ACCOUNTING-Scot Company plans to sell 400,000 units of finished product in July 20×1

Assignment
6
Profit Planning

(Note: choose between 1 and 2. On the other hand 3 is
compulsory)

1. Scot Company plans to sell 400,000 units of finished
product in July 20×1. Management (1)
anticipates a growth rate in sales of 5% per month thereafter and (2) desires a
monthly ending finished-goods inventory (in units) of 80% of the following
month’s estimated sales. There are
300,000 completed units in the June 30, 20×1 inventory.

Each unit
of finished product requires four pounds of direct material at a cost of $1.50
per pound. There are 1,600,000 pounds of
direct material in inventory on June 30, 20×1.

Required:
A. Prepare a production budget for the quarter ended September
30, 20×1. Note: For both part
“A” and part “B” of this problem, prepare your budget on a
quarterly (not monthly) basis.
B. Independent of your answer to part “A,” assume
that Scot plans to produce 1,200,000 units of finished product for the quarter
ended September 30. If the firm desires
to stock direct materials at the end of this period equal to 25% of current
production usage, compute the cost of direct material purchases for this
quarter.

2. Jacobs manufactures two products: A and B. The firm predicts a sales volume of 10,000
units for product A and ending finished-goods inventory of 2,000 units. These numbers for product B are 12,000 and
3,000, respectively. Jacobs currently
has 7,000 units of A in inventory and 9,000 units of B.

The
following raw materials are required to manufacture these products:

Required for Product

Raw Material

Cost per Pound

A

B

X

$2.00

2 pounds

Y

2.50

1 pound

1 pound

Z

1.25

3 pounds

Product A
requires three hours of cutting time and two hours of finishing time; B
requires one hour and three hours, respectively. The direct labor rate for cutting is $10 per
hour and $18 per hour for finishing.

Required:
A. Prepare a production budget in units.
B. Prepare a materials usage budget in pounds and dollars.
C. Prepare a direct labor budget in hours and dollars for
product A.

3. Tara Company has the following historical collection
pattern for its credit sales:

70% collected in month of sale
15% collected in the first month
after sale
10% collected in the second month
after sale
4% collected in the third month
after sale
1% uncollectible

Budgeted
credit sales for the last six months of 20×1 follow.

July

$30,000

August

35,000

September

40,000

October

45,000

November

50,000

December

42,500

Required:
A. Calculate the estimated total cash collections during
October.
B. Calculate the estimated total cash collections during the
year’s fourth quarter.