MANAGEMENT ACCOUNTING & CONTROL

LEARNING ACTIVITY 5
BUDGET PROCESS

The following data are provided for Amolar Corporation:

a. Sales: Sales through June 30, 2019, the first 6 months of the current year, are 24,000
units. Expected sales for the full year are 60,000 units. Actual sales in units for May
and June and estimated unit sales for the next 4 months are as follows:

May 4,000
June 4,000
July 5,000
August 6,000
September 7,000
October 7,000

b. Direct Materials: At each month end, Amolar wants to have sufficient materials on
hand to produce the next month’s estimated sales. Data regarding materials are as
follows:

Direct Materials Units of Material Cost per Unit Units in Inventory,

Required June 30, 2019
101 6 Php 0.40 35,000
211 4 3.60 32,000
242 2 1.20 14,000

c. Direct Labor:

Process Hours per Unit Hourly Labor

Rate
Forming .80 P 8.00
Assembly 2.00 5.50
Finishing 0.25 6.00
d. Factory Overhead: The company produced 27,000 units during the 6-month period
through June 30, 2019 and expects to produce 60,000 units during the year. The
actual variable factory overhead costs incurred during this 6-month period are as
follows. The Controller believes that these costs will be incurred at the same rate
during the remainder of 2019.

Supplies P 59,400
Electricity 27,000
Indirect Labor 54,000
Other 21,600
Total Variable Factory Overhead P 162,000

The fixed factory overhead costs incurred during the first 6 months of 2019
amounted to Php 93,000. Fixed overhead costs are budgeted for the full year as follows:

Supervision P 60,000
Property Tax 7,200
Depreciation 66,400
Other 32,400
Total Fixed Factory Overhead P 186,000

e. Finished goods inventory: The desired monthly ending finished goods inventory in
units is 80% of the next month’s estimated sales. These are 5,600 finished units in the
June 30, 2019 inventory.

Required:
1. Prepare the production budget for the third quarter ending September 30,
2019.
2. Prepare the direct materials purchases budget for the third quarter.
3. Prepare the direct labor budget for the third quarter.
4. Prepare the factory overhead budget for the 6 months ending December 31,
2019, presenting two figures for total variable and total fixed overhead.
1.
Amolar Corporation
Budgeted Production
For the Third Quarter, July – September 30, 2019
July August September Total
Budgeted sales (units) 5,000 6,000 7,000 18,000
Add: Finished goods inventory – 4,800 5,600 5,600 5,600
ending (80%) x next month’s sale
Total goods available for sale 9,800 11,600 12,600 23,600
Less: Finished goods inventory - 5,600 4,800 5,600 5,600
beginning
Budgeted production (units) 4,200 6,800 7,000 18,000

2.
Amolar Corporation
Budgeted Direct Materials Budget
For the Third Quarter, July – September 30, 2019
Materials 101 Materials 211 Materials 242
Units to be produced 18,000 18,000 18,000
X Materials Need per Unit 6 4 2
Materials Need for Production 108,000.00 72,000.00 36,000.00
Add: Desired Ending Inventory 33,600 22,400 11,200
Total Materials Needed 141,600.00 94,400.00 47,200.00
Less: Beginning Inventory 35,000 32,000 14,000
Materials to be purchased 106,000.00 62,400.00 33,200.00
Unit Price ₱ 0.40 ₱ 3.60 ₱ 1.20
Purchase Cost ₱ 42,640.00 ₱ 224,640.00 ₱ 39,840.00
Mat. Inventory – 7/30
101 = 7,000 x 6 = 42,000 units
211 = 7,000 x 4 = 28,000 units
242 = 7,000 x 2 = 14,000 units
3.
Amolar Corporation
Budgeted Direct Labor Costs
For the Third Quarter, July – September 30, 2019
Forming Assembly Finishing Total
18,000 18,000 18,000
X Standard hours per unit 0.80 2.00 0.25
Budgeted direct labor hours 14,400 36,000 4,500 54,900
X Direct labor rate per hour ₱ 8.00 ₱ 5.50 ₱ 6.00
Total Direct Labor Cost ₱ 115,200.00 ₱ 198,000 ₱27,000 ₱340,200

4.
Amolar Corporation
Factory Overhead Budget
For the Six (6) Months ending December 31, 2019
Supplies ₱ 59,400
Electricity
Supervision 27,000
60,000
Indirect
Property tax Labor 54,000
7,200
Other
Depreciation 21,600
66,400
OtherTotal variable overhead ₱ 162,000
32,400
Total fixed Overhead (For the whole year) 166,000
Less: Fixed Factory Overhead (For the first 6 months) 93,000
Total Fixed Factory Overhead 73,000
Total Budgeted Factory Overhead ₱ 235,000