CHAPTER 9
Financial Planning and Analysis:
The Master Budget
Solutions to exercises
EXERCISE 9-21 (20 MINUTES)
1.
The total required production is 131,144 units, computed as follows:
Budgeted Sales
(in units)
June
July
August
September
October
40,000 (given)
42,000 (40,000  1.05)
44,100 (42,000  1.05)
46,305 (44,100  1.05)
Planned Ending Inventory
(in units)
32,000 (40,000  80%)
37,044 (46,305  80%)
Sales in units:
2.
July ................................................................................................................
August ...........................................................................................................
September.....................................................................................................
Total for third quarter...................................................................................
Add: Desired ending inventory, September 30 ..........................................
Subtotal .........................................................................................................
Deduct: Desired ending inventory, June 30 ...............................................
Total required production ............................................................................
40,000
42,000
44,100
126,100
37,044
163,144
32,000
131,144
Assumed production during third quarter (in units) .................................
Raw-material requirements per unit of product (in pounds) ....................
Raw material required for production in third quarter (in pounds) ..........
Add: Desired ending raw-material inventory, September 30
(480,000  25%) ....................................................................................
Subtotal .........................................................................................................
Deduct: Ending raw-material inventory, June 30.......................................
Raw material to be purchased during third quarter (in pounds) ..............
Cost per pound of raw material ...................................................................
Total raw-material purchases during third quarter....................................
120,000

4
480,000
120,000
600,000
140,000
460,000
 $1.40
$ 644,000
EXERCISE 9-23 (20 MINUTES)
1.
Sales ...........................................................
Cash receipts:
From cash sales ....................................
From sales on account .........................
Total cash receipts ....................................
2.
a$270,000
= $135,000  2
b$120,000
= $240,000  .5
c$
= $180,000  .5
90,000
July
$240,000
$ 120,000b
108,000d
$ 228,000
d$108,000
=
($120,000  .6) + ($90,000  .4)
e$117,000
=
($135,000  .6) + ($90,000  .4)
$
$
August
$180,000
September
$270,000a
90,000c
102,000
192,000
$ 135,000
117,000e
$ 252,000
Accounts payable, 12/31/x0 ................................................................
Purchases of goods and services on account during 20x1 .............
Payments of accounts payable during 20x1 .....................................
Accounts payable, 12/31/x1 ................................................................
€ 600,000
2,400,000
(2,200,000)*
€ 800,000
*€ 2,200,000 = € 600,000 + € 2,400,000 – € 800,000
3.
Accounts receivable, 12/31/x0............................................................
Sales on account during 20x1 ............................................................
Collections of accounts receivable during 20x1...............................
Accounts receivable, 12/31/x1............................................................
¥ 1,700,000
4,500,000
(3,900,000)
¥ 2,300,000
4.
Accumulated depreciation, 12/31/x0 ..................................................
Depreciation expense during 20x1 ....................................................
Accumulated depreciation, 12/31/x1 ..................................................
$ 405,000
75,000
$ 480,000
5.
Retained earnings, 12/31/x0 ...............................................................
Net income for 20x1 ............................................................................
Dividends paid in 20x1 ........................................................................
Retained earnings, 12/31/x1 ...............................................................
$1,537,500
300,000
0
$1,837,500
EXERCISE 9-24 (15 MINUTES)
1.
Production (in units) required for the year:
Sales for the year ..........................................................................................
360,000
Add: Desired ending finished-goods inventory on December 31 .............
Deduct: Beginning finished-goods inventory on January 1 ......................
Required production during the year ..........................................................
2.
35,000
55,000
340,000
Purchases of raw material (in units), assuming production of 350,000 finished units:
Raw material required for production (350,000  2) ...................................
Add: Desired ending inventory on December 31 ........................................
Deduct: Beginning inventory on January 1 ................................................
Required raw-material purchases during the year .....................................
700,000
31,000
26,000
705,000
EXERCISE 9-25 (20 MINUTES)
1.
WHITE MOUNTAIN FURNITURE SHOWROOM
EXPECTED CASH COLLECTIONS
NOVEMBER
Month
September ........................................
October .............................................
November .........................................
Total ..............................................
2.
Sales
$200,000
400,000
300,000
Percent
8%
30%
60%
WHITE MOUNTAIN FURNITURE SHOWROOM
EXPECTED CASH DISBURSEMENTS
NOVEMBER
October purchases to be paid in November ................................................
Less: 3% cash discount ................................................................................
Net ...............................................................................................................
Cash disbursements for expenses ...............................................................
Total ............................................................................................................
3.
Expected
Collections
$ 16,000
120,000
180,000
$316,000
$150,000
4,500
$145,500
40,000
$185,500
WHITE MOUNTAIN FURNITURE SHOWROOM
EXPECTED CASH BALANCE
NOVEMBER 30
Balance, November 1 .....................................................................................
Add: Expected collections ............................................................................
Less: Expected disbursements ....................................................................
Expected balance ......................................................................................
$ 68,500
316,000
185,500
$199,000
Solutions to Problems
PROBLEM 9-31 (30 MINUTES)
1.
Schedule of cash collections:
January
Collection of accounts receivable:
$210,000 x 30% .........................................
Collection of January sales ($600,000):
70% in January; 25% in February ...........
Collection of February sales ($750,000):
70% in February; 25% in March ..............
Collection of March sales ($810,000):
70% in March ............................................
Sale of equipment ..........................................
Total cash collections .............................
2.
February
$ 63,000
420,000
$483,000
$150,000
525,000
$187,500
$675,000
567,000
31,500
$786,000
Schedule of cash disbursements:
January
Payment of accounts payable ......................
Payment of January purchases ($420,000):
80% in January; 20% in February ...........
Payment of February purchases ($550,000):
80% in February; 20% in March ..............
Payment of March purchases ($680,000):
80% in March ............................................
Cash operating costs ....................................
Total cash disbursements .......................
3.
March
February
March
$ 81,000
336,000
113,000
$530,000
$ 84,000
440,000
$110,000
86,000
$610,000
544,000
150,000
$804,000
Schedule of cash needs:
January
February
March
Beginning cash balance………………………. $ 50,000
Total receipts…………………………………….
483,000
Subtotal………………………………………. $533,000
Less: Total disbursements……………………
530,000
Cash excess (deficiency) before financing… $ 3,000
Financing:
Borrowing to maintain $50,000 balance..
47,000
Loan principal repaid………………………
Loan interest paid…………………………..
Ending cash balance…………………………… $ 50,000
$ 50,000
675,000
$725,000
610,000
$115,000
$ 67,530
786,000
$853,530
670,000
$183,530
(47,000)
(470)*
$ 67,530
-0-0-0$183,530
* $47,000 x 6% x 2/12
PROBLEM 9-32 (40 MINUTES)
1.
Production and direct-labor budgets
SHADY SHADES, INC.
BUDGET FOR PRODUCTION AND DIRECT LABOR
FOR THE FIRST QUARTER OF 20X1
Sales (units) .....................................................
Add: Ending inventory* ...................................
Total needs .......................................................
Deduct: Beginning inventory ..........................
Units to be produced .......................................
Direct-labor hours per unit ..............................
Total hours of direct labor
time needed .................................................
Direct-labor costs:
Wages ($16.00 per DLH)† ............................
Pension contributions
($.50 per DLH) .........................................
Workers' compensation
insurance ($.20 per DLH) ........................
Employee medical insurance
($.80 per DLH) .........................................
Employer's social security
(at 7%) ......................................................
Total direct-labor cost .....................................
January
20,000
32,000
52,000
32,000
20,000

1
Month
February
24,000
25,000
49,000
32,000
17,000

1
March
16,000
27,000
43,000
25,000
18,000

.75
Quarter
60,000
27,000
87,000
32,000
55,000
20,000
17,000
13,500
50,500
$320,000
$272,000
$216,000
$808,000
10,000
8,500
6,750
25,250
4,000
3,400
2,700
10,100
16,000
13,600
10,800
40,400
22,400
$372,400
19,040
$316,540
15,120
$251,370
56,560
$940,310
*100 percent of the first following month's sales plus 50 percent of the second following
month's sales.
†DLH denotes direct-labor hour.
2.
Use of data throughout the master budget (excluding financial statement budgets):
Components of the master budget, other than the production budget and the directlabor budget, that would also directly or indirectly use the sales data include the
following:
 Sales budget
 Cost-of-goods-sold budget
 Selling and administrative expense budget
Components of the master budget, other than the production budget and the directlabor budget, that would also directly or indirectly use the production data include the
following:
 Direct-material budget
 Production-overhead budget
 Cost-of-goods-sold budget
Components of the master budget, other than the production budget and the directlabor budget, that would also directly or indirectly use the direct-labor-hour data
include the following:
 Production-overhead budget (for determining the overhead application rate)
 Cash disbursements budget
 Cash budget
Components of the master budget, other than the production budget and the directlabor budget, that would also directly or indirectly use the direct-labor cost data
include the following:
 Production-overhead budget (for determining the overhead application rate)
 Cost-of-goods-sold budget
 Cash disbursements budget
 Cash budget
3. Production overhead budget:
SHADY SHADES, INC.
PRODUCTION OVERHEAD BUDGET
FOR THE FIRST QUARTER OF 20X1
Month
January
Shipping and handling ...............
Purchasing, material handling,
and inspection ............................
Other overhead ...........................
Total production overhead .........
February
March
Quarter
$ 60,000
$ 72,000
$48,000
$180,000
90,000
210,000
$360,000
76,500
178,500
$327,000
81,000
141,750
$270,750
247,500
530,250
$957,750
PROBLEM 9-42 (120 MINUTES)
1.
Sales budget:
20x0
Total sales........................
Cash sales* ......................
Sales on account† ...........
20x1
December
$800,000
200,000
600,000
January February
$880,000 $968,000
220,000
242,000
660,000
726,000
March
$1,064,800
266,200
798,600
First
Quarter
$2,912,800
728,200
2,184,600
*25% of total sales.
†75% of total sales.
2.
Cash receipts budget:
20x1
Cash sales ............................................
Cash collections from credit
sales made during current
month* ...............................................
Cash collections from credit
sales made during preceding
month† ...............................................
Total cash receipts ...............................
3.
January
$220,000
February
$242,000
March
$266,200
First
Quarter
$ 728,200
66,000
72,600
79,860
218,460
540,000
$826,000
594,000
$908,600
653,400
$999,460
1,787,400
$2,734,060
*10% of current month's credit sales.
†90% of previous month's credit sales.
Purchases budget:
20x0
December
Budgeted cost of
goods sold .................. $560,000
Add: Desired
ending inventory ........ 308,000
Total goods
needed ........................ $868,000
Less: Expected
beginning
inventory..................... ††280,000
Purchases ........................ $588,000
20x1
January
February
March
First
Quarter
$616,000
$677,600
$745,360
$2,038,960
338,800
372,680
372,680*
372,680†
$954,800
$1,050,280
$1,118,040
$2,411,640
308,000
$646,800
338,800
$711,480
372,680
$745,360
308,000**
$2,103,640
*Since April's expected sales and cost of goods sold are the same as the projections
for March, the desired ending inventory for March is the same as that for February.
†The
desired ending inventory for the quarter is equal to the desired ending inventory
on March 31, 20x1.
**The beginning inventory for the quarter is equal to the December ending inventory.
††50%
4.
x $560,000 (where $560,000 = December cost of goods sold = December sales of
$800,000 x 70%)
Cash disbursements budget:
20x1
March
First
Quarter
$284,592
$298,144
$ 841,456
352,800
388,080
426,888
1,167,768
$611,520
$672,672
$725,032
$2,009,224
Other expenses:
Sales salaries ..................................
Advertising and promotion ............
Administrative salaries ...................
Interest on bonds** .........................
Property taxes** ..............................
Sales commissions.........................
$ 42,000
32,000
42,000
30,000
-08,800
$ 42,000
32,000
42,000
-010,800
9,680
$ 42,000
32,000
42,000
-0-010,648
$ 126,000
96,000
126,000
30,000
10,800
29,128
Total cash payments for other
expenses .........................................
Total cash disbursements ...................
$154,800
$766,320
$136,480
$809,152
$126,648
$851,680
$ 417,928
$2,427,152
Inventory purchases:
Cash payments for purchases
during the current month* ........
Cash payments for purchases
during the preceding
month† .......................................
Total cash payments for
inventory purchases .......................
January
February
$258,720
*40% of current month's purchases [see requirement (3)].
†60%
5.
of the prior month's purchases [see requirement (3)].
**Bond interest is paid every six months, on January 31 and July 31. Property taxes also
are paid every six months, on February 28 and August 31.
Summary cash budget:
20x1
Cash receipts [from req. (2)]................
Cash disbursements
[from req. (4)] ..................................
Change in cash balance
during period due to operations ....
Sale of marketable securities
(1/2/x1) .............................................
Proceeds from bank loan
(1/2/x1) .............................................
Purchase of equipment ........................
Repayment of bank loan
(3/31/x1) ...........................................
Interest on bank loan* ..........................
Payment of dividends ..........................
January
$ 826,000
February
$ 908,600
March
$ 999,460
First
Quarter
$2,734,060
(766,320)
(809,152)
(851,680)
(2,427,152)
$ 59,680
$ 99,448
$147,780
$ 306,908
30,000
30,000
200,000
(250,000)
200,000
(250,000)
(200,000)
(5,000)
(100,000)
Change in cash balance during
first quarter ......................................
Cash balance, 1/1/x1 ............................
Cash balance, 3/31/x1 ..........................
(200,000)
(5,000)
(100,000)
$ (18,092)
70,000
$ 51,908
*$200,000  10% per year  1/4 year = $5,000
6.
7.
Analysis of short-term financing needs:
Projected cash balance as of December 31, 20x0 ......................................
Less: Minimum cash balance .......................................................................
Cash available for equipment purchases ....................................................
Projected proceeds from sale of marketable securities ............................
Cash available ...............................................................................................
Less: Cost of investment in equipment .......................................................
Required short-term borrowing ...................................................................
GLOBAL ELECTRONICS COMPANY
BUDGETED INCOME STATEMENT
FOR THE FIRST QUARTER OF 20X1
$ 70,000
50,000
$ 20,000
30,000
$ 50,000
250,000
$(200,000)
Sales revenue ........................................................................
Less: Cost of goods sold......................................................
Gross margin .........................................................................
Selling and administrative expenses:
Sales salaries ...................................................................
Sales commissions..........................................................
Advertising and promotion .............................................
Administrative salaries ....................................................
$2,912,800
2,038,960
$ 873,840
$126,000
29,128
96,000
126,000
8.
9.
Depreciation .....................................................................
150,000
Interest on bonds .............................................................
15,000
Interest on short-term bank loan ....................................
5,000
Property taxes ..................................................................
5,400
Total selling and administrative expenses ..........................
Net income .............................................................................
GLOBAL ELECTRONICS COMPANY
BUDGETED STATEMENT OF RETAINED EARNINGS
FOR THE FIRST QUARTER OF 20X1
Retained earnings, 12/31/x0 .......................................................................
Add: Net income ..........................................................................................
Deduct: Dividends .......................................................................................
Retained earnings, 3/31/x1 .........................................................................
GLOBAL ELECTRONICS COMPANY
BUDGETED BALANCE SHEET
MARCH 31, 20X1
552,528
$ 321,312
$ 215,000
321,312
100,000
$ 436,312
Cash ...............................................................................................................
Accounts receivable* ....................................................................................
Inventory ........................................................................................................
Buildings and equipment (net of accumulated depreciation)† ..................
Total assets ...................................................................................................
$
51,908
718,740
372,680
1,352,000
$2,495,328
Accounts payable** .......................................................................................
Bond interest payable ...................................................................................
Property taxes payable .................................................................................
Bonds payable (10%; due in 20x6) ...............................................................
Common Stock ..............................................................................................
Retained earnings .........................................................................................
Total liabilities and stockholders' equity .....................................................
$ 447,216
10,000
1,800
600,000
1,000,000
436,312
$2,495,328
*Accounts receivable, 12/31/x0 ....................................................................
Sales on account [req. (1)] ............................................................................
Total cash collections from credit sales
[(req. (2)] ($218,460 + $1,787,400) .............................................................
Accounts receivable, 3/31/x1 ........................................................................
†Buildings and equipment (net), 12/31/x0 ....................................................
Cost of equipment acquired .........................................................................
Depreciation expense for first quarter .........................................................
Buildings and equipment (net), 3/31/x1 .......................................................
**Accounts payable, 12/31/x0 .......................................................................
Purchases [req. (3)] .......................................................................................
Cash payments for purchases [req. (4)] ......................................................
Accounts payable, 3/31/x1 ............................................................................
$ 540,000
2,184,600
(2,005,860)
$ 718,740
$1,252,000
250,000
(150,000)
$1,352,000
$ 352,800
2,103,640
(2,009,224)
$ 447,216