Pink Martini Corporation is projecting a cash balance of $31,000 in its December 31, 2007, balance sheet. Pink Martini’s schedule…

1) Pink Martini Corporation is projecting a cash balance of $31,000 in its December 31, 2007, balance sheet. Pink Martini’s schedule of expected collections from customers for the first quarter of 2008 shows total collections of $180,000. The schedule of expected payments for direct materials for the first quarter of 2008 shows total payments of $41,000. Other information gathered for the first quarter of 2008 is: sale of equipment $3,500; direct labor $70,000, manufacturing overhead $35,000, selling and administrative expenses $45,000; and purchase of securities $12,000. Pink Martini wants to maintain a balance of at least $25,000 cash at the end of each quarter.


Instructions Prepare a cash budget for the first quarter.

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2) Danner Farm Supply Company manufactures and sells a pesticide called Snare. The following data are available for preparing budgets for Snare for the first 2 quarters of 2009.

Prepare budgeted income statement and supporting budgets.


  • 1. Sales: Quarter 1, 28,000 bags; quarter 2, 42,000 bags. Selling price is $60 per bag.
  • 2. Direct materials: Each bag of Snare requires 4 pounds of Gumm at a cost of $4 per pound and 6 pounds of Tarr at $1.50 per pound.
  • 3. Desired inventory levels:

Type of Inventory

January 1

April 1

July 1

Snare (bags)




Gumm (pounds)




Tarr (pounds)




  • 4. Direct labor: Direct labor time is 15 minutes per bag at an hourly rate of $14 per hour.
  • 5. Selling and administrative expenses are expected to be 15% of sales plus $175,000 per quarter.
  • 6. Income taxes are expected to be 30% of income from operations.

Your assistant has prepared two budgets: (1) The manufacturing overhead budget shows expected costs to be 150% of direct labor cost. (2) The direct materials budget for Tarr shows the cost of Tarr purchases to be $297,000 in quarter 1 and $439,500 in quarter 2.


Prepare the budgeted income statement for the first 6 months and all required operating budgets by quarters. (Note: Use variable and fixed in the selling and administrative expense budget). Do not prepare the manufacturing overhead budget or the direct materials budget for Tarr.





3) Malone Company estimates that 360,000 direct labor hours will be worked during the coming year, 2008, in the Packaging Department. On this basis, the following budgeted manufacturing overhead cost data are computed for the year.

Fixed Overhead Costs

Variable Overhead Costs


$ 90,000

Indirect labor




Indirect materials










Property taxes








It is estimated that direct labor hours worked each month will range from 27,000 to 36,000 hours.

During October, 27,000 direct labor hours were worked and the following overhead costs were incurred.

Fixed overhead costs: Supervision $7,500, Depreciation $5,000, Insurance $2,470, Rent $2,000, and Property taxes $1,500.

Variable overhead costs: Indirect labor $10,360, Indirect materials, $6,400, Repairs $4,000, Utilities $5,700, and Lubricants $1,640.

  • (a) Total costs: DLH 27,000, $45,500; DLH 36,000, $54,500


  • (a) Prepare a monthly manufacturing overhead flexible budget for each increment of 3,000 direct labor hours over the relevant range for the year ending December 31, 2008.
  • (b) Prepare a flexible budget report for October.
  • (c) Comment on management’s efficiency in controlling manufacturing overhead costs in October.


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