Davies shows the following information for the Sales Budget

Davies shows the following information for the Sales Budget for next quarter:

Month            Units           Sales

January           10,000      $200,000

February        30,000      $600,000

March             40,000      $800,000

Requirement 1: Assume Davies plans to begin January with 2,000 units and requires ending inventory to be equal to 20% of next month\'s sales. Compute the required number of units to be produced in February. Show your computations.

Requirement 2: Assume each unit requires .4 hours of labor costing $15.00 per hour. Compute the Direct Labor budget for February. Show your computations.

Requirement 3: Assume all sales are on credit. Credit sales are collected at the rate of 60% in the month of sale and 40% in the month following the sale. Accounts receivable at December, 31 is expected to be $40,000. Compute the cash collected from customers for the month of February. Show your work.

Solution

Req1: Production budgeted for Feb: Feb budgeted sale 30000 Add: Ending Inventory (40000*20%) 8000 38000 Less: Beginning inventory (30000*20%) 6000 Budgeted Production units 32000 Req 2: Labour budget for Feb: Production units budgeted 32000 Required hours per unit 4 Total labour hours 128000 Labour rate per hour 15 Budgeted labour cost in Feb in $ 1920000 Req 3: Budgeted cash collection for Feb: Collection from Jan sales (200000*40%) 80000 Collection from Feb sales (600000*60%) 360000 Budgeted cash collection for Feb: 440000