ABC Company sells a single product. Each unit takes two pounds of material and costs $3.00 per pound. Company A has prepared a production budget by quarters for Year 2 and for the first quarter of Year 3, as follows: Year 2 Year 3 First Second Third Fourth First Budgeted production 30,000 60,000 90,000 100,000 50,000 The ending inventory at the end of a quarter must be equal to 25% of the following quarter’s production needs. 26,000 pounds of material are on hand to start the first quarter of Year 2. Purchases are paid for 40% in the quarter of purchase and 60% in the following quarter. Requirement a) Prepare direct materials budget for the chips by quarter and in for Year 2 in total including the dollar amount of purchases. b) Prepare cash disbursements budget for the chips by quarter and in for Year 2 in total including the dollar amount of purchases
Master Budget
A master budget can be defined as an estimation of the revenue earned or expenses incurred over a specified period of time in the future and it is generally prepared on a periodic basis which can be either monthly, quarterly, half-yearly, or annually. It helps a business, an organization, or even an individual to manage the money effectively. A budget also helps in monitoring the performance of the people in the organization and helps in better decision-making.
Sales Budget and Selling
A budget is a financial plan designed by an undertaking for a definite period in future which acts as a major contributor towards enhancing the financial success of the business undertaking. The budget generally takes into account both current and future income and expenses.
ABC Company sells a single product. Each unit takes two pounds of material and costs $3.00 per pound. Company A has prepared a production budget by quarters for Year 2 and for the first quarter of Year 3, as follows:
Year 2 Year 3
First Second Third Fourth First
Budgeted production 30,000 60,000 90,000 100,000 50,000
The ending inventory at the end of a quarter must be equal to 25% of the following quarter’s production needs. 26,000 pounds of material are on hand to start the first quarter of Year 2. Purchases are paid for 40% in the quarter of purchase and 60% in the following quarter.
Requirement
a) Prepare direct materials budget for the chips by quarter and in for Year 2 in total including the dollar amount of purchases.
b) Prepare cash disbursements budget for the chips by quarter and in for Year 2 in total including the dollar amount of purchases.
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