SOLUTIONS TO BRIEF EXERCISES
BRIEF EXERCISE 9-1
Sales
Budget
Production
Budget
Direct
Materials
Budget
Direct
Labor
Budget
Manufacturing
Overhead
Budget
Operating
Budgets
Budgeted
Balance
Sheet
Financial
Budgets
Selling and
Administrative
Expense
Budget
Budgeted
Income
Statement
Capital
Expenditure
Budget
Cash Budget
BRIEF EXERCISE 9-2
PALERMO COMPANY
Sales Budget
For the Year Ending December 31, 2014
Quarter
1
Expected unit
sales
Unit selling
price
Total sales
10,000
2
3
4
Year
12,000
15,000
18,000
55,000
X
$70 X
$70
$700,000 $840,000
X
$70
$1,050,000
X
$70
$1,260,000
X
$70
$3,850,000
BRIEF EXERCISE 9-3
PALERMO COMPANY
Production Budget
For the Six Months Ending June 30, 2014
Quarter
1
Expected unit sales
Add: Desired ending finished goods
Total required units
Less: Beginning finished goods inventory
Required production units
a
12,000 X .25
b
10,000 X .25
c
15,000 X .25
2
10,000 12,000
3,000 a
3,750 c
13,000 15,750
2,500 b
3,000
10,500 12,750
Six
Months
23,250
BRIEF EXERCISE 9-4
PERINE COMPANY
Direct Materials Budget
For the Month Ending January 31, 2014
Units to be produced ........................................................
Direct materials per unit...................................................
Total pounds required for production ............................
Add: Desired ending inventory (25% X 5,000 X 2) .......
Total materials required ...................................................
Less: Beginning materials inventory
(4,000 X 2 X 25%) ...................................................
Direct materials purchases ..............................................
Cost per pound .................................................................
Total cost of direct materials purchases ........................
4,000
X
2
8,000
2,500
10,500
2,000
8,500
X
$6
$51,000
BRIEF EXERCISE 9-5
MIZE COMPANY
Direct Labor Budget
For the Six Months Ending June 30, 2014
Quarter
Units to be produced
Direct labor time (hours) per unit
Total required direct labor hours
Direct labor cost per hour
Total direct labor cost
1
2
Six
Months
5,000
X
1.6
8,000
X
$15
$120,000
6,000
X
1.6
9,600
X
$15
$144,000
$264,000
BRIEF EXERCISE 9-6
ROCHE INC.
Manufacturing Overhead Budget
For the Year Ending December 31, 2014
Quarter
1
Variable costs
Fixed costs
Total manufacturing overhead
2
3
4
Year
$20,000 $25,000 $30,000 $35,000 $110,000
40,000 40,000 40,000 40,000 160,000
$60,000 $65,000 $70,000 $75,000 $270,000
BRIEF EXERCISE 9-7
NOBLE COMPANY
Selling and Administrative Expense Budget
For the Year Ending December 31, 2014
Quarter
1
2
3
4
Year
Variable expenses
$22,000 $26,000 $30,000 $34,000 $112,000
Fixed expenses
40,000 40,000 40,000 40,000 160,000
Total selling and administrative
$62,000 $66,000 $70,000 $74,000 $272,000
expenses
BRIEF EXERCISE 9-8
NORTH COMPANY
Budgeted Income Statement
For the Year Ending December 31, 2014
Sales ...................................................................................
Cost of goods sold (50,000 X $25) ...................................
Gross profit ........................................................................
Selling and administrative expenses...............................
Income before income taxes ............................................
Income tax expense ..........................................................
Net income .........................................................................
$2,250,000
1,250,000
1,000,000
300,000
700,000
210,000
$ 490,000
BRIEF EXERCISE 9-9
Credit Sales
January, $200,000
February, $260,000
March, $300,000
Collections from Customers
January
February
March
$150,000
$150,000
$ 50,000
195,000
$ 65,000
225,000
$290,000
$245,000
BRIEF EXERCISE 9-10
Budgeted cost of goods sold ($400,000 X 65%)........................
Add: Desired ending inventory ($480,000 X 65% X 20%) .......
Total inventory required..............................................................
Less: Beginning inventory ($400,000 X 65% X 20%) ...............
Required merchandise purchases for April ..............................
$260,000
62,400
322,400
52,000
$270,400
SOLUTIONS FOR DO IT! REVIEW EXERCISES
DO IT! 9-1
1.
2.
3.
4.
5.
6.
Operating budgets
Master budget
Participative budgeting
Financial budgets
Sales forecast
Long-range plans
DO IT! 9-2
ZELLER COMPANY
Production Budget
For the Six Months Ending June 30, 2014
Quarter
Expected unit sales
Add: Desired ending finished goods inventory
Total required units
Less: Beginning finished goods inventory
Required production units
*(29,000 X .10)
1
20,000
2,400
22,400
2,000
20,400
2
24,000
2,900*
26,900
2,400
24,500
Six
Months
44,900
DO IT! 9-3
ASH CREEK COMPANY
Sales Budget
For the Year Ending December 31, 2014
Quarter
1
2
3
4
Year
Expected unit sales
200,000
200,000
300,000
300,000
1,000,000
Unit selling price
X
$40 X
$40 X
$40 X
$45
—
$8,000,000 $8,000,000 $12,000,000 $13,500,000 $41,500,000
Total sales
ASH CREEK COMPANY
Production Budget
For the Year Ending December 31, 2014
Quarter
1
2
200,000
Expected unit sales
200,000
Add: Desired ending finished
75,000
goods units
50,000
275,000
250,000
Total required units
Less: Beginning finished
50,000
50,000**
goods units
225,000
200,000
Required production units
3
4
Year
300,000 300,000
75,000
60,000*
375,000 360,000
75,000
75,000
300,000 285,000
1,010,000
*Estimated first-quarter 2015 sales volume 200,000 + (200,000 X 20%) = 240,000: 240,000 X 25%.
**25% of estimated first-quarter 2014 sales units (200,000 X 25%).
DO IT! 9-3 (Continued)
ASH CREEK COMPANY
Direct Materials Budget
For the Year Ending December 31, 2014
Quarter
1
2
3
4
Year
200,000
Units to be produced
225,000
300,000
285,000
X 2
Direct materials per unit
X 2
X 2
X 2
Total pounds needed for
production
400,000
450,000
600,000
570,000
Add: Desired ending
direct materials
45,000
57,000
*45,000
(pounds)
60,000
445,000
510,000
657,000
615,000
Total materials required
Less: Beginning direct
**40,000
materials (pounds)
45,000
60,000
57,000
Direct materials
purchases
405,000
465,000
597,000
558,000
X $12
X $12
X $12
Cost per pound
X $12
Total cost of direct
materials purchases
$4,860,000 $5,580,000 $7,164,000 $6,696,000 $24,300,000
*Estimated first-quarter 2015 production requirements 450,000 X 10% = 45,000
**10% of estimated first-quarter pounds needed for production.
DO IT! 9-4
(a)
Total unit cost:
Cost Element
Direct materials ...............................
Direct labor......................................
Manufacturing overhead ................
Total unit cost ........................
Quantity
Unit Cost
Total
2 pounds
0.3 hours
0.3 hours
$12.00
$15.00
$20.00
$24.00
4.50
6.00
$34.50
DO IT! 9-4 (Continued)
(b)
ASH CREEK COMPANY
Budgeted Income Statement
For the Year Ending December 31, 2014
Sales (1,000,000) units from sales budget, page 9-11.......
Cost of goods sold (1,000,000 X $34.50/unit) ..................
Gross profit ........................................................................
Selling and administrative expenses ...............................
Net income..........................................................................
$41,500,000
34,500,000
7,000,000
6,000,000
$ 1,000,000
DO IT! 9-5
BATISTA COMPANY
Cash Budget
April
Beginning cash balance ..............................................................
Add: Cash receipts for April.......................................................
Total available cash......................................................................
Less: Cash disbursements in April ...........................................
Excess of available cash over cash disbursements .................
Add: Financing ($20,000 – $15,000) ...........................................
Ending cash balance....................................................................
$ 25,000
245,000
270,000
255,000
15,000
5,000
$ 20,000
To maintain the desired minimum cash balance of $20,000, Batista Company must borrow $5,000.
SOLUTIONS TO EXERCISES
EXERCISE 9-1
MEMO
To
Jim Dixon
From: Student
Re:
Budgeting
I am glad Adler Company is considering preparing a formal budget. There are
many benefits derived from budgeting, as I will discuss later in this memo.
A budget is a formal written statement of management’s plans for a specified
future time period, expressed in financial terms. The master budget generally consists of operating budgets such as the sales budget, production
budget, direct materials budget, direct labor budget, manufacturing overhead
budget, selling and administrative expense budget, and budgeted income
statement; and financial budgets such as the capital expenditure budget,
cash budget, and budgeted balance sheet.
The primary benefits of budgeting are:
1. It requires all levels of management to plan ahead and to formalize
goals on a recurring basis.
2. It provides definite objectives for evaluating performance at each
level of responsibility.
3. It creates an early warning system for potential problems, so that
management can make changes before things get out of hand.
4. It facilitates the coordination of activities within the business by correlating the goals of each segment with overall company objectives.
5. It results in greater management awareness of the entity’s overall
operations and the impact of external factors such as economic
trends.
6. It motivates personnel throughout the organization to meet planned
objectives.
In order to maximize these benefits, it is essential that budgeting take place
within a sound organizational structure, so authority and responsibility for all
phases of operations are clearly defined. Also, the budget should be based on
research and analysis that results in realistic goals. Finally, the effectiveness
of a budget program is directly related to its acceptance by all levels of
management.
If you want further explanation of any of these topics, please contact me.
EXERCISE 9-2
EDINGTON ELECTRONICS INC.
Sales Budget
For the Six Months Ending June 30, 2014
Product
Units
XQ-103
XQ-104
Totals
20,000
12,000
32,000
Quarter 1
Selling
Total
Price
Sales
$15
25
$300,000
300,000
$600,000
Units
22,000
15,000
37,000
Quarter 2
Selling
Total
Price
Sales
$15
25
$330,000
375,000
$705,000
Units
42,000
27,000
69,000
Six Months
Selling
Total
Price
Sales
$15
25
$ 630,000
675,000
$1,305,000
EXERCISE 9-3
GARZA AND NEELY, CPAs
Sales Revenue Budget
For the Year Ending December 31, 2014
Dept.
Auditing
Tax
Consulting
Totals
Dept.
Auditing
Tax
Consulting
Totals
a
Billable
Hours
2,300
3,000
1,500
Billable
Hours
a
8,300
b
9,700
c
6,000
Quarter 1
Billable
Total
Rate
Rev.
$ 80 $184,000
90
270,000
100
150,000
$604,000
Year
Billable
Rate
$ 80
90
100
2,300 + 1,600 + 2,000 + 2,400
3,000 + 2,200 + 2,000 + 2,500
c
1,500 X 4
b
Billable
Hours
1,600
2,200
1,500
Total
Rev.
$ 664,000
873,000
600,000
$2,137,000
Quarter 2
Billable
Rate
$ 80
90
100
Total
Rev.
128,000
198,000
150,000
$476,000
Billable
Hours
2,000
2,000
1,500
Quarter 3
Billable
Total
Rate
Rev.
$ 80 $160,000
90
180,000
100
150,000
$490,000
Billable
Hours
2,400
2,500
1,500
Quarter 4
Billable
Total
Rate
Rev.
$ 80 $192,000
90
225,000
100
150,000
$567,000
EXERCISE 9-4
TURNEY COMPANY
Production Budget
For the Year Ending December 31, 2014
Product HD-240
Quarter
Expected unit sales
Add: Desired ending
finished goods units(1)
Total required units
Less: Beginning finished
goods units
Required production units
(1)
1
2
5,000
7,000
8,000
2,800
7,800
3,200
10,200
4,000
12,000
2,500 (2)
12,500
2,000
5,800
2,800
7,400
3,200
8,800
4,000
8,500
40% of next quarter’s sales.
40% X (5,000 X 125%).
(2)
3
4
Year
10,000
30,500
EXERCISE 9-5
DALLAS INDUSTRIES
Direct Materials Purchases Budget
For the Quarter Ending March 31, 2014
Units to be produced
Direct materials per unit
Total pounds needed for production
Add: Desired ending direct materials
(pounds)*
Total materials required
Less: Beginning direct materials
(pounds)
Direct materials purchases
Cost per pound
Total cost of direct materials
purchases
January
February
March
10,000
X
2
20,000
8,000
X
2
16,000
5,000
X
2
10,000
3,200
23,200
2,000
18,000
1,600
11,600
4,000
19,200
X
$2
3,200
14,800
X
$2
2,000
9,600
X
$2
$38,400
$29,600
$19,200
*20% of next month’s production needs.
EXERCISE 9-6
(a)
HARDIN COMPANY
Production Budget
For the Six Months Ending June 30, 2014
Quarter
1
Expected unit sales
Add: Desired ending finished goods
units
Total required units
Less: Beginning finished goods units
Required production units
(1)
25% X 6,000.
25% X 7,000.
(3)
25% X 5,000.
(2)
2
Six
Months
5,000
6,000
1,500 (1)
6,500
1,250 (3)
5,250
1,750 (2)
7,750
1,500
11,500
6,250
EXERCISE 9-6 (Continued)
(b)
HARDIN COMPANY
Direct Materials Budget
For the Six Months Ending June 30, 2014
Quarter
Units to be produced
Direct materials per unit
Total pounds needed for production
Add: Desired ending direct
materials (pounds)
Total materials required
Less: Beginning direct materials
(pounds)
Direct materials purchases
Cost per pound
Total cost of direct materials
Purchases
1
5,250
X
3
15,750
7,500 (1)
23,250
2
6,250
X
3
18,750
8,640 (2)
27,390
6,300 (3)
7,500
16,950
19,890
X
$4
X
$4
0000,000
$67,800
$147,360
$79,560
(1)
40% X 18,750.
7,200 X (3 X 40%).
(3)
40% X 15,750.
(2)
EXERCISE 9-7
Finished goods:
Sales ........................................................................
Plus: Ending inventory...........................................
Total required...............................................................
Less: beginning inventory ....................................
Production required ....................................................
Direct materials per unit .............................................
Units of direct material required for production.......
Plus: ending inventory................................................
Total required...............................................................
Less: beginning inventory ....................................
Purchases of direct material required .......................
Cost per unit ................................................................
Total cost of materials ................................................
The May raw material purchases would be $19,780.
(a)
2,390 + 2,310 – 2,200 = 2,500; 2,500 X 2 X .50 = 2,500
2,475 + 2,200 – 2,230 = 2,445; 2,445 X 2 X .50 = 2,445
(b)
Six
Months
2,475
2,200
4,675
2,230
2,445
X
2
4,890
2,500(a)
7,390
2,445(b)
4,945
X
$4
$19,780
EXERCISE 9-8
RODRIQUEZ, INC.
Direct Labor Budget
For the Year Ending December 31, 2014
Quarter
1
Units to be produced
Direct labor time
(hours) per unit
Total required direct
labor hours
Direct labor cost per
hour
Total direct labor cost
2
25,000
20,000
X
1.5
3
X
1.5
4
35,000
X
1.5
Year
30,000
X
1.5
30,000
37,500
52,500
45,000
X
$16
$480,000
X
$16
$600,000
X
$18
$945,000
X
$18
$810,000
110,000
.2
$2,835,000
EXERCISE 9-9
DONNEGAL COMPANY
Production Budget
For the Quarter Ending March 31, 2014
Sales in units
Plus: desired ending inventory
Total needs
Less: beginning inventory
Required production units
(1)
Jan
12,000
18,000(1)
30,000
17,600
12,400
(14,000 X 100%) + (10,000 X 40%)
(10,000 X 100%) + (11,000 X 40%)
(3)
(11,000 X 100%) + (11,000 X 40%)
(2)
Feb
14,000
14,400(2)
28,400
18,000
10,400
Mar
10,000
15,400(3)
25,400
14,400
11,000
Total
36,000
15,400
51,400
17,600
33,800
EXERCISE 9-9 (Continued)
DONNEGAL COMPANY
Direct Labor Budget
For the Quarter Ending March 31, 2014
Production in units
Direct labor hours per unit
Total hours needed
Rate per hour
Total direct labor
Jan
12,400
X
2.00
24,800
X $8.00
$198,400
Feb
Mar
10,400
11,000
X
2.00
X 1.50
20,800
16,500
X $8.00 X $8.00
$166,400 $132,000
Total
$496,800
EXERCISE 9-10
ATLANTA COMPANY
Manufacturing Overhead Budget
For the Year Ending December 31, 2014
Quarter
1
Variable costs
Indirect materials ($.80/hour) $12,000
Indirect labor ($1.20/hour)
18,000
Maintenance ($.50/hour)
7,500
37,500
Total variable
Fixed costs
35,000
Supervisory salaries
15,000
Depreciation
12,000
Maintenance
62,000
Total fixed
$99,500
Total manufacturing overhead
Direct labor hours
Manufacturing overhead rate
per direct labor hour
($443,000 ÷ 78,000)
*(10,000 X 1.5)
15,000*
2
3
4
Year
$ 14,400
21,600
9,000
45,000
$ 16,800
25,200
10,500
52,500
$ 19,200
28,800
12,000
60,000
$ 62,400
93,600
39,000
195,000
35,000
15,000
12,000
62,000
$107,000
35,000
15,000
12,000
62,000
$114,500
35,000
15,000
12,000
62,000
$122,000
140,000
60,000
48,000
248,000
$443,000
18,000
21,000
24,000
78,000
$5.68
EXERCISE 9-11
DUNCAN COMPANY
Selling and Administrative Expense Budget
For the Six Months Ending June 30, 2014
Quarter
1
2
Six
Months
Budgeted sales in units
20,000
22,000
Variable expenses (1)
Sales commissions
Delivery expense
Advertising
Total variable
$20,000*
8,000
16,000
44,000
$22,000
8,800
17,600
48,400
$ 42,000
16,800
33,600
92,400
10,000
8,000
4,200
1,500
800
500
25,000
10,000
8,000
4,200
1,500
800
500
25,000
20,000
16,000
8,400
3,000
1,600
1,000
50,000
$69,000
$73,400
$142,400
Fixed expenses
Sales salaries
Office salaries
Depreciation
Insurance
Utilities
Repairs expense
Total fixed
Total selling and administrative
expenses
(1) Variable costs per dollar of sales are: Sales commissions (5%), Delivery
expense (2%), and Advertising (4%).
*(20,000 X $20 X 5%)
EXERCISE 9-12
(a)
FUQUA COMPANY
Production Budget
For the Two Months Ending February 28, 2014
_____________________________________________________________
January
February
Expected unit sales ............................................. 10,000
12,000
Add: desired ending finished goods
inventory ...................................................
2,400*
2,600***
Total required units ............................................. 12,400
14,600
Less: beginning finished goods inventory ......
2,000**
2,400
Required production units.................................. 10,400
12,200
*20% X next month’s expected sales or 12,000 X 20%
**20% X 10,000
***20% X 13,000
(b)
FUQUA COMPANY
Direct Materials Budget
For the Month Ending January 31, 2014
_____________________________________________________________
January
Units to be produced .............................................................
10,400
Direct material pounds per unit............................................
X
4
Total pounds needed for production ...................................
41,600
Add: desired pounds in ending materials inventory .........
19,520*
Total materials required ........................................................
61,120
Less: beginning direct materials (pounds) .........................
16,640**
Direct materials purchases ...................................................
44,480
Cost per pound ......................................................................
X
$2
Total cost of direct materials purchases .............................
$88,960
*(12,200 X 4) X 40%
**(10,400 X 4) X 40%
EXERCISE 9-13
(a)
DALBY COMPANY
Computation of Cost of Goods Sold
For the Year Ending December 31, 2014
Cost of one unit of finished goods:
Direct materials (2 X $5) ...............................................................
Direct labor (3 X $15) ....................................................................
Manufacturing overhead (3 X $5) ................................................
Total ......................................................................................
$10
45
15
$70
30,000 units X $70 = $2,100,000.
(b)
DALBY COMPANY
Budgeted Income Statement
For the Year Ending December 31, 2014
Sales (30,000 X $85) ............................................................
Cost of goods sold (see part (a)) .......................................
Gross profit..........................................................................
Selling and administrative expenses ................................
Income before income taxes ..............................................
Income tax expense ($250,000 X 30%) ..............................
Net income...........................................................................
$2,550,000
2,100,000
450,000
200,000
250,000
75,000
$ 175,000
EXERCISE 9-14
DANNER COMPANY
Cash Budget
For the Two Months Ending February 28, 2014
Beginning cash balance ..........................................
Add: Receipts
Collections from customers .......................
Sale of marketable securities .....................
Total receipts ...............................................
Total available cash .................................................
Less: Disbursements
Direct materials............................................
Direct labor...................................................
Manufacturing overhead .............................
Selling and administrative expenses.........
Total disbursements ...................................
Excess (deficiency) of available cash over cash
disbursements......................................................
Financing
Add: Borrowings.....................................................
Less: Repayments ...................................................
Ending cash balance ...............................................
January
February
$ 45,000
$ 27,500
85,000
12,000
97,000
142,000
150,000
0
150,000
177,500
50,000
30,000
19,500
15,000
114,500
75,000
45,000
23,500
20,000
163,500
27,500
14,000
0
0
$ 27,500
6,000
0
$ 20,000
EXERCISE 9-15
AARON CORPORATION
Cash Budget
For the Quarter Ended March 31, 2014
Beginning cash balance ............................................................
Add: Receipts
Collections from customers..........................................
Sale of equipment ..........................................................
Total receipts ...........................................................
Total available cash....................................................................
Less: Disbursements
Direct materials ..............................................................
Direct labor .....................................................................
Manufacturing overhead ...............................................
Selling and administrative expenses ...........................
Purchase of securities...................................................
Total disbursements................................................
Excess of available cash over disbursements ........................
Financing
Add: Borrowings.......................................................................
Less: Repayments .....................................................................
Ending cash balance..................................................................
$ 30,000
180,000
3,000
183,000
213,000
41,000
70,000
35,000
45,000
14,000
205,000
8,000
17,000
–0–
$ 25,000
EXERCISE 9-16
(a)
TRENSHAW COMPANY
Cash Budget
For the Month Ended July 31, 2014
Beginning cash balance .............................
Add: Cash collections ...............................
Total cash available ....................................
Less: Cash disbursements
Merchandise purchases..........
Operating expenses ................
Equipment purchase ...............
Total cash disbursements..........................
Excess of available cash
over disbursements .................................
Add: Borrowings ........................................
Ending cash balance ..................................
$45,000
90,000
$135,000
$56,200
40,800
20,000
117,000
18,000
7,000
$ 25,000
Cash disbursements of $117,000 plus the desired ending cash balance
of $25,000 exceeds the $135,000 total cash available by $7,000. Therefore,
Trenshaw Company will have to borrow $7,000.
(b)
An advantage of cash budgeting is that it allows cash shortfalls to be
predicted. If the timing of future cash shortfalls is known, arrangements to borrow funds can be made well in advance, which often
means that interest rates may be more favorable than if the funds are
needed on short notice.
EXERCISE 9-17
(a)
LRF COMPANY
Expected Collections from Customers
March cash sales (30% X $270,000) ......................................
Collection of March credit sales
[(70% X $270,000) X 10%] ...................................................
Collection of February credit sales
[(70% X $220,000) X 50%] ...................................................
Collection of January credit sales
[(70% X $200,000) X 36%] ...................................................
Total collections .........................................................
(b)
March
$ 81,000
18,900
77,000
50,400
$227,300
LRF COMPANY
Expected Payments for Direct Materials
March cash purchases (50% X $40,000) ...............................
Payment of March credit purchases
[(50% X $40,000) X 40%].....................................................
Payment of February credit purchases
[(50% X $36,000) X 60%].....................................................
Total payments ...........................................................
March
$20,000
8,000
10,800
$38,800
EXERCISE 9-18
(a)
(1)
GREEN LANDSCAPING INC.
Schedule of Expected Collections From Clients
For the Quarter Ending March 31, 2014
January
November ($80,000).......
December ($90,000).......
January ($100,000) ........
February ($120,000).......
March ($140,000)............
Total collections ......
$ 8,000
27,000
60,000
February
March
Quarter
$
$
9,000
30,000
72,000
______
_______
$95,000
$111,000
$ 10,000
36,000
84,000
$130,000
8,000
36,000
100,000
108,000
84,000
$336,000
(2)
GREEN LANDSCAPING INC.
Schedule of Expected Payments for Landscaping Supplies
For the Quarter Ending March 31, 2014
________________________________________________________
January
December ($14,000).......
January ($12,000) ..........
February ($15,000).........
March ($18,000)..............
Total payments ........
$ 5,600
7,200
$12,800
February
$ 4,800
9,000
$13,800
March
Quarter
$ 6,000
10,800
$16,800
$ 5,600
12,000
15,000
10,800
$43,400
(b) (1) Accounts receivable at March 31, 2014: ($120,000 X 10%) +
($140,000 X 40%) = $68,000
(2) Accounts payable at March 31, 2014: ($18,000 X 40%) = $7,200
EXERCISE 9-19
LAGER DENTAL CLINIC
Cash Budget
For the Two Quarters Ending June 30, 2014
Beginning cash balance .......................................
Add: Receipts
Collections from clients.........................
Sale of equipment ..................................
Investment interest ................................
Total receipts ....................................
Total cash available...............................................
Less: Disbursements
Professional salaries .............................
Overhead costs ......................................
Selling and administrative costs ..........
Equipment purchase..............................
Payment of income taxes ......................
Total disbursements ........................
Excess (deficiency) of cash available
over cash disbursements .................................
Financing
Add: Borrowings .................................................
Less: Repayments ................................................
Ending cash balance.............................................
*$50,000 – $2,000
**$70,000 – $2,000
1st Quarter
$ 30,000
2nd Quarter
230,000
12,000
0
242,000
272,000
380,000
0
7,000
387,000
412,000
140,000
75,000
48,000*
0
0
263,000
140,000
100,000
68,000**
50,000
4,000
362,000
$ 25,000
9,000
50,000
16,000
0
$ 25,000
0
16,400
$ 33,600
EXERCISE 9-20
(a)
GRAND STORES
Merchandise Purchases Budget
For the Month Ending June 30, 2014
Budgeted cost of goods sold ($500,000 X 75%) ..................
Add: Desired ending merchandise inventory
($600,000 X 75% X 30%) .....................................................
Total .........................................................................................
Less: Beginning merchandise inventory
($375,000 X 30%) .........................................................
Required merchandise purchases ........................................
(b)
$375,000
135,000
510,000
112,500
$397,500
GRAND STORES
Budgeted Income Statement
For the Month Ending June 30, 2014
Sales .......................................................................................
Cost of goods sold (75% X $500,000) ..................................
Gross profit ............................................................................
$500,000
375,000
$125,000
SOLUTIONS TO PROBLEMS
PROBLEM 9-1A
GLENDO FARM SUPPLY COMPANY
Sales Budget
For the Six Months Ending June 30, 2014
Quarter
Expected unit sales .....................
Unit selling price..........................
Total sales ....................................
1
2
Six
Months
30,000
X $60
$1,800,000
42,000
X $60
$2,520,000
72,000
X $60
$4,320,000
GLENDO FARM SUPPLY COMPANY
Production Budget
For the Six Months Ending June 30, 2014
Quarter
Expected unit sales ........................................
Add: Desired ending finished goods
units......................................................
Total required units ........................................
Less: Beginning finished goods units.........
Required production units .............................
1
2
30,000
42,000
15,000
45,000
8,000
37,000
18,000
60,000
15,000
45,000
Six
Months
82,000
PROBLEM 9-1A (Continued)
GLENDO FARM SUPPLY COMPANY
Direct Materials Budget—Gumm
For the Six Months Ending June 30, 2014
Quarter
1
2
Units to be produced ....................................
37,000
Direct materials per unit ...............................
X4
Total pounds needed for production........... 148,000
Add: Desired ending direct materials
(pounds) .............................................
10,000
Total materials required................................ 158,000
Less: Beginning direct materials
(pounds)............................................
9,000
Direct materials purchases .......................... 149,000
Cost per pound..............................................
X $3.80
Total cost of direct materials
purchases .................................................. $566,200
Six
Months
45,000
X 4
180,000
13,000
193,000
10,000
183,000
X $3.80
$695,400
$1,261,600
GLENDO FARM SUPPLY COMPANY
Direct Labor Budget
For the Six Months Ending June 30, 2014
Quarter
Units to be produced.............................
Direct labor time (hours) per unit.........
Total required direct labor hours .........
Direct labor cost per hour.....................
Total direct labor cost ...........................
1
2
Six
Months
37,000
X 1/4
9,250
X $16
$148,000
45,000
X 1/4
11,250
X $16
$180,000
$328,000
PROBLEM 9-1A (Continued)
GLENDO FARM SUPPLY COMPANY
Selling and Administrative Expense Budget
For the Six Months Ending June 30, 2014
Quarter
1
Budgeted sales in units
Variable (.15 X sales) ..........................
Fixed.....................................................
Total .....................................................
Six
Months
2
30,000
42,000
72,000
$270,000
175,000
$445,000
$378,000
175,000
$553,000
$ 648,000
350,000
$998,000
GLENDO FARM SUPPLY COMPANY
Budgeted Income Statement
For the Six Months Ending June 30, 2014
Sales..............................................................................................
Cost of goods sold (72,000 X $34.20)* .......................................
Gross profit ..................................................................................
Selling and administrative expenses .........................................
Income from operations ..............................................................
Income tax expense (30%) ..........................................................
Net income....................................................................................
$4,320,000
2,462,400
1,857,600
998,000
859,600
257,880
$ 601,720
*Cost Per Bag
Cost Element
Direct materials
Gumm ...........................................
Tarr ...............................................
Direct labor ......................................
Manufacturing overhead
(150% of direct labor cost)..........
Total.........................................
Quantity
Unit Cost
Total
4 pounds
6 pounds
1/4 hour
$ 3.80
1.50
16.00
$15.20
9.00
4.00
6.00
$34.20
PROBLEM 9-2A
(a)
DELEON INC.
Sales Budget
For the Year Ending December 31, 2014
Expected unit sales...........
Unit selling price ...............
Total sales..........................
(b)
JB 50
JB 60
Total
400,000
X $20
$8,000,000
200,000
X $25
$5,000,000
000,000,0
$13,000,000
DELEON INC.
Production Budget
For the Year Ending December 31, 2014
Expected unit sales .............................
Add: Desired ending finished
goods units ...............................
Total required units .............................
Less: Beginning finished goods
units...........................................
Required production units ..................
JB 50
JB 60
400,000
200,000
30,000
430,000
15,000
215,000
25,000
405,000
10,000
205,000
PROBLEM 9-2A (Continued)
(c)
DELEON INC.
Direct Materials Budget
For the Year Ending December 31, 2014
JB 50
Units to be produced ....................
Direct materials per unit ...............
Total pounds needed for
production .................................
Add: Desired ending direct
materials (pounds) ............
Total materials required ...............
Less: Beginning direct
materials (pounds) ............
Direct materials purchases ..........
Cost per pound .............................
Total cost of direct materials
purchases ................................
(d)
JB 60
405,000
X 2
205,000
X 3
810,000
615,000
30,000
840,000
10,000
625,000
40,000
800,000
X $3
15,000
610,000
X $4
$2,400,000
$2,440,000
Total
$4,840,000
DELEON INC.
Direct Labor Budget
For the Year Ending December 31, 2014
JB 50
Units to be produced ....................
Direct labor time (hours) per
unit .............................................
Total required direct labor
hours..........................................
Direct labor cost per hour ............
Total direct labor cost ..................
JB 60
Total
405,000
205,000
650,000
X .4
X .6
—
162,000
X $12
$1,944,000
123,000
X $12
$1,476,000
301,000
X
$10
$3,420,000
PROBLEM 9-2A (Continued)
(e)
DELEON INC.
Budgeted Income Statement
For the Year Ending December 31, 2014
JB 50
Sales......................................
Cost of goods sold ..............
Gross profit ..........................
Operating expenses
Selling expenses..............
Administrative
expenses.......................
Total operating
expenses...............
Income before income
taxes..................................
Income tax expense
(30%) .................................
Net income............................
(1)
(2)
400,000 X $13.
200,000 X $20.
JB 60
Total
$8,000,000
$5,000,000 $13,000,000
(1)
5,200,000
4,000,000 (2) 9,200,000
1,000,000
2,800,000
3,800,000
560,000
360,000
920,000
540,000
340,000
880,000
1,100,000
700,000
1,800,000
$1,700,000
$ 300,000
2,000,000
600,000
$ 1,400,000
PROBLEM 9-3A
(a)
MARSH INDUSTRIES
Sales Budget
For the Year Ending December 31, 2014
Plan A
Expected unit sales.....................................
Unit selling price .........................................
Total sales....................................................
720,000
X $8.40
$6,048,000
Plan B
(1)
900,000 (2)
X $7.50 (3)
$6,750,000
(1)
$6,400,000 ÷ $8 = 800,000 X 90% = 720,000.
800,000 + 100,000 = 900,000.
(3)
$8.00 – $0.50
(2)
(b)
MARSH INDUSTRIES
Production Budget
For the Year Ending December 31, 2014
Expected unit sales ...............................................
Add: Desired ending finished goods units .......
Total required units ...............................................
Less: Beginning finished goods units ...............
Required production units....................................
Plan A
Plan B
720,000
36,000 (1)
756,000
38,000
718,000
900,000
60,000
960,000
38,000
922,000
(1)
720,000 X 5%
(c) Variable costs = $4.30 per unit ($1.80 + $1.30 + $1.20) for both plans.
Plan A
Total variable costs
Total fixed costs
Total costs (a)
Total units (b)
Unit cost (a) ÷ (b)
$3,087,400 (718,000 X $4.30)
1,895,000
$4,982,400
Plan B
$3,964,600 (922,000 X $4.30)
1,895,000
$5,859,600
718,000
922,000
$6.94
$6.36
The difference is due to the fact that fixed costs are spread over a larger
number of units (204,000) in Plan B.
PROBLEM 9-3A (Continued)
(d)
Gross Profit
Plan A
Sales
Cost of goods sold
Gross profit
$6,048,000
4,996,800 (720,000 X $6.94)
$1,051,200
Plan B
$6,750,000
5,724,000 (900,000 X $6.36)
$1,026,000
Plan A should be accepted because it produces a higher gross profit than
Plan B.