Author Question: Lohan Company had the following account balances as of June 30. Cash 29,000 Equipment 15,000 ... (Read 56 times)

mydiamond · **on:** Jul 6, 2018

Lohan Company had the following account balances as of June 30. Cash 29,000 Equipment 15,000 Accounts Payable 2,800 T. Lohan, Capital 62,700 T. Lohan, Drawing 5,000 Income from Services 35,000 Rent Expense 12,000 Salaries Expense 8,000 What is the debit balance of the trial balance?
a. 141,700
b. 136,700
c. 64,000
d. 69,000

Question 2

Revenue and production budgets.

(CPA, adapted) The Sabat Corporation manufactures and sells two products: Thingone and Thingtwo. In July 2013, Sabat's budget department gathered the following data to prepare budgets for 2014:

The following direct materials are used in the two products:

Projected data for 2014 for direct materials are:

Projected direct manufacturing labor requirements and rates for 2014 are:

Manufacturing overhead is allocated at the rate of 19 per direct manufacturing labor-hour.

Based on the preceding projections and budget requirements for Thingone and Thingtwo, prepare the following budgets for 2014:

Required:
1. Revenues budget (in dollars)
2. What questions might the CEO ask the marketing manager when reviewing the revenues budget? Explain briefly.
3. Production budget (in units)
4. Direct material purchases budget (in quantities)
5. Direct material purchases budget (in dollars)
6. Direct manufacturing labor budget (in dollars)
7. Budgeted finished goods inventory at December 31, 2014 (in dollars)
8. What questions might the CEO ask the production manager when reviewing the production, direct materials, and direct manufacturing labor budgets?
9. How does preparing a budget help Sabat Corporation's top management better manage the company?

TDubDCFL · **Reply #1 on:** Jul 6, 2018

Answer to Question 1

d

Answer to Question 2

This is a routine budgeting problem. The key to its solution is to compute the correct quantities of finished goods and direct materials. Use the following general formula:

= +

1. Sabat Corporation
Revenues Budget for 2014

Units Price Total
Thingone 62,000 172 10,664,000
Thingtwo 46,000 264 12,144,000
Budgeted revenues 22,808,000

2. The CEO would want to probe if the revenue budget is sufficiently stretched. Is the revenue growing faster than the market? Should the company increase marketing and advertising spending to grow sales? Would increasing the sales force or giving salespersons stronger incentives result in higher sales?

3. Sabat Corporation
Production Budget (in units) for 2014

Thingone Thingtwo
Budgeted sales in units 62,000 46,000
Add target finished goods inventories,
December 31, 2014 26,000 14,000
Total requirements 88,000 60,000
Deduct finished goods inventories,
January 1, 2014 21,000 13,000
Units to be produced 67,000 47,000

4. Sabat Corporation
Direct Materials Purchases Budget (in quantities) for 2014

Direct Materials
A B C
Direct materials to be used in production
Thingone (budgeted production of 67,000
units times 5 lbs. of A, 3 lbs. of B) 335,000 201,000 --
Thingtwo (budgeted production of 47,000
units times 6 lbs. of A, 4 lbs. of B, 2 lb. of C) 282,000 188,000 94,000
Total 617,000 389,000 94,000
Add target ending inventories, December 31, 2014 40,000 35,000 12,000
Total requirements in units 657,000 424,000 106,000
Deduct beginning inventories, January 1, 2012 37,000 32,000 10,000
Direct materials to be purchased (units) 620,000 392,000 96,000

5. Sabat Corporation
Direct Materials Purchases Budget (in dollars) for 2014

Budgeted Expected
Purchases Purchase
(Units) Price per unit Total
Direct material A 620,000 11 6,820,000
Direct material B 392,000 6 2,352,000
Direct material C 96,000 5 480,000
Budgeted purchases 9,652,000

6. Sabat Corporation
Direct Manufacturing Labor Budget (in dollars) for 2014

Direct
Budgeted Manufacturing Rate
Production Labor-Hours Total per
(Units) per Unit Hours Hour Total
Thingone 67,000 3 201,000 11 2,211,000
Thingtwo 47,000 4 188,000 14 2,632,000
Total 4,843,000

7. Sabat Corporation
Budgeted Finished Goods Inventory
at December 31, 2014
Thingone:
Direct materials costs:
A, 5 pounds 11 55
B, 3 pounds 6 18 73
Direct manufacturing labor costs,
3 hours 11 33
Manufacturing overhead costs at 19 per direct
manufacturing labor-hour (3 hours 19) 57
Budgeted manufacturing costs per unit 163
Finished goods inventory of Thingone
163 26,000 units 4,238,000
Thingtwo:
Direct materials costs:
A, 6 pounds 11 66
B, 4 pounds 6 24
C, 2 each 5 10 100
Direct manufacturing labor costs,
4 hours 14 56
Manufacturing overhead costs at 19 per direct
manufacturing labor-hour (4 hours 19) 76
Budgeted manufacturing costs per unit 232
Finished goods inventory of Thingtwo
232 14,000 units 3,248,000
Budgeted finished goods inventory, December 31, 2014 7,486,000

8. The CEO would want to ask the production manager why the target ending inventories have increased. Could production be more closely tailored to demand? Could the efficiency and productivity of direct materials and direct manufacturing labor be increased? Could direct materials inventory be reduced?

9. Preparing a budget helps Saadi Corporation manage costs based on revenues and production needs, look for opportunities to increase efficiencies, reduce costs, particularly in areas where costs are high, coordinate and communicate across different parts of the organization, create a framework for judging performance and facilitating learning, and motivate managers and employees to achieve stretch targets of higher revenues and lower costs.