Livingston, Padden, & Company (LPC) makes specialized compact discs that are used for high-density data storage. LPC forecasts an increase of 300 units per month in sales for the first two quarters of the year. The following data are available for the company:

Expected sales in units:

January. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,200 discs

February . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3,500 discs

March . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,800 discs

April . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ..4,100 discs

Selling price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $9.00 per disc

Beginning accounts receivable balance, January 1 . . . . . . . . . . . . . . . . . . . . $9,500.00

Beginning direct materials inventory, January 1 . . . . . . . . . . . . . . . . . . . . . . . . . 1,500 ounces*

Beginning finished goods inventory, January 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . 600 discs*

Desired direct materials inventory, March 31 . . . . . . . . . . . . . . . . . . . . . . .. . . . 2,050 ounces

Desired finished goods inventory, March 31 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 820 discs

Standard direct materials needed per disc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 ounces

Standard direct labor time per finished product . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 minutes

Standard direct materials cost per ounce . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $0.40

Standard direct labor cost per hour . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $20.00

* The beginning inventory numbers for January were based on the best estimate of January sales in December. The expectations changed in

January, and the new expected sales numbers should be used to estimate beginning inventory on hand for February and March.

Additional information:

• Of a month’s sales, 60% is collected by month-end; the remaining 40% is collected the following month.

• The desired finished goods inventory each month is 20% of the next month’s sales.

• The desired direct materials inventory every month is 10% of next month’s production needs.

Required:

1. Using the standard costs for making the discs, prepare the following:

a. Sales budgets for January, February, and March (in dollars).

b. Cash collections budgets for January, February, and March (in dollars). Assume that all sales are on credit.

c. Production budgets for January, February, and March (in units).

d. Direct materials usage budgets for January, February, and March (in ounces).

e. Direct materials purchases budgets for January, February, and March (in ounces).

f. Direct labor budgets for January, February, and March (in dollars).

2. Assume that actual usage of direct materials to make the discs was 41⁄2 ounces at a cost of $0.50 per ounce.

Compute the materials price and quantity variances for each month (compute the quantity variance based on the amount of direct materials used).

3. Assume that actual labor costs to make the discs were 5 minutes of labor at a cost of $22 per hour. Compute labor rate and efficiency variances for each month. (Note: Round calculations to the nearest whole dollar.)

4. Assume that LPC is able to make the discs at the standard costs for materials and labor and that the standard fixed costs per month are $15,000 (there are no variable overhead costs). How many compact disks (CDs) will LPC need to sell each month in order to break even? If LPC raised its price per CD from $9 to $10, how many CDs will need to be sold in order to break even?

5. Assuming again that LPC is able to make the discs at its standard costs, if sales decrease by 500 discs during the three months at the increased price of $10 per disc, should LPC raise its price?