Lt 10 Budget Hilton's Ex(1)(1)

Graduate School of Business

CRICOS Provider Code 00301J

BUDGETINGPractice Exercises from Hilton’s book

Lt 10

By

Anna 李 [email protected]



Sales Budget

Breakers, Inc. is preparing budgets for the Breakers, Inc. is preparing budgets for the quarter ending June 30.quarter ending June 30.

Budgeted sales for the next five months are:Budgeted sales for the next five months are: April April 20,000 units20,000 units May May 50,000 units50,000 units June June 30,000 units30,000 units July July 25,000 units25,000 units August August 15,000 units.15,000 units.

The selling price is $10 per unit.The selling price is $10 per unit.

Breakers, Inc. is preparing budgets for the Breakers, Inc. is preparing budgets for the quarter ending June 30.quarter ending June 30.

Budgeted sales for the next five months are:Budgeted sales for the next five months are: April April 20,000 units20,000 units May May 50,000 units50,000 units June June 30,000 units30,000 units July July 25,000 units25,000 units August August 15,000 units.15,000 units.

The selling price is $10 per unit.The selling price is $10 per unit.



Sales Budget

April May June QuarterBudgeted sales (units) 20,000 50,000 30,000 100,000 Selling price per unit 10$ 10$ 10$ 10$ Total Revenue 200,000$ 500,000$ 300,000$ 1,000,000$

April May June QuarterBudgeted sales (units) 20,000 50,000 30,000 100,000 Selling price per unit 10$ 10$ 10$ 10$ Total Revenue 200,000$ 500,000$ 300,000$ 1,000,000$



Production Budget

Sales Sales BudgetBudget

ProductionProductionBudgetBudget

Complete

d

Complete

d

Production must be adequate to meet budgetedProduction must be adequate to meet budgetedsales and provide for sufficient ending inventory.sales and provide for sufficient ending inventory.Production must be adequate to meet budgetedProduction must be adequate to meet budgeted

sales and provide for sufficient ending inventory.sales and provide for sufficient ending inventory.



Production Budget

The management of Breakers, Inc. wants The management of Breakers, Inc. wants ending inventory to be equal to 20% of the ending inventory to be equal to 20% of the following month’s budgeted sales in units.following month’s budgeted sales in units.

On March 31, 4,000 units were on hand.On March 31, 4,000 units were on hand.

Let’s prepare the production Let’s prepare the production budget.budget.

The management of Breakers, Inc. wants The management of Breakers, Inc. wants ending inventory to be equal to 20% of the ending inventory to be equal to 20% of the following month’s budgeted sales in units.following month’s budgeted sales in units.

On March 31, 4,000 units were on hand.On March 31, 4,000 units were on hand.

Let’s prepare the production Let’s prepare the production budget.budget.



April May June QuarterSales in units 20,000

Add: desired end. inventoryTotal neededLess: beg. inventoryUnits to be started


Add: desired end. inventoryTotal neededLess: beg. inventoryUnits to be started

Production Budget

From salesbudget




Add: desired end. inventory 10,000 Total needed 30,000 Less: beg. inventoryUnits to be started


Add: desired end. inventory 10,000 Total needed 30,000 Less: beg. inventoryUnits to be started

Production Budget




Add: desired end. inventory 10,000 Total needed 30,000 Less: beg. inventory 4,000 Units to be started 26,000


Add: desired end. inventory 10,000 Total needed 30,000 Less: beg. inventory 4,000 Units to be started 26,000

Production Budget

March 31March 31ending inventoryending inventory



April May June QuarterSales in units 20,000 50,000

Add: desired end. inventory 10,000 6,000 Total needed 30,000 56,000 Less: beg. inventory 4,000 10,000 Units to be started 26,000 46,000

April May June QuarterSales in units 20,000 50,000

Add: desired end. inventory 10,000 6,000 Total needed 30,000 56,000 Less: beg. inventory 4,000 10,000 Units to be started 26,000 46,000

Production Budget



April May June QuarterSales in units 20,000 50,000 30,000 100,000

Add: desired end. inventory 10,000 6,000 5,000 5,000 Total needed 30,000 56,000 35,000 105,000 Less: beg. inventory 4,000 10,000 6,000 4,000 Units to be started 26,000 46,000 29,000 101,000

April May June QuarterSales in units 20,000 50,000 30,000 100,000

Add: desired end. inventory 10,000 6,000 5,000 5,000 Total needed 30,000 56,000 35,000 105,000 Less: beg. inventory 4,000 10,000 6,000 4,000 Units to be started 26,000 46,000 29,000 101,000

Production Budget



Direct-Material Budget

• At Breakers, five pounds of material are At Breakers, five pounds of material are required per unit of product.required per unit of product.

• Management wants materials on hand at the Management wants materials on hand at the end of each month equal to 10% of the end of each month equal to 10% of the following month’s production.following month’s production.

• On March 31, 13,000 pounds of material are on On March 31, 13,000 pounds of material are on hand. Material cost $.40 per pound.hand. Material cost $.40 per pound.

Let’s prepare the direct materials budget.Let’s prepare the direct materials budget.

• At Breakers, five pounds of material are At Breakers, five pounds of material are required per unit of product.required per unit of product.

• Management wants materials on hand at the Management wants materials on hand at the end of each month equal to 10% of the end of each month equal to 10% of the following month’s production.following month’s production.

• On March 31, 13,000 pounds of material are on On March 31, 13,000 pounds of material are on hand. Material cost $.40 per pound.hand. Material cost $.40 per pound.

Let’s prepare the direct materials budget.Let’s prepare the direct materials budget.




From ourproduction

budget



10% of the following month’s production




March 31 inventory







June Ending InventoryJuly production in units 23,000 Materials per unit 5 Total units needed 115,000 Inventory percentage 10%June desired ending inventory 11,500


July ProductionSales in units 25,000 Add: desired ending inventory 3,000 Total units needed 28,000 Less: beginning inventory 5,000 Production in units 23,000

July ProductionSales in units 25,000 Add: desired ending inventory 3,000 Total units needed 28,000 Less: beginning inventory 5,000 Production in units 23,000



Direct-Labor Budget

• At Breakers, each unit of product requires 0.1 hours At Breakers, each unit of product requires 0.1 hours of direct labor.of direct labor.

• The Company has a “no layoff” policy so all The Company has a “no layoff” policy so all employees will be paid for 40 hours of work each employees will be paid for 40 hours of work each week.week.

• In exchange for the “no layoff” policy, workers agreed In exchange for the “no layoff” policy, workers agreed to a wage rate of $8 per hour regardless of the hours to a wage rate of $8 per hour regardless of the hours worked (No overtime pay).worked (No overtime pay).

• For the next three months, the direct labor workforce For the next three months, the direct labor workforce will be paid for a minimum of 3,000 hours per month.will be paid for a minimum of 3,000 hours per month.

Let’s prepare the direct labor budget.Let’s prepare the direct labor budget.

• At Breakers, each unit of product requires 0.1 hours At Breakers, each unit of product requires 0.1 hours of direct labor.of direct labor.

• The Company has a “no layoff” policy so all The Company has a “no layoff” policy so all employees will be paid for 40 hours of work each employees will be paid for 40 hours of work each week.week.

• In exchange for the “no layoff” policy, workers agreed In exchange for the “no layoff” policy, workers agreed to a wage rate of $8 per hour regardless of the hours to a wage rate of $8 per hour regardless of the hours worked (No overtime pay).worked (No overtime pay).

• For the next three months, the direct labor workforce For the next three months, the direct labor workforce will be paid for a minimum of 3,000 hours per month.will be paid for a minimum of 3,000 hours per month.

Let’s prepare the direct labor budget.Let’s prepare the direct labor budget.



From ourproduction

budget

Direct-Labor Budget



Direct-Labor Budget



This is the greater oflabor hours required orlabor hours guaranteed.

Direct-Labor Budget



Direct-Labor Budget



Overhead Budget

Here is Breakers’ Overhead Budget for the quarter.



Selling and Administrative Expense Budget

• At Breakers, variable selling and At Breakers, variable selling and administrative expenses are $0.50 per unit administrative expenses are $0.50 per unit soldsold..

• Fixed selling and administrative expenses Fixed selling and administrative expenses are $70,000 per month.are $70,000 per month.

• The $70,000 fixed expenses include The $70,000 fixed expenses include $10,000 in depreciation expense that does $10,000 in depreciation expense that does not require a cash outflows for the month.not require a cash outflows for the month.

• At Breakers, variable selling and At Breakers, variable selling and administrative expenses are $0.50 per unit administrative expenses are $0.50 per unit soldsold..

• Fixed selling and administrative expenses Fixed selling and administrative expenses are $70,000 per month.are $70,000 per month.

• The $70,000 fixed expenses include The $70,000 fixed expenses include $10,000 in depreciation expense that does $10,000 in depreciation expense that does not require a cash outflows for the month.not require a cash outflows for the month.




From ourSales budget









• At Breakers, all sales are on account.At Breakers, all sales are on account.

• The company’s collection pattern is:The company’s collection pattern is: 70% collected in the month of sale,70% collected in the month of sale, 25% collected in the month following sale,25% collected in the month following sale, 5% is uncollected.5% is uncollected.

• The March 31 accounts receivable The March 31 accounts receivable balance of $30,000 will be collected in full.balance of $30,000 will be collected in full.

• At Breakers, all sales are on account.At Breakers, all sales are on account.

• The company’s collection pattern is:The company’s collection pattern is: 70% collected in the month of sale,70% collected in the month of sale, 25% collected in the month following sale,25% collected in the month following sale, 5% is uncollected.5% is uncollected.

• The March 31 accounts receivable The March 31 accounts receivable balance of $30,000 will be collected in full.balance of $30,000 will be collected in full.

Cash Receipts Budget









Cash Disbursement Budget

• Breakers pays $0.40 per pound for its Breakers pays $0.40 per pound for its materials.materials.

• One-half of a month’s purchases are paid for in One-half of a month’s purchases are paid for in the month of purchase; the other half is paid in the month of purchase; the other half is paid in the following month.the following month.

• No discounts are available.No discounts are available.

• The March 31 accounts payable balance is The March 31 accounts payable balance is $12,000.$12,000.

• Breakers pays $0.40 per pound for its Breakers pays $0.40 per pound for its materials.materials.

• One-half of a month’s purchases are paid for in One-half of a month’s purchases are paid for in the month of purchase; the other half is paid in the month of purchase; the other half is paid in the following month.the following month.

• No discounts are available.No discounts are available.

• The March 31 accounts payable balance is The March 31 accounts payable balance is $12,000.$12,000.



140,000 lbs. × $.40/lb. = $56,000







Cash Disbursement BudgetContinued

Breakers:Breakers:

– Maintains a 12% open line of credit for $75,000.Maintains a 12% open line of credit for $75,000.

– Maintains a minimum cash balance of $30,000.Maintains a minimum cash balance of $30,000.

– Borrows and repays loans on the last day of the Borrows and repays loans on the last day of the month.month.

– Pays a cash dividend of $25,000 in April.Pays a cash dividend of $25,000 in April.

– Purchases $143,700 of equipment in May and Purchases $143,700 of equipment in May and $48,300 in June paid in cash.$48,300 in June paid in cash.

– Has an April 1 cash balance of $40,000Has an April 1 cash balance of $40,000..

Breakers:Breakers:

– Maintains a 12% open line of credit for $75,000.Maintains a 12% open line of credit for $75,000.

– Maintains a minimum cash balance of $30,000.Maintains a minimum cash balance of $30,000.

– Borrows and repays loans on the last day of the Borrows and repays loans on the last day of the month.month.

– Pays a cash dividend of $25,000 in April.Pays a cash dividend of $25,000 in April.

– Purchases $143,700 of equipment in May and Purchases $143,700 of equipment in May and $48,300 in June paid in cash.$48,300 in June paid in cash.

– Has an April 1 cash balance of $40,000Has an April 1 cash balance of $40,000..



From our CashFrom our CashReceipts BudgetReceipts Budget




From our CashFrom our CashDisbursementsDisbursements

BudgetBudget




From our DirectFrom our DirectLabor BudgetLabor Budget




From ourFrom ourOverhead BudgetOverhead Budget




From ourFrom ourSelling and AdministrativeSelling and Administrative

Expense BudgetExpense Budget




To maintain a cashbalance of $30,000,

Breakers must borrow$35,000 on its line of credit.




Ending cash balance for Aprilis the beginning May balance.

Cash Disbursement BudgetFinancing and Repayment




Breakers mustborrow an

addition $13,800to maintain acash balance

of $30,000.






At the end of June, Breakers has enough cash to repay

the $48,800 loan plus interest at 12%.













Budgeted Income Statement

Cash Cash BudgetBudget

BudgetedBudgetedIncomeIncome

StatementStatement

Complete

d

After we complete the cash budget, we can prepareAfter we complete the cash budget, we can preparethe budgeted income statement for Breakers.the budgeted income statement for Breakers.



Budgeted Ending Inventory

Production costs per unit Quantity Cost Total Direct materials 5.00 lbs. 0.40$ 2.00$ Direct labor 0.10 hrs. 8.00$ 0.80 Manufacturing overhead 0.10 hrs. 18.02$ 1.80

4.60$

Budgeted finished goods inventory Ending inventory in units 5,000 Unit product cost 4.60$ Ending finished goods inventory 23,000$

Production costs per unit Quantity Cost Total Direct materials 5.00 lbs. 0.40$ 2.00$ Direct labor 0.10 hrs. 8.00$ 0.80 Manufacturing overhead 0.10 hrs. 18.02$ 1.80

4.60$

Budgeted finished goods inventory Ending inventory in units 5,000 Unit product cost 4.60$ Ending finished goods inventory 23,000$

Total overhead $191,000 Total labor hours 10,600 hrs.

= $18.02 per hr.*

*rounded

Manufacturing overhead is applied on the basis of direct labor Manufacturing overhead is applied on the basis of direct labor hourshours..



Budgeted Income Statement

Revenue (100,000 × $10) 1,000,000$ Cost of goods sold (100,000 × $4.60) 460,000 Gross margin 540,000 Operating expenses: Selling and admin. Expenses 260,000$ Interest expense 838 Total operating expenses 260,838 Net income 279,162$

Breakers, Inc.Budgeted Income Statement

For the Three Months Ended June 30

Revenue (100,000 × $10) 1,000,000$ Cost of goods sold (100,000 × $4.60) 460,000 Gross margin 540,000 Operating expenses: Selling and admin. Expenses 260,000$ Interest expense 838 Total operating expenses 260,838 Net income 279,162$

Breakers, Inc.Budgeted Income Statement

For the Three Months Ended June 30



Budgeted Balance Sheet

Breakers reports the following account Breakers reports the following account balances on June 30 prior to preparing its balances on June 30 prior to preparing its

budgeted financial statements:budgeted financial statements:– Land - $50,000Land - $50,000– Building (net) - $148,000Building (net) - $148,000– Common stock - $200,000Common stock - $200,000– Retained earnings - $46,400Retained earnings - $46,400

Breakers reports the following account Breakers reports the following account balances on June 30 prior to preparing its balances on June 30 prior to preparing its

budgeted financial statements:budgeted financial statements:– Land - $50,000Land - $50,000– Building (net) - $148,000Building (net) - $148,000– Common stock - $200,000Common stock - $200,000– Retained earnings - $46,400Retained earnings - $46,400



25%of Junesales of $300,000

11,500 lbs. at11,500 lbs. at$.40 per lb.$.40 per lb.

5,000 units at$4.60 per unit.



50% of June50% of Junepurchases purchases of $56,800of $56,800



Good EveningGood Evening

Documents

Lt 10 Budget Hilton's Ex(1)(1)