# Chapter 9 Guided Practice

## 9GP.1 Sales Budget

### 9GP1.E1

ClockTower is a watchmaker with one product. The firm is budgeting the first quarter of next year (January, February, and March). It has the following expected sales and prices for these months.

• January: 1,500 sales at \$650 each
• February: 2,500 sales at \$750 each
• March: 2,000 sales at \$700 each

Required

What is the firm’s expected revenue for Quarter 1?

### 9GP1.M1

ClockTower is a watchmaker with one product. The firm is budgeting the second quarter of next year (April, May, June). It has the following expected sales revenue for these months.

• April: \$1,500,000
• May: \$1,950,000
• June: \$2,250,000

60% of each month’s sales are on credit. The firm expects to collect half of credit sales in the month following the month of the sale. It expects to collect 45% of credit sales in the month that is two months after the sale.

Required

What are expected cash collections June?

## 9GP.2 Production Budget

### 9GP2.E1

ClockTower is budgeting next year’s Q1 (Quarter 1). It has the following sales information from the sales budget (the firm has just one product).

• January: 1,500 sales at \$650 each
• February: 2,500 sales at \$750 each
• March: 2,000 sales at \$700 each

The firm has a policy of having 20% of next period’s production in ending inventory.

Required

How many units must ClockTower produce in February?

## 9GP2.M1

ClockTower has the following budgeted finished goods inventory balances.

• January 1: 300 units; January 31: 500 units
• February 1: 500 units; February 28: 400 units
• March 1: 400 units; March 31: 450 units

Required

In the Quarter 1 column in ClockTower’s production budget, what are the beginning and ending finished goods inventory?

## 9GP.3 Direct Materials Budget

### 9GP3.E1

Clocktower budgets production as follows for the second quarter.

• April: 2,350 units
• May: 2,500 units
• June: 2,050 units

Each finished goods units uses two units of direct materials, and each unit of direct materials costs \$17. The firm has a policy that 10% of next month’s direct materials should be on hand at the end of this month.

Required

How many units and dollars of direct material direct materials must be purchased in April?

### 9GP3.M1

Clocktower budgets production as follows for the second quarter.

• April: 2,350 units
• May: 2,500 units
• June: 2,050 units

Each finished goods units uses two units of direct materials, and each unit of direct materials costs \$17. The firm has a policy that 10% of next month’s direct materials should be on hand at the end of this month.

The firm has arrangements with its direct materials suppliers that allows it to pay 75% of its purchases in the month following the purchase.

Required

How much is the required cash disbursement for direct materials purchases in May?

## 9GP.4 Direct Labor Budget

### 9GP3.M1

ClockTower has two workers: a Swiss clock specialist and a laborer. The firm expects to produce 1,000 units for a certain period. It takes 0.5 hours from the specialist and 0.25 hours from the laborer per watch.

The specialist is paid \$45 per hour and the laborer is paid \$20 per hour. The laborer’s employment contract guarantees him a minimum wage equal to 400 hours of work regardless of volume.

Required

What is the budgeted direct labor expense for this period?

### 9GP5.M1

ClockTower has variable overhead based on machine hours: \$50 per machine hour. It has the following budgeted machine hours for the quarter.

• July: 100 machine hours
• August: 200 machine hours
• September: 150 machine hours

The firm also has fixed overhead of \$10,000 each month, 75% of which is depreciation.

Required

(A) What is the total overhead cost for the quarter?

(B) What is the expected cash disbursements for overhead for the quarter?

(C) What is the firm’s PDOH rate for this quarter? (Assume the firm is not lean and uses a traditional job-order costing system. Assume the firm uses machine hours as it’s cost driver.)

## 9GP.6 Finished Goods Inventory Budget

### 9GP6.M1

ClockTower insures its finished goods inventory and sometimes includes it in loan contracts. Budgeting the finished goods inventory, then, is an important part of its budgeting process. The following details are derived from elsewhere in the budget for an upcoming quarter. (These details do not necessarily match the answers to other guided practice questions.)

• Required ending finished goods inventory is 20% of the next month’s sales. The month following the quarter in question has sales of 1,800 units
• Direct materials purchases for the quarter are \$61,200 for 3,600 direct materials units.
• There are two units of direct materials per finished goods unit.
• For direct labor, 0.5 specialist hours per unit and 0.25 laborer hours per unit (assume neither is constrained by a contract for this problem).
• The specialist earns \$45 per hour and the laborer earns \$20 per hour.
• The firm’s PDOH rate is \$1.80 per machine hour for the quarter and 2 machine hours are expected per unit.

Required

What is the value of finished goods inventory at the end of this quarter?

## 9GP.7 SG&A Budget

### 9GP7.E1

ClockTower’s fixed SG&A costs are \$61,000 per month, 25% of which are depreciation costs.

Required

If the firm has \$60,000 in variable SG&A costs, how much is the cash disbursement for SG&A costs?

### 9GP7.M1

ClockTower has a contract with a saleswoman to help connect its watches to wholesalers and individuals clients. She earns a 1% commission for each watch sold. The firm also advertises (for \$36,000 per month) and pays for various administrative and organization-level costs (estimated as being steady at \$25,000 per month). The firm budgets the following sales for Quarter 4 of next year.

• October: 2,700 units at \$800 each
• November: 3,000 units at \$850 each
• December: 3,500 units at \$900 each

Required

What are the firm’s expected SG&A costs for Q4?

## 9GP.8 Cash Budget

### 9GP8.M1

ClockTower has the following budgeted information for the month of September. (This information does not necessarily match data from the other questions.)

• Sales revenue for July: \$1,300,000 August: \$1,000,000; September: \$1,200,000.
• 60% of sales are on credit and half of credit sales are collected the month after the sale is made. 45% of credit sales are collected two months after the sale is made (5% is assumed to be uncollectible).
• Direct materials purchases for August: \$100,000; September: \$120,000.
• Half of direct materials purchases are on credit and are paid in cash during the month following the purchase.
• Direct labor costs for September are \$75,000
• Overhead costs for September are \$100,000 (25% of which is depreciation).
• SG&A costs for September are \$150,000 (30% of which are depreciation).
• The firm has a line of credit for with a 6% simple annual interest rate.
• If the firm borrows money in a given month, it borrows the money at the beginning of the month. If the firm repays money in a given month, it repays that money at the end of the next month.
• The firm has a minimum cash balance of \$100,000.
• In August, the firm budgets having to borrow \$500,000 to get to the minimum balance of \$100,000 (which is September’s beginning cash balance).

Required

What is the budgeted cash balance at the end of September?

## 9GP.9 Budgeted Financial Statements

### 9GP9.E1

To be added at a future time

## 9GP.10 Capital Budget

### 9GP10.E1

To be added at a future time