Exc-01: Production Budget: Popular boomerang for the next four months as follows:

Month: Sales in unit:

April 50,000
May 75,000
June 90,000
July 80,000

The company is now in process of preparing a production budget for the second quarter. Past
experience has shown that end-of-month inventory levels must be equal 10% of the following
months sales. The inventory at the end of March was 5,000 units.

Required: Prepare a production budget for the second quarter; in your budget show the
number of units to be produced each month & for the quarter in total.

Exercise – 1 ( Solution )
Down Under Product Ltd.
April May June Quarter In Total
Particulars

Budget Sales In Unit 50,000 75,000 90,000 21,5,000

(+) Desired Ending 7,500 9,000 8,000 8,000
Inventory
Total Needs 57,500 84,000 98,000 2,23,000
(-) Beginning Inventory 5,000 7,500 9,000 5,000

Required Production 52,500 76,500 89,000 2,18,000

Production Budget
Exc-02: Direct materials budget: Four grams of musk oil are required for each bottle of mink
cares, a very popular perfume made by a small company in western Siberia. The cost of the
musk oil is 157 roubles per kilogram (Siberia is located in Russia, whose currency is the
rouble). Budgeted production of mink caress is given below by quarters for Year-2 and for
the first quarter of Year-3.
Year-2 quarter Year-3 quarter
First Second Third Fourth First
First Budgeted production in bottles 70,000 90,000 1,50,000 1,00,000 75,000
Musk oil has become so popular as a perfume ingredient that it has become necessary to carry
large inventories as a precaution against stock-outs. For this reason, the inventory of musk oil
at the end of a quarter must be equal to 25% of the following quarter’s production needs.
Some 38,000 grams of to musk oil will be on hand to start the first quarter of Year-2.

Required: Prepare a direct materials budget for musk oil, by quarter & in total for year 2. At
the bottom of your budget, show the amount of purchases in roubles for each quarter & for
the year in total.

Exercise – 2 ( Solution)
( Direct Materials Budget )
Working
Year –2 Quarter Year –3 Quarter
Particulars 1st
2 nd
3 rd
4th
1st
Required Production In 70,000 90,000 1,50,000 1,00,000 75,000
Bottles
(x) Number 4 4 4 4 4
Of Grams Per Bottles
Total Production Need 2,80,000 3,60,000 6,00,000 4,00,000 3,00,000
Grams
 Direct Materials Budget
Year –2 Quarter
Particulars 1st
2nd 3rd 4th Year In
Total
Production Needs Grams (above) 2,80,000 3,60,000 6,00,000 4,00,000 16,40,000
(+) Desired Ending Inventory 90,000 1,50,000 1,00,000 75,000 75,000
Total Needs Grams 3,70,000 5,10,000 6,00,000 4,75,000 17,15,000
(-) Beginning Inventory Grams 38,000 90,000 1,50,000 1,00,000 38,000
Raw Materials To Be Purchased 3,32,000 4,20,000 4,50,000 3,75,000 16,77,000
Grams
Cost Of Raw Materials To Be 3,32,000 4,20,000 4,50,000 3,75,000 16,77,000 /
purchased At 150 Roubles Per /1000x157 /1000x157 /1000x157 /1000x157 1000x157
Kilograms =50,240 =65,940 =70,650 =58,875 =2,63,289
Rouble Rouble Rouble Rouble Rouble

Exc-3: Direct Labor Budget: The production department of Rordan Corporation has
submitted the following forecast of units to be produced by quarter for the upcoming fiscal
year:

Particulars 1st Quarter 2nd Quarter 3rd Quarter 4th

Quarter
Units to be produced 8,000 6,500 7,000 7,500
Each unit requires 0.40 direct labor-hours and direct laborers are paid $12.00 per hour.
Required:
i) Construct the company’s direct labor budget for the upcoming fiscal year, assuming that
the direct labor work force is adjusted to match the number of hours required to be produced
the forecasted number of units produced.
ii) Construct the company’s direct labor budget for the upcoming fiscal year, assuming that
the direct labor work force is not adjusted each quarter. Instead, assume that the company’s
direct labor work force consists of permanent employees who are guaranteed to be paid for at
least 2,600 hours of work each quarter. If the number of required direct labor-hours is less
than this number, the workers are paid for 2,600 hours anyway. Any hours worked in excess
of 2,600 hours in a quarter are paid at the rate of 2 times the normal hourly rate for direct
labor.
 Exercise-3 ( Solution)
( Direct Labor Budget)
Requirement –i :
Assuming that the direct labor work force is adjusting each quarter, the direct labor budget
would be :
Particulars 1st 2nd 3rd 4th Year
In Total
Units To BE Produced 8,000 6,500 7,000 7,500 29,000
(x) Direct Labor Time per Unit 0.65 0.35 0.35 0.35 0.35
(Hours)
Total Direct Labor Hours 2,800 2,275 2,450 2,625 10,150
Needs
(x) Direct Labor Cost Per $12 $12 $12 $12 $12
Hours
Total Direct Labor Costs $33,600 $27,300 $29,400 $31,500 $1,21,800

Requirement –ii:
Assuming thar the direct labor workforce is not Adjusted each quarter and the overtime
wages are paid ,the direct labor budget would be-
Particulars 1st 2nd 3rd 4th Year
In Total
Units To Be Produced 8,000 6,500 7,000 7,500 29,000
(x) Direct Labor Time Per Unit 0.35 0.35 0.35 0.35 0.35
(Hours)
Total Direct Labor Hours 2,800 2,275 2,450 2,625 10,150
Needed
Regular Hours Paid 2600 2600 2600 2600 10400
Overtime Hours Paid 200 ---- ---- 25 225
Wages For Regular Hours $31,200 $31,200 $31,200 $31,200 $1,2,800
(2600x$12)
Overtime Wages 3600 ---- ---- 450 4,025
[$12 Per Hours x 1.5 Times]
Total Direct Labor Costs $34,800 $31,200 $31,200 $31,6250 $1,28,850
Exc-4: Manufacturing Overhead Budget: The direct labor budget of Yuvwell Corporation for
the upcoming fiscal year contains the following details concerning budgeted direct labor
budget:

Particulars 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter

Budgeted direct labor hours 8,000 8,200 8,500 7,800
The company’s variable manufacturing overhead rate is $3.25 per direct labor hour and the
company’s fixed manufacturing overhead is $48,000 per quarter. The only non-cash item
included in the fixed manufacturing overhead is depreciation, which is $16,000 per quarter.
Required:
i) Construct the company’s manufacturing overhead budget for the upcoming fiscal year
ii) Compute the company’s manufacturing overhead rate (including both variable and fixed
manufacturing overhead) for the upcoming fiscal year. Round off to the nearest whole cent.

Exercise – 4 ( Solution )
Requirement i :
Yuvwell Corporation
Manufacturing Overhead Budget
Particulars 1st 2nd 3rd 4th Year In
Total
Budgeted Direct Labor Hours 8,000 8,200 8,500 7,800 32,500
Variable Overhead Rate 3.25 3.25 3.25 3.25 3.25
Variable Manufacture Overhead $26,000 $26,650 $27,625 $25.350 $1,05,625
(+) Fixed Manufacture Overhead 48000 48000 48000 48000 1,92,000
Total Manufacturing Overhead $74,000 $74,650 $75,625 $73,350 $2,07,625

(-) Depreciation 16000 16000 16000 16000 64,000

Cash Disbursements For $58,000 $58,650 $59,625 $57,350 $2,33,625
Manufacture Overhead
 Requirement – ii :

Particulars Amounts

Total Budgeted Manufacturing Overhead For The Year $2,97,625

(a)
(/) Total Budgeted Direct Labor Hours For The Year (b) 32,500

Manufacturing Overhead Rate For The Year [a/b] $9.16

Exc-5: Selling & Administrative Expense Budget: The budgeted unit sales for Weller
Company for the upcoming fiscal year are provided below:
Particulars 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
Budgeted unit sales 15,000 16,000 14,000 13,000
The company’s variable selling and administrative expense per unit is $2.50. Fixed selling
and administrative expenses include advertising expense of $8,000 per quarter, executive
salaries of Tk.30,000 per quarter and depreciation of $20,000 per quarter. In addition, the
company will make insurance payments of $5,000 in the first quarter and $5,000 in third
quarter. Finally, property taxes of Tk8,000 will be paid in the second quarter.
Required: Prepare the company’s selling and administrative expense budget for the upcoming
fiscal year.
 Exercise – 5 : ( Solution )
Weller Company
Selling And Administration Expense Budget

Particulars 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter Year
In Total
Budgeted Unit Sales 15,000 16,000 14,000 13,000 58,000

Variable Expenses :
Variable Selling & $2.50 $2.50 $2.50 $2.50 $2.50
Administrative Expenses Per
Unit
Total Variable Expenses (a) $37,500 $40,000 $35,000 $32,500 $1,45,000
Fixed Expenses :

Advertising 8,000 8,000 8,000 8,000 32,000

Executive Salaries 35,000 35,000 35,000 35,000 1,40,000
Insurance 5,000 ------ 5,000 ------ 10,000
Property Taxes ---- 8,000 ----- ------ 8,000
Depreciation 20,000 20,000 20,000 20,000 80,000
Total Fixed Expenses (b) 68,000 71,000 68,000 63,000 2,70,000

Total Selling & Administrative 1,05,500 1,11,000 1,03,000 45,500 4,15,000

Expenses
[a + b]
(-) Depreciation 20,000 20,000 20,000 20,000 80,000
Cash Disbursement For $85,000 $91,000 $89,000 $75,500 $3,35,000
Selling & Administrative
Expenses

Exc-6: Direct Materials and Direct Labor Budget: The production department of Zan
Corporation has submitted following forecast of units to be produced by quarter for the
upcoming fiscal year:
Particulars 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
Units to be produced 5,000 8,000 7,000 6,000
In addition, the beginning raw materials inventory for the 1st Quarter is budgeted to be 6,000
grams and the beginning accounts payable for the 1st Quarter is budgeted to be $2,880. Each
unit requires 8 grams of raw material that costs $1.20 per gram. Management desires to end
each quarter with an inventory of raw materials equal to 25% of the following quarter’s
production needs. The desire ending inventory for the 4th Quarter is 8,000 grams.
Management plans to pay for 60% of raw materials purchases in the quarter acquired and
40% in the following quarter. Each unit requires 0.20 direct labor-hour and direct laborers are
paid $11.50 per hour.
Required:
i) Prepare the company’s direct materials budget and schedule of expected cash
disbursements for materials for the upcoming fiscal year.
ii) Prepare the company’s direct labor budget for the upcoming fiscal year, assuming that the
direct labor workforce is adjusted each quarter to match the number of hours required to
produce the forecasted number of units produced.

Exercise _ 6: Requirement- I : (Solution)

Zan Corporation
Direct Materials Budget
Particulars 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter Year
In
Total
Required Production 5,000 8,000 7,000 6,000 26,000
(Unit)
(x) Raw Materials Per 8 8 8 8 8
Unit (Grams)
Production Needs 40,000 64,000 56,000 48,000 2,08,000
(Grams)
(+) Desired Ending 16,000 14,000 12,000 8,000 8,000
Inventory ( Grams )
Total Needs 56,000 78,000 68,000 56,000 2,16,000
(-) Beginning Inventory 6,000 16,000 14,000 12,000 6,000
Raw Materials To Be 50,000 62,000 54,000 44,000 6,000
Purchased (Grams)
Cost Of Raw Materials $60,000 $74,400 $64,800 $52,800 $2,52,000
To Be Purchased At $
1.20 Per Grams
 Schedules Of Expected Cash Disbursements For Materials
Account Payable $2,880 ____ ____ ____ 2,880
,Beginning
1st Quarter Purchased 36,000 24,000 ____ _____ 60,000
nd Quarter Purchased
2 ____ 44,640 29,760 _____ 74,400
3rd Quarter Purchased ____ ____ 38,880 25,920 64,800
4th Quarter Purchased ____ ____ _____ 31,680 31,680
Total Cash Disbursement $38,880 $68,640 $64,640 $57,600 $2,33,720
For Materials

Exercise -6 : Requirement ii :
Zan Corporation Direct Labor Budget
Particulars 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter Year
In
Total
Required Production (Unit) 5,000 8,000 7,000 6,000 26,000
(x) Direct Labor Hours Per 0.20 0.20 0.20 0.20 0.20
Unit
Total Direct Labor Hours 10,000 16,000 14,000 12,000 52,,000
Needs
(x) Direct Labor Cost Per 11.50 11.50 11.50 11.50 11.50
Hours
Total Direct Labor Cost $11,500 $18,400 $16,100 $13,80 $59,800
0