1.

The total required production is 968,320 units, computed as follows:

Budgeted Sales Planned Ending Inventory

(in units) (in units)
June 255,000 (300,000 85%)
July 300,000 (given)
August 312,000 (300,000 1.04)
September 324,480 (312,000 1.04) 286,840 (337,459 85%)
October 337,459 (324,480 1.04)

Sales in units:

July 300,000
August 312,000
September 324,480

Total for third

936,480
quarter
Add: Desired
ending
286,840
inventory,
September 30

Subtotal 1,223,320
Deduct:
Desired ending
255,000
inventory, June
30

Total required
968,320
production

2.

Assumed production during

640,000
third quarter (in units)
Raw-material requirements
4
per unit of product (in pounds)

Raw material required for

production in third quarter (in 2,560,000
pounds)
Add: Desired ending raw-
material inventory, September
30
(2,560,000 25%) 640,000

Subtotal 3,200,000
Deduct: Ending raw-material
790,000
inventory, June 30

Raw material to be 2,410,000

purchased during third quarter
(in pounds)
Cost per pound of raw
$ 1.65
material

Total raw-material purchases

$ 3,976,500
during third quarter

2) 1.
Cash collections in October:

Month of
Amount Collected in October
Sale
160,000
July $ 4% $ 6,400

185,000 1
August % 18,500
0
Septemb 220,000 1
% 33,000
er 5
245,000 7
October % 171,500
0

Total $ 229,400

Notice that the amount of sales on account in June, $132,500 was not needed to solve the exercise.

2.
Cash collections in fourth quarter from credit sales in fourth quarter.

Amount Collected

Month of Sale Credit October November December

Sales
October $245,000 $171,500 $ 36,750 $ 24,500
November 270,000 189,000 40,500
December 232,500 162,750

Total 171,500 225,750 $227,750

Total collections in fourth quarter from credit sales in fourth quarter $625,000

3)
1.
September: Sales ($301,200 = $150,600 2)
July: From cash sales ($133,000 = $266,000 0.5)
August: From cash sales ($99,750 = $199,500 0.5)
July: From sales on account $123,025 = ($133,000 0.7) + ($99,750 0.3)
September: From sales on account $135,345 = ($150,600 0.7) + ($99,750 0.3)

2.
Payments of accounts payable during 20x1: 53,000 = 639,000 + 266,000 85
4) 1.
Production (in units) required for the year:

Sales for the year 470,000

Add: Desired ending
finished-goods inventory 79,000
on December 31
Deduct: Beginning
finished-goods inventory 93,000
on January 1

Required production
456,000
during the year

2.
Purchases of raw material (in units), assuming production of 510,000 finished units:

Raw material
required for
2,040,000
production (510,000
4)
Add: Desired ending
inventory on 45,000
December 31
Deduct: Beginning
inventory on January 38,000
1

Required raw-
material purchases 2,047,000
during the year

5)

WHITE MOUNTAIN FURNITURE SHOWROOM

Expected Cash Collections
November

Month

September
October
November
Total
WHITE MOUNTAIN FURNITURE SHOWROOM
Expected Cash Disbursements
November
October purchases to be paid in November
Less: Cash discount
Net
Cash disbursements for expenses
Total

WHITE MOUNTAIN FURNITURE SHOWROOM

Expected Cash Balance
November 30
Balance, November 1
Add: Expected collections
Less: Expected disbursements
Expected balance

Cash discount : 49,000 3% = $1,470

6) 1.
Budgeted cash collections for December:

Month
of Sale Collections in December
500,0
Novem
$ 00 % $ 190,000
ber
38
540,0
Decem
00 % 324,000
ber
60

Total
cash
$ 514,000
collectio
ns

2.
Budgeted income (loss) for December:
 Sales
$ 540,000
revenue
Less:
Cost of
goods 432,000
sold (80%
of sales)

Gross
margin
$ 108,000
(20% of
sales)
Less:
Operating
expenses:

Bad
debts
$ 10,800
expense
(2% of
sales)

Depreciat
ion 38,500
($462,000
/12)

Other 46,200
expenses

Total
95,500
operating
expenses

Income
before $ 12,500
taxes

3.
Projected balance in accounts payable on December 31:

The December 31 balance in accounts payable will be equal to December's purchases of merchandise.
Since the store's gross margin is 20 percent of sales, its cost of goods sold must be 80 percent of sales.

Cost of
Goods
Month Sales Sold Amount Purchased in December
Decembe 540,00 432,00 432,00
$ $ $ % $ 86,400
r 0 0 0 20
500,00 400,00 400,00
January % 320,000
0 0 0 80

Total $ 406,400
December
purchases

Therefore, the December 31 balance in accounts payable will be $406,400.

7)

rofessional services in June:

One-hour visits 1,000 hours
Half-hour visits 2,000 hours
Total direct professional labor 3,000 hours
Hourly rate for dental associates $95

Total direct professional labor cost $285,000

Half-hour visits
Billing rate
Total billings for half-hour visits
One-hour visits
Billing rate
Total billings for one-hour visits
Total billings during month
Percentage of month's billings collected during June
Collections during June
Total collections in June

Direct professional labor budget for the month of June:

Office visits per month = 60,000/12 = 5,000
One-hour visits = (20% 5,000 1 hour) = 1,000 hours
Half-hour visits = (80% 5,000 1/2 hour) = 2,000 hours

2.
Cash collections during June:
May
Half-hour visits = (5,000 80%) = 4,000
One-hour visits = (5,000 20%) = 1,000

June
Half-hour visits = (5,000 80%) = 4,000
One-hour visits = (5,000 20%) = 1,000
Total collections in June = ($37,500 + $337,500) = $375,000

3.
Overhead and administrative expense budget for June:
Patient registration and records = (5,000 visits $3.40 per visit) = $17,000
Other overhead and administrative expenses = (3,000 hours $6.30 per hour) = 18,900

8) 1.
Schedule of cash collections:
Collection of accounts receivable: $245,000 20% = $49,000
Collection of January sales ($610,000): 60% in January; 35% in February = $366,000; $213,500
Collection of February sales ($700,000): 60% in February; 35% in March = $420,000; $245,000
Collection of March sales ($715,000): 60% in March = $429,000

2.
Schedule of cash disbursements:
Payment of January purchases ($430,000): 70% in January; 30% in February = $301,000; $129,000
Payment of February purchases ($460,000): 70% in February 30% in March = $322,000; $138,000
Payment of March purchases ($580,000): 70% in March = $406,000

3.
Loan interest paid in February: $77,000 9% 2/12 = $1,155

9) 1.
Niagra Chemical Companys production budget (in gallons) for the three products for 20x2 is calculated
as follows:

Yarex Darol Norex

Sale
s for 139,000 99,000 69,000
20x2
Add:
Invent
ory,
12/31
/x2
(
0.06

20x3
sales) 8,940 5,340 4,740

Total
requir 147,940 104,340 73,740
ed
Ded
uct:
Invent
ory,
12/31
/x1
(
0.06

20x2
sales) 8,340 5,940 4,140

Req 139,600 98,400 69,600

uired
produ
ction
in
20x2

2.
The companys conversion cost budget for 20x2 is shown in the following schedule:

Conversio
n hours
required:
Yarex
(139,600 9,772
0.07)
Darol
(98,400 9,840
0.10)
Norex
(69,600 11,136
0.16)

Total hours 30,748

Conversio
n cost
budget $ 614,960
(30,748
$20)

3.

Since the 20x1 usage of Islin is 415,000 gallons, the firms raw-material purchases budget (in dollars) for
Islin for 20x2 is as follows:

Quantity of Islin required for

production in 20x2 (in gallons):
Yarex (139,600 1.4) 195,440
Darol (98,400 1.1) 108,240
Norex (69,600 0.9) 62,640

Subtotal 366,320
Add: Required inventory,
54,948
12/31/x2 (366,320 0.15)

Subtotal 421,268
Deduct: Inventory, 1/1/x2
62,250
(415,000 0.15)

Required purchases (gallons) 359,018

 Purchases budget (359,018
$ 1,795,090
gallons $5 per gallon)

4.
The company should continue using Islin, because the cost of using Philin is $304,824 greater than using
Islin, calculated as follows:

Change in material cost

from substituting Philin for
Islin:
20x2 production
requirements:
Philin (366,320 $5
$ 2,197,920
1.2)
Islin (366,320 $5) 1,831,600

Increase in cost of raw

$ 366,320
material

Change in conversion
cost from substituting
Philin for Islin:
Philin (30,748 $20
$ 553,464
0.9)
Islin (30,748 $20) 614,960

Decrease in conversion
$ (61,496)
cost

Net increase in
$ 304,824
production cost