Inputs

In 2021, McKnight & Sons, a small environmental-testing firm, performed 11,800 radon tests for
each and 16,400 lead tests for 230 each. Because newer homes are being built with lead-free pipe
lead-testing volumn is expected to decrease by 9% next year. However, awareness of radon-related
health hazards is expected to result in a 11% increase in radon-test volumes each year in the near future.
Jim McKnight feels that if he lowers his price for lead testing to 215 per test, he will have to face only
5% decline in lead-test sales in 2022.

Answers

Requirement 1
Sales Budget
For the year ended Dec. 31, 2022
Selling Units sold Total
price in 2022 Revenues
Radon tests 280 13,098 3,667,440
Lead tests 230 14,924 3,432,520
Grand Total 7,099,960

Requirement 2
Sales Budget
For the year ended Dec. 31, 2022
Selling Units sold Total
price in 2022 Revenues
Radon tests 280 13,098 3,667,440
Lead tests 215 15,580 3,349,700
Grand Total 7,017,140

Should Cole lower the price of a lead test in 2022 if its goal is to maximize sales revenue?
Cole should notlower the price of a lead test in 2022 because the total budgeted sales revenue is higher
when the selling price stays the same
 radon tests for 280
e being built with lead-free pipes
awareness of radon-related
each year in the near future.
he will have to face only

s revenue is higher
 Inputs
Xander Manufacturing Company manufactures blue rugs, using woold and dye as direct materials. One rug is
budgeted to use 40 skeins of wool at a cost of 4 per skein and
of dye at a cost of 8 per gallon. All other materials are indirect. At the beginning of the year Xander
has an inventory of 462,000 skeins of wool at a cost of 1,062,600 and
cost of 25,200 Target ending inventory of wool and dye is zero. Xander uses the FIFO inventory cost flow method

There is no direct manufacturing labor cost for dyeing. Xander budgets 55 direct manufacturing labor-hour
at a budgeted rate of 15 per hour. It budgets 0.3 machine-hours to dye each skein

More info
Xander blue rugs are very popular and demand is high, but because of capacity constraints the firm will produce only
220,000 blue rugs per year. The budgeted selling price is 2,200 each. There are no rugs in beginn
Target ending inventory of rugs is also zero.

Data Table
Dyeing Weaving
Variable costs
Indirect materials 0 15,500,000
Maintenance 6,580,000 5,560,000
Utilities 7,570,000 2,480,000
Fixed costs
Indirect labor 367,000 1,810,000
Depreciation 2,120,000 280,000
Other 743,000 5,830,000
Total budgeted costs 17,380,000 31,460,000

Requirements
4. Prepare a revenues budget for blue rugs for the year, assuming Xander sells (a) 220,000
7. What actions might you take as a manager to improve profitability if sales drop to

Answers
Requirement 1
Direct Material Usage Budget in Quantity and Dolla

Wol
Physical Units Budget 8,800,000
Direct materials required for
Blue rugs
Cost budget
Available from beginning direct materials inventory
(under a FIFO cost-flow assumption)
Wool 1,062,600
Dye
To be purchased this period
Wool 33,352,000
Dye
Direct materials to be used this period 34,414,600

Requirement 2
Total Budgeted overhead costs / Direct manuf. Labor hours =
31,460,000 12,100,000

Total Budgeted overhead costs / Machine hours =

17,380,000 2,200,000

Cost per unit of Input per unit of

Requirement 3 input x output
Wool 4.00 40.00
Dye 8.00 0.75
Direct manufacturing labor 15.00 55.00
Dyeing overhead 7.90 10.00
Weaving overhead 2.60 55.00
Total

Requirement 4
Revenue Budget
Units Selling Price Total revenues
a) Blue rugs 220,000 2,200 484,000,000
b) Blue rugs 195,000 2,200 429,000,000

Requirement 5
Cost of Goods Sold Budget
220,000 units
Beginning finished goods inventory 0
Direct materials used 35,726,200
Direct manufacturing labor 181,500,000
Manufacturing overhead 48,840,000
Cost of goods manufactured 266,066,200
Cost of goods available for sale 266,066,200
Deduct ending finished goods inventory 0
Cost of goods sold 266,066,200
 0.8 gallons
ng of the year Xander
4,200 gallons of dye at a
nventory cost flow method

manufacturing labor-hours to weave a rug

ine-hours to dye each skein in the dyeing process.

will produce only

There are no rugs in beginning inventory

or (b) 195,000 blue rugs

195,000 blue rugs?

wers

dget in Quantity and Dollars

Dye Total
skeins 165,000 gal
 25,200

1,286,400
1,311,600 35,726,200

Budgeted manufacturing overhead rate

2.60

Budgeted manufacturing overhead rate

7.90

Budgeted unit
cost
160.00
6.00
825.00
79.00
143.00
1,213.00

195,000 units
0
35,726,200
181,500,000
48,840,000
266,066,200
266,066,200
30,325,000
235,741,200
 Inputs
The Takahashi Company in Japan has a division that manufactures two-wheel motorcycles. Its budgeted sales
for Model G for the year is 915,000 units. Takahashi's target ending inventory is 90,000
and its beginning inventory is 95,000 units. The company's budgeted selling price to its distributors and
dealers is 395,000 yen per motorcycle.

Takahashi buys all its wheels from an outside supplier. No defective wheels are accepted. (Takahashi's needs for
extra wheels for replacement parts are ordered by a separate division of the company.) The company's target
ending inventory is 72,000 wheels, and its beginning inventory is 56,000 wheels. The budgeted
purchase is 16,000 per wheel

Answers
Requirement 1.

The budgeted revenue for Hayashi Company is 361,425,000,000 yen

Production Budget
Budgeted unit sales 915,000
Add: Target ending finished goods inventory 90,000
Total required units 1,005,000
Deduct: Beginning finished goods inventory 95,000
Units of finished goods to be produced 910,000

Direct Material Purchases Budget

Units of finished goods to be produced 910,000
Wheels per unit 2
Wheels required 1,820,000
Target ending inventory 72,000
Total Requirements 1,892,000
Beginning inventory 56,000
Purchases to be made (in units) 1,836,000
Purchase price per wheel 16,000
Purchase price of wheels 29,376,000,000
 units
istributors and

hi's needs for

The budgeted
 Inputs
Income Statement Additional information
Equipment 7,500 1. Selling prices of equipment are expected to increase by
Maintenance contracts 2,000 10% as the economic recovery begins. The selling price
Total revenues 9500 of each maintenance contract is expected to remain unchanged
Cost of goods sold 4,400 2. Equipment sales in units are expected to increase by
Gross margin 5100 4% with a corresponding 4% growth in units of
Marketing 570 maintenance contracts.
Distribution 140 3. Cost of each unit sold is expected to increase by
Customer maintenance 1,500 to pay for the necessary technology and quality improvements
Administration 860 4. Marketing costs are expected to increase by
Total operating costs 3070 but administration costs are expected to remain at the same
Operating income 2030 2018 levels
5. Distribtuion costs vary in proportion to the number of units
of equipment sold
6. Two maintenance technicians are to be hired at a total cost
of 160,000 which covers wages and related travel
costs. The objective is to improve customer service and
shorten response time.
7. There is no beginning or ending inventory of equipment

Answers

Budgeted Income Statement

Revenues
Equipment 8,580
Maintenance contracts 2,080
Total revenues 10,660
Cost of goods sold 4,713
Gross Margin 5,947
Operating costs
Marketing 820
Distribution 146
Customer maintenance 1,660
Administration 860
Total operating costs 3,486
Operating income 2,461
increase by
he selling price
emain unchanged

growth in units of

3%
y improvements
250,000
in at the same

number of units

d at a total cost
d related travel

f equipment
 Inputs
Assumptions
1. Animal Gear does not make any sales on credit. AG sells only to the public and accepts cash and credit cards.
of its sales are to customers using credit cards, for which PT gets the cash right away less a 2%
2. Purchases of materials are on account. PT pays for half the purchases in the period of the purchase, and the other half in
the following period. At the end of March, PT owes suppliers 8,100
3. PT plans to replace a machine in April at a net cash cost of 13,800
4. Labour, other production costs, and nonproduction costs are paid in cash in the month incurred except of course, depreciati
which is not a cash flow. 22,000 of the manufacturing cost and 11,000 of the nonmanufacturing cost
is depreciation
5. PT currently has a 3,200 loan at an annual interest rate of 6% The interest is paid at the end of each mo
PT has more than 10,000 cash at the end of April it will pay back the loan. PT owes 5,200
that need to be remitted in April. PT has cash of 6,400 on hand at the end of March

Budget Information
Revenue Budget Manufacturing Overhead
Selling Total
Units Price Revenues Machine setup costs
Cat-allac 550 180 99,000 Processing costs
Dog-eriffic 290 300 87,000 Inspection costs
Total 186,000 Total

Direct Manufacturing Labour Costs Budget Nonmanufacturing Overhe

Output Hourly
units DMLH per Wage
produced unit Total Hours Rate Total Salaries
Cat-allac 570 3 1,710 8 13,680 Other fixed costs
Dog-eriffic 275 5 1,375 8 11,000 Sales commissions
Total 24,680 Total nonmanufacturing costs

Answers

Cash Budget
Cash balance, April 1 6,400
Add receipts
Cash sales 37,200
Credit card sales 145,824
Total cash available for needs 189,424
Deduc cash disbursements
Direct materials 8,100
Direct manufacturing labour 24,680
Manufacturing overhead 25,600
 Nonmanufacturing salaries 18,600
Sales commissions 1,860
Other nonmanufacturing fixed costs 18,000
Machinery purchase 13,800
Income taxes 5,200
Total disbursements 115,840
Financing
Repayment of loan 3,200
Interest on loan 16
Total effects of financing 3,216
Ending cash balance, April 30 70,368
and credit cards. 80%
transaction fee
rchase, and the other half in

red except of course, depreciation

of the nonmanufacturing cost for April

est is paid at the end of each month. If

in income taxes

Manufacturing Overhead Budget

Machine setup costs 7,000

Processing costs 51,100
Inspection costs 500
58,600

Nonmanufacturing Overhead Budget

18,600
Other fixed costs 18,000
Sales commissions 1,860
Total nonmanufacturing costs 38,460