Budgetary Planning

Cook From Supply Company manufactures and sells a pesticide called Snare. The following data are preparing budgets for Snare for the first 2 quarters of 2020.
  1. Sales: quarter 1, 40,000 bags; quarter 2, 56,000 bags. Selling price is $60 per bag.
  2. Direct materials: each bag of Snare requires 4 pounds of Gumm at a cost of $3.80 per pound and 6 pounds of Tarr at $1.50 per pound.
  3. Desired inventory levels:
    Type of Inventory January 1 April 1 July 1
    Snare (bags)8,00015,00018,000
    Gumm (pounds)9,00010,00013,000
    Tarr (pounds)14,00020,00025,000
  4. Direct labor: direct labor time is 15 minutes per bag at an hourly rate of $16 per hour.
  5. Selling and administrative expenses are expected to be 15% of sales plus $175,000 per quarter.
  6. Interest expense is $100,000.
  7. Income taxes are expected to be 30% of income before income taxes.
Your assistant has prepared two budgets: (1) the manufacturing overhead budget shows expected costs to be 125% of direct labor cost, and (2) the direct materials budget for Tarr shows the cost of Tarr purchases to be $297,000 in quarter 1 and $439,500 in quarter 2.

Deleon Inc. is preparing its annual budgets for the year ending December 31, 2020. Accounting assistants furnish the data shown below.

Hill Industries had sales in 2020 of $6,800,000 and gross profit of $1,100,000. Management is considering two alternative budget plans to increase its gross profit in 2020.

Colter Company prepares monthly cash budgets. Relevant data from operating budgets for 2021 are as follows.
Direct materials purchases120,000125,000
Direct labor90,000100,000
Manufacturing overhead70,00075,000
Selling and administrative expenses79,00085,000

All sales are on account. Collections are expected to be 50% in the month of sale, 30% in the first month following the sale, and 20% in the second month following the sale. Sixty percent (60%) of direct materials purchases are paid in cash in the month of purchase, and the balance due is paid in the month following the purchase. All other items above are paid in the month incurred except for selling and administrative expenses that include $1,000 of depreciation per month.

Other data

  1. Credit sales: November 2020, $250,000; December 2020, $320,000.
  2. Purchases of direct materials: December 2020, $100,000.
  3. Other receipts: January-collection of December 31, 2020, notes receivable $15,000, February-proceeds from sale of securities $6,000.
  4. Other disbursements: February-payment of $6,000 cash dividend.

The company's cash balance on January 1, 2021, is expected to be $60,000. The company wants to maintain a minimum cash balance of $50,000.


  1. Prepare schedules for (1) expected collections from customers and (2) expected payments for direct materials purchases for January and February.
  2. Prepare a cash budget for January and February in columnar form

The budget committee of Supper Company collects the following data for its san Miguel Store in preparing budgeted statements for May and June 2020.

Krause Industries balance sheet at December 31, 2020, is presented below.

Edington Electronics Inc. produces and sells two models of pocket calculators, XQ-103 and XQ-104. The calculators sell for $15, respectively. Because of the intense competition Eddington faces management budgets sales semiannually. Its projections for the first 2 quarters of 2020 are as follows.

Thome and Crede, CPAs, are preparing their service revenue budget for the coming year (2020). The practice is divided into three departments: auditing, tax, and consulting. Billable hours for each department, by quarter, are as follows.
DepartmentQuarter 1Quarter 2Quarter 3Quarter 4

Average hourly billing rates are auditing $80, tax $90, and consulting $110.


Prepare the service revenue (sales) budget for 2020 by listing the departments and showing for each quarter and the year in total, billable hours, billable rate, and total revenue.

Turney Company produces and sells automobile batteries, the heavy-duty HD-240. The 2020 sales forecast is as follows.

DeWitt Industries has adopted the following production budget for the first 4 months of 2020.

Each unit requires 2 pounds of raw materials costing $3 per pound. On December 31, 2020, the ending raw materials inventory was 4,000 pounds. Management wants to have a raw materials inventory at the end of the month equal to 20% of next month's productions requirements


Prepare a direct materials purchases budget by month for the first quarter.

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