

35,000
35,000
$ 30,000

13,800
13,800
$ 30,000

(48,800)
(838)
(49,638)
$ 36,362

Quarter

Assumed no
borrowing in
the previous
month

Months
Annual
Outstandin
Interest
Rate
Interest
g
Expense
12% = $
4,200
2 mths
= $
700
12% =
1,656
1 mth.
=
138
$
838

46