Ben's Beer Company's management wants to prepare budgets for its limited IPA, Dragon Ale. The firm sells the product for $80 per half keg and has the following expected sales (in half kegs) for these months in 2016:
|
April
|
May
|
June
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July
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August
|
September
|
|
5,000
|
5,400
|
5,500
|
6,000
|
7,000
|
8,000
|
The production process requires 4 pounds of nugget hops and 2 pounds of malt extract.
The firm's policy is to maintain an ending inventory each month equal to 10% of the following month's budgeted sales, but in no case less than 500 half kegs.
All materials inventories are to be maintained at 5% of the production needs for the next month. The firm expects all inventories at the end of June to be within the guidelines.
The purchase department expects the materials to cost $1.25 per pound and $5.00 per pound for hops and malt extract, respectively.
The production process requires direct labor at two skill levels. The rate for labor at the K102 level is $50 per hour and for the K175 level is $20 per hour.
The K102 level can process one batch of Dragon IPA per hour; each batch consists of 100 half kegs.
The manufacturing of Dragon IPA also requires one-tenth of an hour of K175 workers' time for each half keg manufactured.
Variable manufacturing overhead is $1,200 per batch or portion of a batch plus $80 per direct labor hour.
Required
On the basis of the preceding data and projections, prepare the following budgets:
1. Sales budget for April through September (in dollars).
2. Cash Collection budget for April through September, assuming that sales are collected 45% in the month of sale and 55% in the month after sale. Opening Accounts Receivable was $150,000.
3. Production budget for April through September (in units) assuming there were no kegs on hand at the beginning, that for April through August the desired ending inventory is 10% of the next month's sales and that the desired inventory at the end of September is 0.
4. Direct materials purchases budget for April through September (in pounds) assuming that beginning inventory is 4,000 pounds of nugget hops and 1,000 pounds of malt extract with the ending September inventory targeted at 0 pounds of nugget hops and malt extract.
5. Direct materials purchases budget for April through September (in dollars), assuming that 70% of purchases are paid for in the month of purchase and 30% are paid in the next month. There was an opening balance due of $10,000 for nugget hops and $2,000 for malt extract.
6. Direct labor budget for April through September.
7. Direct manufacturing labor budget for April through September (in dollars). All manufacturing overhead is paid in the month incurred.
8. Complete Cash budget for April through September.