The East Division of Kensic Company manufactures a vital component that is used in one of Kensics

Question:

The East Division of Kensic Company manufactures a vital component that is used in one of Kensic€™s major product lines. The East Division has been experiencing some difficulty in coordinating activities between its various departments, which has resulted in some shortages of the component at critical times. To overcome the shortages, the manager of East Division has decided to initiate a monthly budgeting system that is integrated between departments.
The first budget is to be for the second quarter of the current year. To assist in creating the budget, the divisional controller has accumulated the following information:
Sales: Sales through the first three months of the current year were 30,000 units. Actual sales in units for January, February, and March, and planned sales in units over the next five months, are given below:
January (actual) . . . . . . . . 6,000
February (actual) . . . . . . . 10,000
March (actual) . . . . . . . . . 14,000
April (planned) . . . . . . . . . 20,000
May (planned) . . . . . . . . . 35,000
June (planned) . . . . . . . . . 50,000
July (planned) . . . . . . . . . 45,000
August (planned) . . . . . . . 30,000

In total, the East Division expects to produce and sell 250,000 units during the current year.
Direct Material: Two different materials are used in the production of the component. Data regarding these materials are given below:

Material No. 208 is sometimes in short supply. Therefore, the East Division requires that enough of the material be on hand at the end of each month to provide for 50% of the following month€™s production needs. Material No. 311 is easier to get, so only one-third of the following month€™s production needs must be on hand at the end of each month.
Direct Labor: The East Division has three departments through which the components must pass before they are completed. Information relating to direct labor in these departments is given below:

Direct labor is adjusted to the workload each month.
Manufacturing Overhead: East Division manufactured 32,000 components during the first three months of the current year. The actual variable overhead costs incurred during this three-month period are shown below. East Division€™s controller believes that the variable overhead costs incurred during the last nine months of the year will be at the same rate per component as experienced during the first three months.
Utilities . . . . . . . . . . . . . . . . . . . . . . $ 57,000
Indirect labor . . . . . . . . . . . . . . . . . 31,000
Supplies . . . . . . . . . . . . . . . . . . . . . 16,000
Other . . . . . . . . . . . . . . . . . . . . . . . . 8,000
Total variable overhead . . . . . . . . $112,000

The actual fixed manufacturing overhead costs incurred during the first three months was $1,170,000. The East Division has budgeted fixed manufacturing overhead costs for the entire year as follows:
Supervision . . . . . . . . . . . . . . . . . . . . . . . . . . $ 872,000
Property taxes . . . . . . . . . . . . . . . . . . . . . . . . 143,000
Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . 2,910,000
Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . 631,000
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72,000
Total fixed manufacturing overhead . . . . . . . . $4,628,000

Finished Goods Inventory. The desired monthly ending finished goods inventory is 20% of the next month€™s estimated sales. The East Division has 4,000 units in finished goods inventory on March 31.

Required:
1. Prepare a production budget for the East Division for the second quarter ending June 30. Show computations by month and in total for the quarter.
2. Prepare a direct materials budget for each type of material for the second quarter ending June 30. Again show computations by month and in total for the quarter.
3. Prepare a direct labor budget for the second quarter ending June 30. This time it is not necessary to show monthly figures; show quarterly totals only. Assume that the workforce is adjusted as work requirements change.
4. Assume that the company plans to produce a total of 250,000 units for the year. Prepare a manufacturing overhead budget for the nine-month period ending December 31. (Do not compute a predetermined overhead rate.) Again, it is not necessary to show monthlyfigures.