# Accounting Test Questions

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• Published : October 29, 2010

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Question 1
a)
On January 1, 2011 the Batista Company budget committee has reached agreement on the following data for the 6 months ending June 30, 2011:
Sales units: 1st quarter – 5 000
2nd quarter – 6 000
3rd quarter – 7 000
Ending raw materials inventory – 50% of the next quarter's production requirements. Ending finished goods inventory – 30% of the next quarter's expected sales units. 3rd quarter actual production – 7 250 units

Three pounds of raw materials are required to make each unit of finished goods. Raw materials purchased are expected to cost \$4 per pound. a) Prepare a production budget by quarters for the 6-months period ended June 30, 2011. b) Prepare a direct materials budget by quarters for the 6-months period ended June 30, 2011

Solution:
a) The production budget shows the units to produce to meet anticipated sales (Weynadt, Kimmel, Kieso, 9th edition, 2010, p.1024). Production budget is calculated by adding budgeted sales units to desired ending finished goods units and subtracting beginning finished goods units and determined by the following formula: Required production units = Budgeted sales units (1st + 2nd)+ Desired Ending finished goods (1st + 2nd) units – Beginning finished goods units (1st + 2nd). Calculation of the production budget is showed in the table.1 which is posted below.

To compute the production budget we need to find each element of above mentioned formula. As we know that 1 500 units are already made in the 4st quarter 2010 which computed by multiplying 1 quarter's expected sales units to 30% = 5000 x 30% = 1 500 units. Ending finished goods for the 1st quarter is computed by multiplying 2 quarter's expected sales units to 30% = 6000 x 30% = 1 800 units. Ending finished goods for the 2st quarter is computed by multiplying 2 quarter's expected sales units to 30% = 7000 x 30% = 2 100 units. So we found the amount of ending fished goods for each quarter which are equal - 1 800 units in the 1st quarter and 2 100 in the 2nd quarter respectively. Thereby we can compute production budget units according above mentioned formula. 1st quarter = 5 000 + 1 800 – 1 500 = 5 300 units

2nd quarter = 6 000 + 2 100 – 1 8 00 = 6 300 units
Overall for 6 –month period = 5 300 + 6 300 = 11 600 units. Table.1
Period| Expected sales unit| Ending finished goods inventory (unit)| Required units production (unit) | Raw materials 1 unit x3 (pound)| Ending raw materials (pound)| 2010, 4 quarter| 0| 1 500| 0| 0| 7 950|

2011, 1 quarter| 5 000| 1 800| 5 300| 15 900| 9 450|
2011, 2 quarter| 6 000| 2 100| 6 300| 18 900| 10 875| 2011, 3 quarter| 7 000| 2 350| 7 250|  21 750|  |
Total for 6- month period| |  | 11 600|  |  |

Batista Company Production Budget
1| Batista Company|
| Production Budget|
| For the 6-month period ended June 30, 2011|
2|  | Quarter|
2| | 1| 2|
4| Expected unit sales| 5 000| 6 000|
5| Add: Ending finished goods inventory| 1 800| 2 100|
6| Total required units| 6 800| 8 100|
7| Less: Beginning finished goods inventory| 1 500| 1 800| 8| Required Production Units| 5 300| 6 300|
9| 6-month period ended June 30, 2011| 11 600|
10| | |

b) The direct materials budget shows both the quantity and cost of direct materials to be purchased (Weynadt, Kimmel, Kieso, 9th edition, 2010, p.1024). Direct materials budget is calculated by adding direct materials units required for production to desired ending direct materials units and subtracting beginning direct materials goods units and determined by the following formula: Required direct materials units = Direct materials units required for production (1st + 2nd)+ desired ending direct materials units (1st + 2nd) – beginning direct materials goods units (1st + 2nd). Calculation of the production budget is showed in the table.2 which is posted below.

Solution: To compute the direct...