IENG 216

Budget Homework

(due March 18)

You are given the following production budget for Pelican Company (motto: The pelican, the pelican, his beak can hold more than his belly can. He can hold in his beak, enough for a week and I don’t see howinthehellican).

Production Budget, 2008
Quarter
1 / 2 / 3 / 4 / Total
Expected Sales in units / 1,000 / 900 / 800 / 1,000 / 3,700
Desired Ending Inventory / 100 / 100 / 100 / 100 / 400
Total Needs / 1,100 / 1,000 / 900 / 1,100 / 4,100
Less Beginning Inventory / 100 / 100 / 100 / 100 / 400
Units to Produce / 1,000 / 900 / 800 / 1,000 / 3,700

a. Each unit sells for $250. Units are sold with a 30 day invoice which means sales are recorded as income but are posted to Accounts Receivable until cash is collected. Pelican typically receives 80% of the cash in the quarter in which the unit is sold and another 18% in the following quarter. Historically, 2% is lost due to bad debts. Accounts receivables carried over from quarter 4, 2007 is $50,000. You are to prepare a sales budget for Pelican for 2008.

b. You are given that each unit requires 5 pounds of copper and that the company desires to maintain an ending inventory of 500 pounds of copper at all times (including quarter 4 in 2008). The price of copper is $4.00 per pound. 60% of the companies purchases are paid in the quarter of purchase and the remainder is paid in the following quarter. Accounts payable for quarter 4 of 2007 is $8,000. Compute a direct materials cash disbursements budget for 2008.

c. Direct labor on Pelican products includes both machinists and assemblers. Machinists are paid $24 per hour. Assemblers are paid $15 per hour. Each unit requires 0.5 hours of machining time and 1.2 hours of assembly time. Prepare a direct labor budget.

d. Factory overhead is computed at a fixed rate of $30,000 per quarter plus a variable rate of $3.00 per direct labor hour. Direct labor includes both machining time and assembly time. Depreciation for plant and equipment is $10,000 per quarter. You are to compute cash disbursements for overhead for 2008.