Chapter 15

10Chapter 16

MANAGEMENT ADVISORY SERVICESMASTER BUDGET

.Purchase Budget Merchandising BusinessHorngrenGerdie Company has the following information:

MonthBudgeted SalesMarch$50,000

April53,000

May51,000

June54,500

July52,500

In addition, the gross profit rate is 40% and the desired inventory level is 30% of next month's cost of sales.

Required: (M)

Prepare a purchases budget for April through June.

.Production & Raw Materials Purchase BudgetHorngrenLubriderm Corporation has the following budgeted sales for the next sixmonth period:

June90,000August210,000October180,000

July120,000September150,000November120,000

There were 30,000 units of finished goods in inventory at the beginning of June. Plans are to have an inventory of finished products that equal 20% of the unit sales for the next month.

Five pounds of materials are required for each unit produced. Each pound of material costs $8. Inventory levels for materials are equal to 30% of the needs for the next month. Materials inventory on June 1 was 15,000 pounds.

Required: (D)

a.Prepare production budgets in units for July, August, and September.

b.Prepare a purchases budget in pounds for July, August, and September, and give total purchases in both pounds and dollars for each month.

.Production and related schedules Barfield 4eThe Jansen Company manufactures and sells two products: plastic boxes and plastic trays. Estimated needs for a unit of each are

BoxesTrays

Material A2 pounds1 pound

Material B4 pounds4 pounds

Direct labor2 hours2 hours

Overhead is applied on the basis of $2 per direct labor hour. The estimated sales by product for 2000 are:

BoxesTrays

Sales42,00024,000

The beginning inventories are expected to be as follows:

Material A4,000 pounds

Material B6,000 pounds

Boxes1,000 units

Trays500 units

The desired inventories are one month's production requirements, assuming constant sales throughout the year.

Prepare the following information:

A.Production schedule

B.Purchases budget in units

C.Direct labor budget in hours

D.Overhead to be charged to production

.Cash Receipts & Cash DisbursementsBarfieldThe following are forecasts of sales and purchases for a company.

SalesPurchases

April$80,000$30,000

May90,00040,000

June85,00030,000

All sales are on credit. Records show that 70 percent of the customers pay the month of the sale, 20 percent pay the month after the sale, and the remaining 10 percent pay the second month after the sale. Purchases are all paid the following month at a 2 percent discount. Cash disbursements for operating expenses in June were $5,000.

REQUIRED:

Prepare a schedule of cash receipts and disbursements for June.

.Increase in Cash Barfield 4eJackson Fabrics has prepared a forecast for May 2000. Some of the projected information follows:

Income after tax$260,000

Accrued Income Tax Expense62,000

Increase in Accounts Receivable for month41,000

Decrease in Accounts Payable for month18,300

Depreciation Expense71,200

Estimated Bad Debts Expense13,100

Dividends declared20,000

Using the above information, what is the companys projected increase in cash for May 2000?

.Cash Budget & Financing GapBarfieldBagel Factory Inc. prepared cash estimates for the next four months. The following estimates were developed for certain items:

ItemMarch April May June

Cash sales$10,000$6,000$8,000$11,000

Credit sales5,0002,0006,0009,000

Payroll2,0001,5002,5003,000

Purchases3,0002,6002,8004,000

Other expenses2,5002,4002,6002,800

In February, credit sales totaled $9,000, and purchases totaled $5,000. January credit sales were $12,000. Accounts receivable collections amount to 30% in the month after the sale and 60% in the second month after the sale; 10% of the receivables are never collected. Payroll and other expenses are paid in the month incurred. Seventy-five percent of the purchases are paid in the month incurred, and the remainder are paid in the following month. A $15,000 tax payment is due on June 15. The cash balance was $5,000 on March 1. The company wants a minimum cash balance of $5,000 per month.

Required:Carter & Usry(1)Prepare a cash budget for the four-month period, March through June.

(2)List the amount of funds available for investing or required for borrowing in each month.

.Cash budget Barfield 4eThe January 31, 1999, balance sheet of Sara's Plaques follows:

Assets

Cash$12,000

Accounts Receivable (Net of Allowance for Uncollectibles of $1,440)34,560

Inventory52,400

Plant Assets (Net of Accumulated Depreciation of $60,000 36,000 Total Assets$134,960Liabilities and Stockholders' Equity

Accounts Payable$70,200

Common Stock90,000

Retained Earnings (Deficit) (25,240) 64,960Total Liabilities & Stockholders Equity$134,960Additional information about the company includes the following:

Expected sales for February and March are $120,000 and $130,000, respectively.

The collection pattern from the month of sale forward is 50%, 48%, and 2% uncollectible.

Cost of goods sold is 75% of sales.

Purchases each month are 55% of the current months sales and 45% of the next months projected sales. All purchases are paid for in full in the month following purchase.

Other cash expenses each month are $21,500. The only noncash expense each month is $4,000 of depreciation.

Required:

a.What are budgeted cash collections for February 2000?

b.What will be the inventory balance at February 29, 2000?

c.What will be the projected balance in Retained Earnings at February 29, 2000?

d.If the company wishes to maintain a minimum cash balance of $8,000, how much will be available for investment or need to be borrowed at the end of February 2000?

.Budgeted Cost Of Goods Manufactured And Sold StatementCarter & UsryWKRP, Inc., with $50,000,000 of par stock outstanding, plans to budget earnings of 10%, before income tax, on this stock. The Marketing Department budgets sales at $40,000,000. The budget director approves the sales budget and expenses as follows:

Marketing20% of sales

Administrative10% of sales

Labor is expected to be 50% of the total manufacturing cost; materials issued for the budgeted production will cost $12,500,000; therefore, any savings in manufacturing cost will have to be in factory overhead. Inventories are to be as follows:

Beginning of YearEnd of YearFinished goods$8,000,000$10,000,000

Work in process1,000,0003,000,000

Materials5,000,0004,000,000

Required:

Prepare the budgeted cost of goods manufactured and sold statement, showing the budgeted purchases of materials and the adjustments for inventories of materials, work in process, and finished goods.

.Budgeted Income StatementCarter & UsryThe management of Podunk Pottery Co. would like to earn 20% on its invested capital of $4,000,000. The company estimates sales of 100,000 pots during the coming year ending December 31. Sales commissions are paid at the rate of 10% of the sales price. Other expenses are as follows:

Variable manufacturing expenses30% of sales

Fixed manufacturing expenses$ 100,000

Fixed general and administrative expenses$ 25,000

Required:(1)Compute the dollar amount of target net income.

(2)Prepare a budgeted income statement for the coming year.

.Pro forma income statement AICPA adaptedBennett Novelty Wholesale Store has prepared the following budget information for May 2001:

Sales of $300,000. All sales are on account and a provision for bad debts is made monthly at 3 percent of sales.

Inventory was $70,000 on April 30 and an increase of $10,000 is planned for May.

All inventory is marked to sell at cost plus 50 percent.

Estimated cash disbursements for selling and administrative expenses for the month are $40,000.

Depreciation for May is projected at $5,000.

Prepare a pro forma income statement for Bennett Novelty Wholesale Store for May 2001.

.Kaizen-Based Income StatementHorngrenAllscott Company is developing its budgets for 20x5 and, for the first time, will use the kaizen approach. The initial 20x5 income statement, based on static data from 20x4, is as follows:

Sales (140,000 units)$420,000

Less: Cost of goods sold280,000Gross margin140,000

Operating expenses (includes $28,000 of depreciation)112,000Net income$28,000Selling prices for 20x5 are expected to increase by 8%, and sales volume in units will decrease by 10%. The cost of goods sold as estimated by the kaizen approach will decline by 10% per unit. Other than depreciation, all other operating costs are expected to decline by 5%.

Required: (M)Prepare a kaizen-based budgeted income statement for 20x5.

.Projected Income Statement and Balance SheetHorngrenRussell Company has the following projected account balances for June 30, 20x3:

Accounts payable$40,000Sales$800,000

Accounts receivable100,000Capital stock400,000

Depreciation, factory24,000Retained earnings?

Inventories (5/31 & 6/30)180,000Cash56,000

Direct materials used200,000Equipment, net240,000

Office salaries80,000Buildings, net400,000

Insurance, factory4,000Utilities, factory16,000

Plant wages140,000Selling expenses60,000

Bonds payable160,000Maintenance, factory28,000

Required: (M)

a.Prepare a budgeted income statement for June 20x3.

b.Prepare a budgeted balance sheet as of June 30, 20x3.

.Budget income statement and purchases budget (6-9) L & H 10eOlson Sporting Goods has the following sales forecast for the first four months of 20X9.

January$70,000

February70,000

March90,000

April80,000

Olsons cost of sales is 60% of sales. Fixed costs are $12,000 per month. Olson maintains inventory at 150% of the coming months budgeted sales requirements and has $55,000 inventory at January 1.

Required:

1.Prepare a budgeted income statement for the first three months of 20X9, in total, not by month.

2.Prepare a purchase budget for the first three months of 20X9 b month.

.Cash budget and pro forma balance sheet (continuation of 6-9) L & H 10eOlson pays for its purchases 40% in the month of purchase, 60% in the following month. Olson collects 60% of its sales in the month of sale, 40% in the following month. All fix costs require cash disbursements. Olsons balance sheet at December 31, 20X8 appears below.

AssetsEquities

Cash$ 20,000Accounts payable$ 18,000

Receivables30,000

Inventory 55,000Stockholders equity 87,000

Total$105,000Total$105,000

Required:

1.Prepare a cash receipts budget for each of the first three months of 20X9 and for the quarter as a whole.

2.Prepare a cash disbursement budget for each of the first three months of 20X9 and for the quarter as a whole.

3.Prepare a cash budget for each of the first three months of 20X9 and for the quarter as a whole.

4.Prepare a pro forma balance sheet as of March 31, 20X9.

.Budget for a manufacturer (6-15) L & H 10eOdell Company manufactures a small cabinet for cassette tapes. Its sales budget for the first three months of 20X0 is as follows.

January$2,000 (50 units)

February$2,200 (55 units)

March$1,800 (45 units)

Variable manufacturing costs are $26 per unit, of which $12 is for materials. Odells fixed manufacturing costs are $150 per month, including $40 of depreciation. Its only variable selling cost is a 15% sales commission. Fixed selling and administrative costs are $70 per month. Odell maintains no inventory of finished cabinets.

Required:

Prepare a budgeted income statement for Odell for January.

.Production budget for a manufacturer (continuation of 6-15) L & H 10eBecause Odell carries no inventory of finished cabinets, its production, in units, is the same as its sales. Odells $12-per unit materials cost is for 4 pounds of materials at a price of $3 per pound.

Required:

Prepare a budget for production costs for January showing as much details as the facts permit.

.Purchases budget for a manufacturer (continuation of 6-15 and 6-16) L & H 10eOdells policy is to maintain an inventory of material at 20% of production in the upcoming month. At December 31, 20X9, Odell had 34 pounds of material that cost $102.

Required:

Prepare a materials purchases budget for Odell for January, in units and dollars.

.Understanding budgets L & H 10eFollowing are Blaisdel Companys balance sheet at December 31, 20X0, and information regarding Blaisdels policies and past experiences.

Blaisdel Company

Balance Sheet at December 31,20X0

AssetsEquities

Cash$ 33,000Accounts payable$ 9,000

Receivables31,000Income taxes payable8,000

Inventory59,000Common stocks180,000

Fixed assets, net 102,000Retained earnings 28,000

Total$225,000Total$225,000

Additional information:

A.All sales are on credit and are collected 20% in the month of sale and 80% in the month after sale.

B.Budgeted sales for the first five months of 20X1 are $50,000, $60,000, $70,000, $66,000, and $65,000, respectively.

C.Inventory in maintained at budgeted sales requirements for the following two months.

D.Purchases are all on credit and are paid 80% in the month of purchase and 20% in the month after purchase.

E.Other variable cost are 20% of sales and are paid in the month incurred.

F.Fixed costs are $6,000 per month, including $1,000 of depreciation. Cash fixed costs are paid in the month incurred.

G.Blaisdels income tax rate is 25%, with taxes being paid in the month after they are accrued.

H.Cost of goods sold is expected to be 60% of sales.

Required:

1.What are budgeted cash receipts for January 20X1?

2.What is the budgeted inventory at January 31, 20X1?

3.What are budgeted purchases for January 20X1?

4.What is budgeted net income for January 20X1?

5.What is the budgeted cash balance at the end of January 20X1?

6.What are budgeted accounts receivable at February 28, 20X1?

7.What is the budgeted book value of fixed assets at March 31, 20X1?

8.What are budgeted accounts payable at March 31, 20X1?

9.If Blaisdel declared a cash dividend of $1,200 during January, payable in February, what balance would be reported for retained earnings in a pro forma balance shet as of January 31, 20X1?

10.What amount would show as the liability for income taxes as of March 31, 20X1?

.ComprehensiveL & HWebster Company has the following sales budget.

January $200,000March $300,000

February $240,000April $360,000

Cost of sales is 70% of sales. Sales are collected 40% in the month of sale and 60% in the following month. Webster keeps inventory equal to double the coming month's budgeted sales requirements. It pays for purchases 80% in the month of purchase and 20% in the month after purchase. Inventory at the beginning of January is $190,000. Webster has monthly fixed costs of $30,000 including $6,000 depreciation. Fixed costs requiring cash are paid as incurred.

Required:

a. Compute budgeted cash receipts in March.

b. Compute budgeted accounts receivable at the end of March.

c. Compute budgeted inventory at the end of February.

d. Compute budgeted purchases in February.

e. March purchases are $290,000. Compute budgeted cash payments in March to suppliers of goods.

f. Compute budgeted accounts payable for goods at the end of February.

g. Cash at the end of February is $45,000. Cash disbursements are not required for anything other than payments to suppliers and fixed costs. Compute the budgeted cash balance at the end of March.

SOLUTIONS

.AprilMayJuneTotal

Desired ending inventory$ 9,180$ 9,810$ 9,450$ 9,450

Plus COGS 31,80030,60032,70095,100

Total needed 40,98040,41042,150104,550

Less beginning inventory9,5409,1809,8109,540

Total purchases$31,440$31,230$32,340$ 95,010

.a.JulyAugustSeptember

Budgeted sales 120,000210,000150,000

Add: Required ending inventory42,00030,00036,000

Total inventory requirements 162,000240,000186,000

Less: Beginning inventory24,00042,00030,000

Budgeted production138,000198,000156,000

b.JulyAugustSeptember

Production in units138,000198,000156,000

Targeted ending inventory in lbs.*297,000234,000**252,000

Production needs in lbs.***690,000990,000780,000

Total requirements in lbs.987,0001,224,0001,032,000

Less: Beginning inventory in lbs.****207,000297,000234,000

Purchases needed in lbs.780,000927,000798,000

Cost ($8 per lb.) x $8 x $8 x $8

Total material purchases$6,240,000$7,416,000$6,384,000

* 0.3 times next month's needs

** (180,000 + 24,000 - 36,000) times 5 lbs. x 0.3

*** 5 lbs. times units to be produced

**** (690,000 x .3) = 207,000 lbs.

.a.Production budget Boxes Trays

Units of sales 42,000 24,000

Units desired in ending inv. 3,500 2,000

Units needed 45,500 26,000

Units in beginning inv. (1,000) (500)

Budgeted production 44,500 25,500

b.Purchases budget - Material A Total

Units needed for production (89,000 + 25,500) 114,500

Required ending inventory (annual units 12) 9,542

Total requirements 124,042

Less beginning inventory (4,000)

Pounds to be purchased 120,042

Purchases budget - Material B

Units needed for production (178,000 + 102,000) 280,000

Required ending inventory (annual units 12) 23,333

Total requirements 303,333

Less beginning inventory (6,000)

Pounds to be purchased 297,333

c.Direct labor budget

Required hours 89,000 51,000 140,000

d.Overhead budget

Activity base (hours) 89,000 51,000

Multiply by rate $2 $2

Overhead cost $178,000 $102,000 $280,000

.Schedules of Cash Receipts and Disbursements for June

Cash Receipts:From current month sale (June)(.7 85,000) $59,500From 1 month prior sale (May) (.2 90,000) 18,000From 2 month prior sale (April)(.1 80,000) 8,000Total cash receipts $85,500Cash Disbursements:May purchases @ 98% (less discount)(.98 40,000)$39,200Operating expenses 5,000Total cash disbursements $44,200Net increase in cash for June $41,300

.Income after taxes$260,000

Accr. income tax expense (no cash involved) 62,000

Increase in A/R (collected less than sold) (41,000)

Decrease in A/P (paid for more than purch.) (18,300)

Depreciation (no cash involved) 71,200

Estimated bad debts (no cash involved) 13,100

Projected increase in cash$347,000

Note: The declaration of a dividend does not affect cash, nor does it affect net income for the period.

.(1)Bagel Factory Inc.

Cash Budget

For MarchJune, 19

March April May June

Receipts from:

Cash sales$10,000$6,000$8,000$11,000

January credit sales (60% x $12,000)7,200

February credit sales: 30% x $9,0002,700

60% x $9,0005,400

March credit sales1,5003,000

April credit sales6001,200

May credit sales 1,800

Total receipts$19,900$12,900$11,600$14,000

Disbursements for:

Payroll$2,000$1,500$2,500$3,000

Other expenses2,5002,4002,6002,800

February purchases (25% x $5,000)1,250

March purchases2,250750

April purchases1,950650

May purchases2,100700

June purchases3,000

Tax payment 15,000

Total disbursements $8,000$6,600$7,850$24,500

Net increase (decrease) in cash$11,900$6,300$3,750$(10,500)

Cash balances:

Beginning 5,000 5,000 5,000 5,000

Ending$16,900$11,300$8,750$ (5,500)

(2)

Available for investing$11,900$6,300$3,750

Needed to borrow$10,5001

1$5,500 + $5,000 minimum cash balance

.Cash Budget

a.(72,000* 0.48) + ($120,000 0.50) = $94,560

*January sales: ($34,560 + $1,440) 0.50 = $72,000

b.Beginning inventory $ 52,400

Purchases ($120,000 0.75 0.55) +($130,000 0.75 0.45)93,375

Cost of Goods Sold ($120,000 0.75) (90,000)

Ending inventory $ 55,775

c.First, determine expected earnings for February:

Sales $120,000

CGS (90,000)

Gross margin $ 30,000

Operating expenses (25,500)

Net income $ 4,500

Retained earnings, beginning balance $(14,000)

Earnings 4,500

Ending balance $( 9,500)

d.Beginning balance $ 12,000

Cash collections 94,560

Cash available $106,560

Cash disbursements:

Accounts Payable $70,200

Other 21,500 91,700

Cash excess $ 14,860

Since there is a cash excess of $14,860, ($14,860 - $8,000) = $6,860 is available for investment.

.WKRP, Inc.

Budgeted Cost of Goods Manufactured and Sold Statement

For Year Ending December 31, 19--

Materials:

Beginning inventory$5,000,000

Purchases 11,500,0005

Materials available for use$16,500,000

Less ending inventory 4,000,000

Cost of materials used$12,500,000

Labor13,500,000

Factory overhead 1,000,0004

Total manufacturing cost$27,000,0003

Add beginning work in process inventory 1,000,000

$28,000,000

Deduct ending work in process inventory 3,000,000

Cost of goods manufactured$25,000,0002

Add beginning finished goods inventory 8,000,000

Cost of goods available for sale$33,000,000

Deduct ending finished goods inventory 10,000,000

Cost of goods sold$23,000,0001

1Earnings (10% of $50,000,000 = 5,000,000)12.5% of sales

Marketing and administrative expenses 30.0%

42.5 % of sales

Cost of goods sold ($23,000,000) 57.5%

100.0%of sales

2.Cost of goods sold + Ending finished goods inventory + Beginning finished goods inventory = Cost of goods manufactured

$23,000,000 + $10,000,000 $8,000,000 = $25,000,000

3Costs of goods manufactured + Ending work in process inventory Beginning work in process inventory = Total manufacturing cost (materials, labor, and factory overhead)

$25,000,000 + $3,000,000 $1,000,000 = $27,000,000

4Total manufacturing cost Labor (50% of manufacturing cost) Cost of materials used = Factory overhead

$27,000,000 $13,500,000 $12,500,000 = $1,000,000

5Cost of materials used + Ending materials inventory Beginning materials inventory =Materials purchases

$12,500,000 + $4,000,000 $5,000,000 = $11,500,000

.(1)The net income must equal 20% of $4,000,000, or $800,000.

(2)Podunk Pottery Company

Budgeted Income Statement

For Year Ending December 31, 19

Sales$1,541,667

Less cost of goods sold:

Variable manufacturing expenses$462,500

Fixed manufacturing expenses100,000562,500

Gross profit$979,167

Sales commissions$154,167

Fixed general and administrative expenses 25,000179,167

Net income$800,000

. Bennett Novelty Wholesale Store

Pro Forma Income Statement

For the Month Ended May 31, 2001

Sales$300,000

Cost of goods sold ($300,000 ( 1.5)(200,000)

Gross margin$100,000

Selling and administrative expenses$40,000

Depreciation expense 5,000

Bad debts expense ($300,000 3%) 9,000 54,000

Net income$ 46,000

.Sales (126,000 x $3.24)$408,240

Less: COGS (126,000 x $1.80)226,800

Gross margin181,440

Operating expenses ($28,000 + $79,800) 107,800

Net income$ 73,640

.a.Income Statement

For the Month of June 20x3

Sales$800,000

Cost of goods sold:

Materials used$200,000

Wages140,000

Depreciation24,000

Insurance4,000

Maintenance28,000

Utilities 16,000412,000

Gross profit$388,000

Operating expenses:

Selling expenses$60,000

Office salaries80,000140,000

Net income$248,000

b.Russell Company

Balance Sheet

June 30, 20x3

Assets:Liabilities and Owners Equity:

Cash$ 56,000Accounts payable$ 40,000

Accounts receivable100,000Bonds payable160,000

Inventories180,000Capital stock400,000

Equipment, net240,000Retained earnings*376,000

Buildings, net400,000

Total$976,000Total$976,000

*$976,000 ($40,000 + $160,000 + $400,000) = $376,000

.Budgeted Income Statement and Purchases Budget (20 minutes)

1.Budgeted income statement for first three months of 20X9

Sales ($70,000 + $70,000 + $90,000) $230,000

Cost of sales at 60% 138,000

Gross profit 92,000

Fixed costs ($12,000 x 3) 36,000

Income $ 56,000

2.Purchases budget

January February March TotalCost of sales*$ 42,000 $ 42,000 $ 54,000 $138,000Desired ending inventory** 63,000 81,000 72,000 72,000 Total requirements105,000 123,000 126,000 210,000 Beginning inventory 55,000 63,000 81,000 55,000Purchases$ 50,000 $ 60,000 $ 45,000 $155,000

* 60% of month's sales

**1.5 x coming month's cost of sales; $63,000 = 1.5 x $42,000; $81,000 =

1.5 x $54,000; $72,000 = 1.5 x $80,000 x .60 (April cost of sales)

Note to the Instructor: We urge stressing that inventory, and hence purchases, must be stated in cost dollars, not selling prices. Despite the attention paid to this point in the chapter, some students will insist on interpreting "one and onehalf times the coming month's budgeted sales" as meaning that inventory is 1.5 times sales for the coming month, not cost of sales.

.Cash Budget and Pro Forma Balance Sheet (Continuation of 69) (2025 minutes)

1.Cash receipts budget

JanuaryFebruaryMarchTotalSales budget$ 70,000$ 70,000$ 90,000Collections from:Current month (60%)$ 42,000$ 42,000$ 54,000$138,000Prior month (40%)30,00028,00028,00086,000Total$ 72,000$ 70,000$ 82,000$224,000

2.Cash disbursements budget

JanuaryFebruaryMarchTotalPurchases (6-9)$ 50,000$ 60,000$ 45,000Payments for purchases:Current month (40%)$ 20,000$ 24,000$ 18,000$ 62,000Prior month (60%)18,00030,00036,00084,000Fixed costs12,00012,00012,00036,000Total$ 50,000$ 66,000$ 66,000$182,000

3. Cash budget

JanuaryFebruaryMarchTotalBeginning balance$ 20,000$ 42,000$ 46,000$ 20,000Receipts72,00070,00082,000224,000Available92,000112,000128,000244,000Disbursements50,00066,00066,000182,000Ending balance$ 42,000$ 46,000$ 62,000$ 62,000

4. Pro Forma Balance Sheet as of March 31, 20X9

Assets

Cash (cash budget) $ 62,000

Accounts receivable (40% of March sales of $90,000) 36,000

Inventory (69 purchases budget) 72,000

Total assets $170,000

Equities

Accounts payable (60% x $45,000 March purchases) $ 27,000

Stockholders' equity 143,000*

Total equities $170,000

* $87,000 beginning balance + $56,000 income, from 6-9

.Budgeted Income Statement for a Manufacturer (510 minutes)

Sales (50 units x $40) $2,000

Variable costs:

Manufacturing, materials (50 x $12) $ 600

other (50 x $14) 700

Commissions, 15% of sales 300 1,600

Contribution margin 400

Fixed costs, manufacturing $ 150

other 70 220

Profit $ 180

.Production Budget for a Manufacturer (Continuation of 615) (510 minutes)

Variable manufacturing costs (50 units):

Materials (50 units x 4 lbs. per unit x $3 per lb.) $ 600

Other variable manufacturing cost [50 units x ($26 $12)] 700

Fixed manufacturing costs 150

Total production cost $1,450

.Purchases Budget for a Manufacturer (Continuation of 615 and 616) (10 minutes)

PoundsDollars

Pounds x $3Material needed for production (50 units x 4 lbs.)200$ 600Material needed for ending inventory 55 units x 4 lbs. x 20%44132Total required244732Material in beginning inventory, given34102Required purchases210$ 630

.Understanding Budgets (20 minutes)

1.$41,000

Receivable at December 31, 20X0 $ 31,000

Collected on January sales ($50,000 x 20%) 10,000

Total $ 41,000

2. $78,000 [($60,000 + $70,000) x 60%]

3.$49,000

January cost of sales, $50,000 x 60% $ 30,000

Required ending inventory, requirement 2 78,000

Total requirements 108,000

Beginning inventory, given 59,000

Purchases $ 49,000

4.$3,000

Sales, given $ 50,000

Cost of sales (60%) 30,000

Gross profit 20,000

Other variable costs (20%) 10,000

Contribution margin 10,000

Fixed costs, given 6,000

Income before taxes 4,000

Taxes, at 25% 1,000

Net income $ 3,000

5.$2,800

Balance, 12/31 (given in balance sheet) $ 33,000

Receipts from sales, requirement 1 41,000

Total 74,000

Disbursements:

December purchases (accounts payable at 12/31)$ 9,000

January purchases (80% of requirement 3) 39,200

Variable cost for January (20% of January sales) 10,000

January fixed costs, cash only 5,000

Taxes on December income (liability at 12/31) 8,000 71,200

Balance $ 2,800

6.$48,000 ($60,000 x 80%)

7.$99,000 [$102,000 (3 x $1,000)]

8.$7,800 (20% x $39,000)

March cost of sales (60% x $70,000) $ 42,000

Inventory 3/31 [60% x ($66,000 + $65,000)] 78,600

Required 120,600

Inventory 2/28 [60% x ($70,000 + $66,000)] 81,600

Purchases $ 39,000

9.$29,800

Retained earnings, 12/31 $ 28,000

Budgeted net income (requirement 4) 3,000

Total 31,000

Dividend 1,200

Budgeted retained earnings, 1/31 $ 29,800

10.$2,000, from March tax accrual. Taxes are paid in the month after accrual per item g.

Sales $ 70,000

Cost of sales at 60% 42,000

Gross profit 28,000

Other variable costs at 20% 14,000

Contribution margin 14,000

Fixed costs 6,000

Income before taxes $ 8,000

Income taxes at 25% $ 2,000

.a. March receipts: $264,000[($240,000 x 60%) + ($300,000 x 40%)]

b. Receivables at end of March:$180,000[$300,000 x (100% - 40%)]

c. Inventory at end of February: $420,000($300,000 x 70% x 2)

d. February purchases: $252,000[($240,000 x 70%) + ($300,000 x 2 x 70%) ($240,000 x 2 x 70%)]

e. March payments: $282,400[(252,000 x 20%) + ($290,000 x 80%)]

f. AP at end of February: $50,400($252,000 x 20%)

g. Cash at end of March: $2,600($25,000 + $264,000 - $282,400 - $24,000)

Exercises & ProblemsPage 1 of 8