1st question:Compute a new “selling price per unit” for the East Division that will enable them to accumulate a balance of $100,000 in their cash account by the end of the second quarter. Assume that the cash balance at March 31 was $10,000.

 

2nd Question:Using the selling price per unit computed in #6 prepare a sales budget for the second quarter. Show computations by month and in total for the quarter.

 

The East Division of Kensic Company manufactures a vital component that is used in one of Kensic’s major product lines. The East Division has been experiencing some difficulty in coordinating activities between its various departments, which has resulted in some shortages of the component at critical times. To overcome the shortages, the manager of East Division has decided to initiate a monthly budgeting system that is integrated between departments.

The first budget is to be for the second quarter of the current year (April, May and June). To assist in developing the budget figures, the divisional controller has accumulated the following information.

Sales: Sales through the first three months of the current year were 30,000 units. Actual sales in units for January, February, and March, and planned sales in units over the next five months, are given below:

January (actual) 6,000

February (actual) 10,000

March (actual) 14,000

April (planned) 20,000

May (planned) 35,000

June (planned) 50,000

July (planned) 45,000

August (planned) 30,000

In total, the East Division expects to produce and sell 250,000 units during the current year.

Direct Material:Two different materials are used in production of the component. Data regarding these materials are given below:

Units of Direct Cost

Direct Materials per per Inventory at

Material Finished Component lb/ft March 31

 

No. 208 4 pounds $5.00 46,000 pounds

No. 311 9 feet 2.00 69,000 feet

Material No. 208 is sometimes in short supply. Therefore, the East Division requires that enough of the material be on hand at the end of each month to provide for 50% of the following month’s production needs. Material No. 311 is easier to get, so only one-third of the following month’s production needs must be on hand at the end of each month.

Direct Labor: The East Division has three department through which the components must past before they are completed. Information relating to direct labor in these departments is given below:

 

Direct Labor-Hours Cost per

Per Finished Direct

Department Component Labor-Hour

 

Shaping .25 $18.00

Assembly .70 16.00

Finishing .10 20.00

 

Direct labor is adjusted to the workload each month.

Manufacturing Overhead: East Division manufactured 32,000 components during the first three months of the current year. The actual variable overhead costs incurred during this three-month period are shown below. Each Division’s controller believes that the variable overhead costs incurred during the last nine months of the year will be at the same rate per component as experienced during the first three months.

 

Utilities $ 57,000

Indirect Labor 31,000

Supplies 16,000

Other 8,000

 

Total variable overhead $112,000

 

The actual fixed manufacturing overhead costs incurred during the first three months amounted to $1,170,000. The East Division has planned fixed manufacturing overhead costs for the entire year as follows:

Supervision $ 872,000

Property Taxes 143,000

Depreciation 2,910,000

Insurance 631,000

Other 72,000

 

Total fixed manufacturing

Overhead $4,628,000

Finished Goods Inventory: The desired monthly ending inventory of completed components is 20% of the next month’s estimated sales. The East Division has 4,000 units in the finished goods inventory on March 31.

Selling and Administrative Expenses: Selling and Administrative Expenses are budgeted at $400,000 per month plus 1% of total credit sales for the month.