Renfro Company is preparing its master budget for May. Renfro’s sales budget sho
ID: 2437206 • Letter: R
Question
Renfro Company is preparing its master budget for May. Renfro’s sales budget shows expected sales for May of 100,000 units. The beginning finished goods inventory is an estimated 12,000 units and the desired ending inventory is 9,000 units. Materials are expected to be purchased at $2 per pound and each unit of product requires 3 pounds of material. Beginning and ending materials inventories are expected to be 24,000 and 20,000 pounds, respectively. Direct labor for each unit produced requires 0.5 hours at an hourly rate of $12. At $20 each, unit sales are expected to be 80,000 and 100,000 for April and May, respectively. Total sales are typically 20% for cash and 80% on credit; 30% of credit sales are collected in the month of sale, with the balance collected in the following month. Merchandise purchases are expected to be $118,000 and $226,000 for April and May, respectively. Typically, 25% of total purchases are paid for in the month of purchase with a 2% cash discount. The balance of purchases is paid for (without discount) in the following month. Required: Compute each of the following, showing all work for partial credit. 1. Number of units to be produced. 2. Cost of direct materials to be purchased. 3. Direct labor cost for May. 4. Expected cash receipts for May. 5. Expected cash payments in May for purchases.
Explanation / Answer
1. Calculation of Number of Units to be produced:
2. Calculation of Cost of direct material to be purchased:
Number of units to be produced in May = 97,000 units
Direct material required to produce one unit of finished good = 3 pounds
Direct material required to produce 97,000 units of finished goods = 97,000 units x 3 = 291,000 pounds
ADD: Estimated closing direct material = 20,000 pounds
Estimated direct material needed = 311,000 pounds
LESS: Material available in Opening inventory = 24,000 pounds
Material to be purchased duering may = 287,000 pounds
Cost of material per pound = $2 per pound
Cost of 291,000 pounds of raw material = 287,000 pounds x $2 per pound = $574,000
therefore cost of direct materials to be purchased during may = $574,000
3. Calculation of direct labor cost
Number of units to be produced during May = 97,000 units
Direct labor hours required to produce one unit = 0.5 hours
Direct labor hours required to produce 97,000 units = 97,000 x 0.5 hours = 48,500 hours
Direct labor cost per = $12
Direct labor cost for 48,500 hours = 48,500 hours x $12 = $582,000
Therefore difrect labor cost during may = $582,000
4. Calculation of Expected cash receipts during May
$1,600,000
[80,000 unitsx $20]
$2,000,000
[100,000 units x $20]
$400,000
[$2,000,000 x 20%]
$384,000
[$1,280,000 x 30%]
$480,000
[$1,600,000 x 30%]
$896,000
[$1,280,000 x 70%]
5. Calculation of expected Cash payments for purchases during May
$118,000
$226,000
$29,500
$118,000x 25%]
$56,500
[$226,000 x 25%]
$590
[29,500 x 2%]
$1,130
[56,500 x 2%]
$88,500
[$118,000 x 75%]
May Estimated sales 100,000 units Ending finished goods inventory 9,000 units Total Units required 109,000 units Less: Units available in beginning inventory 12,000 units Units to be produced 97,000 units