Q. 1

Max Brenner, a college student, plans to sell CD players over the internet & by mail order during the semester to help pay his expenses. He buys the players for $31 & sells them for $52. If payment by cheque accompanies the mail order (estimated to be 40% of sales), he gives 10% discount. If customers include a credit card number for either internet or mail order (estimated 30% of sales), they receive 5% discount. The remaining collections are estimated as follows:

One month following 15%
Two months following 6%
Three months following 4%
Uncollectable 5%


Sales forecast are as follows:

September 140 units
October 240 units
November 330 units
December 420 units
January Business terminated


Max plans to pay his supplier 50% in the month of purchase, and 50% in the following month. A 6% discount is granted on payments made in the month in the month of purchase. However, Max will not be able to take any discounts on the September purchases because of cashflow constraints. All September purchases will be paid for in October.

Max has 50 players on hand (purchased in August and to be paid in September), and plans to maintain enough end-of-month inventory to meet 70% of the next month’s sales.


Prepare schedules for monthly budgeted cash receipts & cash disbursements & the cash budget. During which month will Max need to finance purchases?



Q. 2

Bombera Ltd operates at capacity and makes glass-topped dining tables and wooden chairs, which are then typically sold as sets of four chairs with one table. However, some customers purchase replacement or extra chairs, and others buy some chairs or a table only, so the sales mix is not exactly 4:1. Bombera Ltd is planning its annual budget for the financial year 2018. Information for 2018 follows:

Input prices

Direct materials
Wood $5.30 per board metre
Glass $11.5 per sheet
Direct manufacturing labour $14 per direct manufacturing labour-hour
Input quantities per unit of output
Direct materials Chairs Tables
Wood 1.2 board metres 1.7 board metres
Glass — _ 2 sheets
Direct manufacturing labour 3 hours 6 hours
Machine-hours (MH) 2 MH 5 MH


Inventory information, direct materials Wood Glass
Beginning inventory 27 200 board metres 8 700 sheets
Target ending inventory 29 360 board metres 9 500 sheets


Sales and inventory information, finished goods                       


Expected sales in units 172 000 45 000
Selling price $70 $900
Target ending inventory in units 8 400 2 050
Beginning inventory in units 7 500 2 150

Chairs are manufactured in batches of 500 and tables are manufactured in batches of 50. It takes three hours to set up for a batch of chairs and two hours to set up for a batch of tables. Bombera Ltd uses activity-based costing and has classified all overhead costs as shown in the table below:


Cost type Budgeted variable Budgeted fixed Cost driver/allocation base
Materials handling $342 840 $600 000 Number of board metres used
Set-up 97 000 300 740 Set-up hours
Processing 789 250 5 900 000 Machine-hours
Marketing 2 011 200 4 500 000 Sales revenue
Distribution 54 000 380 000 Number of deliveries



Delivery trucks transport units sold in delivery sizes of 500 chairs or 500 tables.


For the year 2018:

  1. Prepare the revenues budget.
  2. Use the revenues budget to:   a. find the budgeted allocation rate for marketing costs    b.find the budgeted number of deliveries and allocation rate for distribution costs.
  1. Prepare the production budget in units.
  1. Use the production budget to: a. find the budgeted number of set-ups, set-up hours and the allocation rate for set-up costs.  b. find the budgeted total machine-hours and the allocation rate for processing costs.
  1. Prepare the direct materials usage budget and the direct materials purchases budget.
  2. Use the direct materials usage budget to find the budgeted allocation rate for materials-handling costs.
  3. Prepare the direct manufacturing labour cost budget.
  4. Prepare the manufacturing overhead cost budget for materials handling, set-up and processing.
  5. Prepare the budgeted unit cost of finished good and ending inventories budget.
  6. Prepare the cost of goods sold budget.
  7. Prepare the non-manufacturing overhead costs budget for marketing and distribution.
  8. Prepare a budgeted income statement (ignore income taxes).
  9. Compare the budgeted unit cost of a chair to its budgeted selling price. Why might Bombera Ltd continue to sell the chairs for only $70?

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