Langer Company produces plastic items, including plastic housings for humidifiers. Each housing requires about $15$ ounces of plastic costing $\$ 0.08$ per ounce. Langer molds the plastic into the proper shape. Langer has budgeted production of the housings for the next $4$ months as follows:

$$\begin{array}{lc} & \text{ Units } \\ \hline \text{ July } & 3,500 \\ \text{ August } & 4,400 \\ \text{ September } & 4,900 \\ \text{ October } & 6,300 \end{array}$$

Inventory policy requires that sufficient plastic be in ending monthly inventory to satisfy $20 \%$ of the following month's production needs. The inventory of plastic at the beginning of July equals exactly the amount needed to satisfy the inventory policy.

Prepare a direct materials purchases budget for July, August, and September, showing purchases in units and in dollars for each month and in total.

Kailua and Company is a legal services firm. All sales of legal services are billed to the client (there are no cash sales). Kailua expects that, on average, 20% will be paid in the month of billing, 50% will be paid in the month following billing, and 25% will be paid in the second month following billing. For the next 5 months, the following sales billings are expected:

$$\begin{array}{lr} \text { May } & \$ 84,000 \\ \text { June } & 100,800 \\ \text { July } & 77,000 \\ \text { August } & 86,800 \\ \text { September } & 91,000 \end{array}$$

Prepare a schedule showing the cash expected in payments on accounts receivable in August and in September.

Which of the following is not an advantage of participative budgeting?

a. It encourages budgetary slack.
b. It tends to lead to a higher level of performance.
c. It fosters a sense of responsibility.
d. It encourages greater goal congruence.
e. It fosters a sense of creativity in managers.

Oliver’s Bistro provided the following information for the month of October:

a. Sales are budgeted to be $395,000. About 80% of sales is cash; the remainder is on account.
b. Oliver’s Bistro expects that, on average, 70% of credit sales will be paid in the month of sale, and 28% will be paid in the following month.
c. Food and supplies purchases, all on account, are expected to be$285,000. Oliver pays 35% in the month of purchase and 65% in the month following purchase.
d. Most of the work is done by Oliver and his wife, who typically withdraw $18,500 a monthfrom the business as their salary. (Note: The$18,500 is a payment in total to the two owner s, not per person.) Various part-time workers cost $29,300 per month. They are paid for their work weekly, so on average 90% of their wages is paid in the month incurred and the remaining 10% in the next month.
e. Utilities and insurance average$8,750 per month. Rent on the building is $14,000 per month.
f. In September, a freezer had to be replaced for$39,000. That amount is due in total in October.
g. September sales were $390,000, and purchases of food and supplies in September equaled$275,000.
h. The cash balance on October 1 is $1,916.

1. Calculate the cash receipts expected in October. (Hint: Remember to include both cash sales and payments from credit sales.)

2. Calculate the cash needed in October to pay for food purchases.

3. Prepare a cash budget for the month of October.

Pilsner Inc. purchases raw materials on account for use in production. The direct materials purchases budget shows the following expected purchases on account:

$$\begin{array}{lr}\text { April } & \$ 374,400 \\ \text { May } & 411,200 \\ \text { June } & 416,000\end{array}$$

Pilsner typically pays $25 \%$ on account in the month of billing and $75 \%$ the next month.

1. How much cash is required for payments on account in May?

2. How much cash is expected for payments on account in June?

Weiland and Company is a medical billing services firm. All sales of billing services are billed to the client (there are no cash sales). Weiland expects that, on average, $15 \%$ will be paid in the month of billing, $40 \%$ will be paid in the month following billing, and $42 \%$ will be paid in the second month following billing. For the next $5$ months, the following sales billings are expected:

$$\begin{array}{lr}\text { May } & \$ 184,000 \\ \text { June } & 192,000 \\ \text { July } & 207,000 \\ \text { August } & 175,000 \\ \text { September } & 164,000\end{array}$$

Prepare a schedule showing the cash expected in payments on accounts receivable in August and in September.

Tulum Inc. makes a Mexican chocolate mix sold in 4-pound boxes. Planned production in units for the first 3 months of the coming year is:

$$\begin{array}{ll} \text{January}&24,700\\ \text{February}&20,000\\ \text{March}&30,200\\ \end{array}$$

Each box requires 4.2 pounds of chocolate mix and one box. Company policy requires that ending inventories of raw materials for each month be 10% of the next month’s production needs. That policy was met for the ending inventory of December in the prior year. The cost of 1 pound of chocolate mix is $1.50. The cost of one box is$0.10. (Note: Round all unit amounts to the nearest unit. Round all dollar amounts to the nearest dollar.)

1. Calculate the ending inventory of chocolate mix in pounds for December of the prior year and for January and February. What is the beginning inventory of chocolate mix for January?

2. Prepare a direct materials purchases budget for chocolate mix for the months of January and February.

3. Calculate the ending inventory of boxes for December of the prior year and for January and February.

4. Prepare a direct materials purchases budget for boxes for the months of January and February.

Tulum Inc. makes a Mexican chocolate mix. Budgeted direct labor hours for the first 3 months of the coming year are:

$$\begin{array}{ll} \text{January}&9,880\\ \text{February}&8,800\\ \text{March}&12,200\\ \end{array}$$

The variable overhead rate is $0.50 per direct labor hour. Fixed overhead is budgeted at$3,140 per month.

Prepare an overhead budget for the months of January, February, and March, as well as the total for the first quarter. (Note: Round all dollar amounts to the nearest dollar.)

Tulum Inc. makes a Mexican chocolate mix. In the first 4 months of the coming year, Tulum expects the following unit sales:

$$\begin{array}{ll} \text{January}&22,000\\ \text{February}&20,000\\ \text{March}&30,000\\ \text{Arpil}&31,000\\ \end{array}$$

Tulum’s policy is to have 20% of next month’s sales in ending inventory. On January 1, it is expected that there will be 1,300 boxes of the chocolate mixture on hand.

Prepare a production budget for the first quarter of the year. Show the boxes that should be produced each month as well as for the quarter in total.

Tulum Inc. makes a Mexican chocolate mix. Planned production in units for the first 3 months of the coming year is:

$$\begin{array}{ll} \text{January}&24,700\\ \text{February}&20,000\\ \text{March}&30,200\\ \end{array}$$

Each box of chocolate mix takes 0.4 direct labor hour. The average wage is $17 per hour.

Prepare a direct labor budget for the months of January, February, and March, as well as the total for the first quarter.

Tulum Inc. sells powdered Mexican chocolate to restaurants. Its basic unit is a 4-pound box of the spiced chocolate mixture. Tulum expects the following units to be sold in the first 3 months of the coming year:

$$\begin{array}{ll} \text{January}&22,000\\ \text{February}&20,000\\ \text{March}&30,000\\ \end{array}$$

The average price for a box is $20.

Prepare a sales budget for the first 3 months of the coming year, showing units and sales revenue by month and in total for the quarter.

Aqua-Pro Inc. produces submersible water pumps for ponds and cisterns. The unit sales for selected months of the year are as follows:

$$\begin{array}{lc} & \text{ Unit Sales } \\ \hline \text{ April } & 180,000 \\ \text{ May } & 220,000 \\ \text{ June } & 200,000 \\ \text{ July } & 240,000 \end{array}$$

Company policy requires that ending inventories for each month be $25 \%$ of next month's sales. However, at the beginning of April, due to greater sales in March than anticipated, the beginning inventory of water pumps is only $21,000$.

Prepare a production budget for the second quarter of the year. Show the number of units that should be produced each month as well as for the quarter in total.

Peanut Land Inc. produces all-natural organic peanut butter. The peanut butter is sold in $12$-ounce jars. The sales budget for the first $4$ months of the year is as follows:

$$\begin{array}{lcc} & \text{ Unit Sales } & \text{ Dollar Sales (\$) } \\ \hline \text{ January } & 36,000 & 108,000 \\ \text{ February } & 38,000 & 114,000 \\ \text{ March } & 41,000 & 123,000 \\ \text{ April } & 43,000 & 129,000 \end{array}$$

Company policy requires that ending inventories for each month be $25 \%$ of next month's sales. At the beginning of January, the inventory of peanut butter is $9,300$ jars.

Each jar of peanut butter needs two raw materials: $24$ ounces of peanuts and one jar set (a glass jar and lid). Company policy requires that ending inventories of raw materials for each month be $10 \%$ of the next month's production needs. That policy was met on January $1$.

1. Prepare a production budget for the first quarter of the year. Show the number of jars that should be produced each month as well as for the quarter in total.

2. Prepare separate direct materials purchases budgets for jars and for peanuts for the months of January and February.

Fresh Foods, a large restaurant chain, needs to determine if it would be cheaper to produce 5,000 units of its main food ingredient for use in its restaurants or to purchase them from an outside supplier for $12 each. Cost information on internal production includes the following:

$$\begin{array}{lcc} & \text { Total Cost } & \text { Unit Cost } \\ \hline \text { Direct materials } & \$ 25,000 & \$ 5.00 \\ \text { Direct labor } & 15,000 & 3.00 \\ \text { Variable manufacturing overhead } & 7,500 & 1.50 \\ \text { Variable marketing overhead } & 10,000 & 2.00 \\ \text { Fixed plant overhead } & \underline{30,000} & 6.00 \\ \quad \text { Total } & \underline{\$ 87,500} & \$ \$ 17.50 \\ \hline \end{array}$$

Fixed overhead will continue whether the ingredient is produced internally or externally. No additional costs of purchasing will be incurred beyond the purchase price.

1. What are the alternatives for Fresh Foods?

2. List the relevant cost(s) of internal production and of external purchase.

3. Which alternative is more cost effective and by how much?

4. Now assume that 20% of the fixed overhead can be avoided if the ingredient is purchased externally. Which alternative is more cost effective and by how much?