Comprehensive Budget Problem
Tina’s Fine Juices is a bottler of orange juice located in theNortheast. The company produces bottled orange juice from fruitconcentrate purchased from suppliers in Florida, Arizona, andCalifornia. The only ingredients in the juice are water andconcentrate. The juice is blended, pasteurized, and bottled forsale in 12-ounce plastic bottles. The process is heavily automatedand is centered on five machines that control the mixing andbottling of the juice. The amount of labor required is very smallper bottle of juice. The average worker can process 10 bottles ofjuice per minute, or 600 bottles per hour. The juice is sold by anumber of grocery stores under their store brand name and insmaller restaurants, delis, and bagel shops under the name ofTina’s Fine Juices. Tina’s has been in business for several yearsand uses a sophisticated sales forecasting model based on previoussales, expected changes in demand, and economic factors affectingthe industry. Sales of juice are highly seasonal, peaking in thefirst quarter of the calendar year.
Forecasted sales for the last two months of 2012 and all of 2013are as follows:
Following is some other information that relates to Tina’s FineJuices:
Juice is sold for $1.05 per 12-ounce bottle, in cartons thathold 50 bottles each.
Tina’s Fine Juices tries to maintain at least 10 percent of thenext month’s estimated sales in inventory at the end of eachmonth.
The company needs to prepare two purchases budgets: one for theconcentrate used in its orange juice and one for the bottles thatare purchased from an outside supplier. Tina’s has determined thatit takes 1 gallon of orange concentrate for every 32 bottles offinished product. Each gallon of concentrate costs $4.80. Tina’salso requires 20 percent of next month’s direct material needs tobe on hand at the end of the budget period. Bottles can bepurchased from an outside supplier for $0.10 each.
Factory workers are paid an average of $15 per hour, includingfringe benefits and payroll taxes. If the production scheduledoesn’t allow for full utilization of the workers and machines, oneor more workers are temporarily moved to another department.
Most of the production process is automated, the juice is mixedby machine, and machines do the bottling and packaging. Overheadcosts are incurred almost entirely in the mixing and bottlingprocess. Consequently, Tina’s has chosen to use a plantwide costdriver (machine hours) to apply manufacturing overhead toproducts.
Variable overhead costs will be in direct proportion to thenumber of bottles of juice produced, but fixed overhead costs willremain constant, regardless of production. For budgeting purposes,Tina’s separates variable overhead from fixed overhead andcalculates a predetermined overhead rate for variable manufacturingoverhead costs.
Variable overhead is estimated to be $438,000 for the year, andthe production machines will run approximately 8,000 hours at theprojected production volume for the year (4,775,000 bottles).Therefore, Tina’s predetermined rate for variable overhead is$54.75 per machine hour ($438,000 ÷ 8,000 machine hours).Tina’s has also estimated fixed overhead to be $1,480,000 per year($123,333 per month), of which $1,240,000 per year ($103,333 permonth) is depreciation on existing property, plant, andequipment.
All of the company’s sales are on account. On the basis of thecompany’s experience in previous years, the company estimates that50 percent of the sales each month will be paid for in the month ofsale. The company also estimates that 35 percent of the month’ssales will be collected in the month following sale and that 15percent of each month’s sales will be collected in the second monthfollowing sale.
Tina’s has a policy of paying 50 percent of the direct materialpurchases in the month of purchase and the balance in the monthafter purchase. Overhead costs are also paid 50 percent in themonth they are incurred and 50 percent in the next month.
Selling and administrative expenses are $100,000 per month andare paid in cash as they are incurred.
Required:
Enter all amounts as positive numbers. When required, roundamounts to two decimal places, unless otherwise directed.
A. Prepare a sales budget for the first quarterof 2013.
Sales Budget:
January
February
March
1st Qtr
Proj. sales (bottles)
x price per unit
x
$
x
$
x
$
x
$
Proj. sales ($)
$
$
$
$
B. Prepare a production budget for the firstquarter of 2013.
Production Budget:
December
January
February
March
April
1st Qtr
Proj. sales (bottles)
370,000
395,000
+ Proj. ending inv.
35,000
37,500
Projected needs
405,000
432,500
– Proj. beg. inv.
-37,000
-39,500
Proj. prod’n (bottles)
368,000
393,000
C. Prepare a purchases budget for the firstquarter of 2013. Do not round price per gallon and round your otheranswers to the nearest dollar.
Material PurchasesBudget-Concentrate:
December
January
February
March
April
1st Qtr
Proj. production (bottles)
368,000
393,000
÷ 32 (bottles per gallon)
÷
32
÷
÷
÷
÷
32
÷
Raw material needed for prod’n
11,500
12,281
+ Proj. ending inventory
2,234
Projected needs
13,734
– Proj. beginning inventory
-2,300
Concentrate needed to purchase
11,434
x Price per gallon
x
$4.80
x
$
x
$
x
$
x
$
Projected purchases($)
$54,883
$
$
$
$
Material PurchasesBudget-Bottles:
December
January
February
March
April
1st Qtr
Proj. production (bottles)
368,000
393,000
+ Proj. ending inventory
71,500
Projected needs
439,500
– Proj. beginning inventory
-73,600
Bottles needed to purchase
365,900
x Price per bottle
x
$0.10
x
$
x
$
x
$
x
$
Projected purchases ($)
$36,590
$
$
$
$
D. Prepare a direct labor budget for the firstquarter of 2013. Round the direct labor hours needed for productionto three decimal places and other answers to nearest wholenumber.
Direct Labor Budget:
January
February
March
1st Qtr
Projected production (bottles)
÷ Bottles per hour
÷
÷
÷
÷
Direct labor hours needed for prod’n(Round to three decimal places.)
x Direct labor rate per hour
x
$
x
$
x
$
x
$
Projected direct labor cost
$
$
$
$
E. Prepare an overhead budget for the firstquarter of 2013.
Overhead Budget:
December
January
February
March
1st Qtr
Projected production (bottles)
368,000
÷ Bottles per hour
÷
600
÷
÷
÷
÷
Budgeted machine hours(Round amounts to three decimal places.)
613.33
x Variable overhead rate
x
$54.75
x
x
x
x
Projected variable overhead(Round amounts to the nearest dollar.)
$33,580
$
$
$
$
Projected fixed overhead
123,333
Total projected overhead
$156,913
$
$
$
$
less: Depreciation (non cash)
-103,333
Budg. cash outflows for overhead
$53,580
$
$
$
$
F. Prepare cash receipts and disbursementsbudgets for the first quarter of 2013. Round your answers to thenearest dollar.
Cash Receipts Budget:
January
February
March
1st Qtr
From November sales
$
$
From December sales
$
From January sales
$
From February sales
From March sales
Total cash receipts-sales
$
$
$
$
Cash Disbursements Budget:
January
February
March
1st Qtr
DM purchases-concentrate
December
$
$
January
$
February
$
March
DM purchases-bottles
December
January
February
March
Total disbursements for DM
$
$
$
$
Total disbursements for DL
$
$
$
$
Manufacturing overhead costs
December
January
February
March
Total disbursements for OH
$
$
$
$
Total disbursements for S&A
Total cash disbursements
$
$
$
$
2012 November December 2013 January February March May June yuly August September October November December Bottles 375,000 370,000 350,000 425,000 400,000 395,000 375,000 350,000 375,000 385,000 395,000 405,000 400,000 365,000 Show transcribed image text 2012 November December 2013 January February March May June yuly August September October November December Bottles 375,000 370,000 350,000 425,000 400,000 395,000 375,000 350,000 375,000 385,000 395,000 405,000 400,000 365,000
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