EXERCISE 9-24 (15 MINUTES)
1.
Production (in units) required for the year:
Sales for the year ............................................................................................
Add: Desired ending finished-goods inventory on December 31 .............
Deduct: Beginning finished-goods inventory on January 1 ......................
Required production during the year ...........................................................
2.
480,000
50,000
80,000
450,000
Purchases of raw material (in units), assuming production of 500,000 finished units:
Raw material required for production (500,000  2)....................................
Add: Desired ending inventory on December 31 ........................................
Deduct: Beginning inventory on January 1 .................................................
Required raw-material purchases during the year ......................................
1,000,000
45,000
35,000
1,010,000
EXERCISE 9-27 (20 MINUTES)
1.
BINGHAMTON FILM CORPORATION
EXPECTED CASH COLLECTIONS
AUGUST
Month
June....................................................
July .....................................................
August................................................
Total ...............................................
2.
Sales
$60,000
78,000
66,000
Percent
9%
20%
70%
Expected
Collections
$ 5,400
15,600
46,200
$67,200
BINGHAMTON FILM CORPORATION
EXPECTED CASH DISBURSEMENTS
AUGUST
July purchases to be paid in August .............................................................
Less: 2% cash discount ..................................................................................
$ 54,000
1,080
Net .................................................................................................................
Cash disbursements for expenses ................................................................
Total ..............................................................................................................
$ 52,920
14,400
$ 67,320
EXERCISE 9-27 (CONTINUED)
3.
BINGHAMTON CORPORATION
EXPECTED CASH BALANCE
AUGUST 31
Balance, August 1............................................................................................
Add: Expected collections ..............................................................................
Less: Expected disbursements ......................................................................
Expected balance ........................................................................................
$ 22,000
67,200
67,320
$ 21,880
EXERCISE 9-29 (20 MINUTES)
1.
Total Sales in January 20x2
$100,000
$130,000
$160,000
Cash receipts in January, 20x2
From December sales on account ............
From January cash sales ..........................
From January sales on account ...............
Total cash receipts .....................................
$
7,125*
75,000†
20,000**
$ 102,125
$ 7,125
97,500
26,000
$130,625
$ 7,125
120,000
32,000
$159,125
*$7,125 = $190,000  .25  .15
†$75,000 = $100,000  .75
**$20,000 = $100,000  .25  .80
2.
Operational plans depend on various assumptions. Usually there is uncertainty about
these assumptions, such as sales demand or inflation rates. Financial planning helps
management answer "what if" questions about how the budget will look under various
sets of assumptions.
EXERCISE 9-30 (30 MINUTES)
1.
Budgeted cash collections for December:
Month of Sale
November ..............................................................
December...............................................................
Total cash collections ..........................................
2.
Collections in December
$ 76,000
$200,000  38%
132,000
220,000  60%
$208,000
Budgeted income (loss) for December:
Sales revenue .........................................................................
Less: Cost of goods sold (75% of sales).............................
Gross margin (25% of sales) ................................................
Less: Operating expenses: ...................................................
Bad debts expense (2% of sales) ..............................
Depreciation ($216,000/12) .........................................
Other expenses ...........................................................
Total operating expenses ...........................................
Income before taxes ..............................................................
3.
$220,000
165,000
$ 55,000
$ 4,400
18,000
22,600
45,000
$ 10,000
Projected balance in accounts payable on December 31:
The December 31 balance in accounts payable will be equal to December's purchases of
merchandise. Since the store's gross margin is 25 percent of sales, its cost of goods
sold must be 75 percent of sales.
Month
December....................
January .......................
Total December
purchases ................
Sales
$220,000
200,000
Cost of
Goods
Sold
$165,000
150,000
Amount Purchased in December
$ 33,000
$165,000  20%
120,000
150,000  80%
Therefore, the December 31 balance in accounts payable will be $153,000.
$153,000
SOLUTIONS TO PROBLEMS
PROBLEM 9-33 (25 MINUTES)
1.
Tuition revenue budget:
Current student enrollment…………………….
8,000
Add: 5% increase in student body……………
400
Total student body……………………………….
8,400
Less: Tuition-free scholarships……………….
120
8,280
Tuition-paying students…………………………
Credit hours per student per year…………….
x 30
Total credit hours………………………………..
248,400
Tuition rate per hour…………………………….
x $75
Forecasted tuition revenue……………………. $18,630,000
2.
Faculty needed to cover classes:
Total student body…………………………………….
8,400
Classes per student per year [(15 credit hours ÷ 3
credit hours) x 2 semesters]………………….
x 10
Total student class enrollments to be covered….
84,000
Students per class…………………………………….
÷ 25
Classes to be taught………………………………….
3,360
Classes taught per professor……………………….
÷ 5
Faculty needed…………………………………………
672
3.
Possible actions might include:
 Hire part-time instructors
 Use graduate teaching assistants
 Increase the teaching load for each professor
 Increase class size and reduce the number of sections to be offered
 Have students take an Internet-based course offered by another university
 Shift courses to a summer session
4.
No. While the number of faculty may be a key driver, the number of faculty is highly
dependent on the number of students. Students (and tuition revenue) are akin to
sales—the starting point in the budgeting process.
PROBLEM 9-34 (30 MINUTES)
1.
Schedule of cash collections:
Collection of accounts receivable:
$55,000 x 20%…………………………...
Collection of January sales ($150,000):
60% in January; 35% in February …..
Collection of February sales ($180,000):
60% in February; 35% in March……..
Collection of March sales ($185,000):
60% in March; 35% in April…………..
Sale of equipment………………………….
Total cash collections…………………
2.
January
February
$ 11,000
90,000
$101,000
$ 52,500
108,000
$ 63,000
$160,500
111,000
5,000
$179,000
Schedule of cash disbursements:
January
Payment of accounts payable………………... $ 22,000
Payment of January purchases ($90,000):
70% in January; 30% in February………..
63,000
Payment of February purchases ($100,000):
70% in February; 30% in March…………..
Payment of March purchases ($140,000):
70% in March; 30% in April………………..
Cash operating costs…………………………..
31,000
Total cash disbursements………………... $116,000
3.
March
February
March
$ 27,000
70,000
$ 30,000
24,000
$121,000
98,000
45,000
$173,000
Cash budget:
January
February
March
Beginning cash balance………………………. $ 20,000
Total receipts…………………………………….
101,000
Subtotal………………………………………. $121,000
Less: Total disbursements……………………
116,000
Cash excess (deficiency) before financing… $ 5,000
Financing:
Borrowing to maintain $20,000 balance..
15,000
Loan principal repaid………………………
Loan interest paid…………………………..
Ending cash balance…………………………… $ 20,000
$ 20,000
160,500
$180,500
121,000
$ 59,500
$ 44,300
179,000
$223,300
173,000
$ 50,300
(15,000)
(200)*
$ 44,300
$ 50,300
* $15,000 x 8% x 2/12
PROBLEM 9-35 (30 MINUTES)
1.
Sales are collected over a two-month period, 40% in the month of sale and 60% in the
following month. December receivables of $216,000 equal 60% of December’s sales;
thus, December sales total $360,000 ($216,000 ÷ .6). Since the selling price is $40
per unit, Badlands sold 9,000 units ($360,000 ÷ $40).
2.
Since the company expects to sell 10,000 units, sales revenue will total $400,000
(10,000 units x $40).
3.
Badlands collected 40% of February’s sales in February, or $156,800. Thus,
February’s sales total $392,000 ($156,800 ÷ .4). Combining January sales ($152,000 +
$228,000), February sales ($392,000), and March sales ($400,000), the company will
report revenue of $1,172,000.
4.
Sixty percent of March’s sales will be outstanding, or $240,000 ($400,000 x 60%).
5.
Finished-goods inventories are maintained at 20% of the following month’s sales.
January sales total $380,000 ($152,000 + $228,000), or 9,500 units ($380,000 ÷ $40).
Thus, the December 31 inventory is 1,900 units (9,500 x 20%).
6.
February sales will total 9,800 units ($392,000 ÷ $40), giving rise to a January 31
inventory of 1,960 units (9,800 x 20%). Letting X denote production, then:
12/31/x0 inventory + X – January 20x1 sales = 1/31/x1 inventory
1,900 + X - 9,500 = 1,960
X – 7,600 = 1,960
X = 9,560
7.
Financing required is $7,000 ($30,000 minimum balance - $23,000 ending balance):
Cash balance, January 1………………………… $ 45,000
Add: January receipts ($216,000 + $152,000)..
368,000
Subtotal………………………………………… $413,000
Less: January payments………………………… 390,000
Cash balance before financing…………………. $ 23,000
PROBLEM 9-39 (40 MINUTES)
1.
Empire Chemical Company’s production budget (in gallons) for the three products
for 20x2 is calculated as follows:
Sales for 20x2 .............................................
Add: Inventory, 12/31/x2
(.08 × 20x3 sales) ...................................
Total required..............................................
Deduct: Inventory, 12/31/x1
(.08 × 20x2 sales) ..................................
Required production in 20x2 .....................
2.
3.
Yarex
60,000
Darol
40,000
Norex
25,000
5,200
65,200
2,800
42,800
2,400
27,400
4,800
60,400
3,200
39,600
2,000
25,400
The company’s conversion cost budget for 20x2 is shown in the following schedule:
Conversion hours required:
Yarex (60,400 × .07) ....................................
Darol (39,600 × .10) .....................................
Norex (25,400 × .16) ....................................
Total hours ..................................................
4,228
3,960
4,064
12,252
Conversion cost budget (12,252 × $20)....
$245,040
Since the 20x1 usage of Islin is 100,000 gallons, the firm’s raw-material purchases
budget (in dollars) for Islin for 20x2 is as follows:
Quantity of Islin required for production in 20x2 (in gallons):
Yarex (60,400 × 1) .....................................................................
Darol (39,600 × .7) .....................................................................
Norex (25,400 × .5) ....................................................................
Subtotal ....................................................... ...................................
Add: Required inventory, 12/31/x2 (100,820 × .10)......................
Subtotal ...........................................................................................
Deduct: Inventory, 1/1/x2 (100,000 × .10) .....................................
Required purchases (gallons) .......................................................
Purchases budget (100,902 gallons × $5 per gallon)..................
60,400
27,720
12,700
100,820
10,082
110,902
10,000
100,902
$504,510
4.
The company should continue using Islin, because the cost of using Philin is $76,316
greater than using Islin, calculated as follows:
Change in material cost from substituting Philin for Islin:
20x2 production requirements:
Philin (100,820 × $5 × 1.2) ........................................................
Islin (100,820 × $5) ....................................................................
Increase in cost of raw material ....................................................
Change in conversion cost from substituting Philin for Islin:
Philin (12,252 × $20 × .9) ..........................................................
Islin (12,252 × $20) ....................................................................
Decrease in conversion cost.........................................................
Net increase in production cost....................................................
$604,920
504,100
$100,820
$220,536
245,040
$(24,504)
$ 76,316
PROBLEM 9-40 (60 MINUTES)
1.
Sales budget for 20x0:
Light coils .................................................................
Heavy coils ...............................................................
Projected sales ........................................................
2.
Units
60,000
40,000
Price
$120
170
Total
$ 7,200,000
6,800,000
$14,000,000
Production budget (in units) for 20x0:
Projected sales ...............................................................................
Add: Desired inventories,
December 31, 20x0 .....................................................................
Total requirements .........................................................................
Deduct: Expected inventories, January 1, 20x0 ..........................
Production required (units) ...........................................................
Light Coils Heavy Coils
60,000
40,000
25,000
85,000
20,000
65,000
9,000
49,000
8,000
41,000
3.
Raw-material purchases budget (in quantities) for 20x0:
Sheet
Metal
Light coils (65,000 units projected
to be produced)..................................................
Heavy coils (41,000 units projected
to be produced)..................................................
Production requirements ........................................
Add: Desired inventories, December 31, 20x0 .....
Total requirements ..................................................
Deduct: Expected inventories,
January 1, 20x0 ..................................................
Purchase requirements (units)...............................
4.
Platforms
260,000
130,000
__
205,000
465,000
36,000
501,000
123,000
253,000
32,000
285,000
41,000
41,000
7,000
48,000
32,000
469,000
29,000
256,000
6,000
42,000
Raw-material purchases budget for 20x0:
Raw Material
Required
Raw Material
(units)
Sheet metal..............................................................
469,000
Copper wire .............................................................
256,000
Platforms .................................................................
42,000
Total .........................................................................
5.
Raw Material
Copper
Wire
Anticipated
Purchase
Price
$8
5
3
Total
$3,752,000
1,280,000
126,000
$5,158,000
Direct-labor budget for 20x0:
Light coils .....................................
Heavy coils ...................................
Total ..............................................
Projected
Production
(units)
65,000
41,000
Hours
per
Unit
2
3
Total
Hours
130,000
123,000
Rate
$15
20
Total
Cost
$1,950,000
2,460,000
$4,410,000
6.
Manufacturing overhead budget for 20x0:
Purchasing and material handling ........................
Depreciation, utilities, and inspection ..................
Shipping...................................................................
General manufacturing overhead .........................
Cost Driver
Quantity
Cost
Driver
Rate
725,000 lb.a
106,000 coils b
100,000c
253,000 hr. d
$.25
$4.00
$1.00
$3.00
Total manufacturing overhead ..............................
Budgeted
Cost
$181,250
424,000
100,000
759,000
$1,464,250
a725,000
= 469,000 + 256,000 (from req. 3)
= 65,000 + 41,000 (from req. 2)
c100,000 = 60,000 + 40,000 (total units sold, from problem)
b106,000
d
253,000 = 130,000 + 123,000 (from req. 5)
PROBLEM 9-41 (45 MINUTES)
1.
The benefits that can be derived from implementing a budgeting system include the
following:
 The preparation of budgets forces management to plan ahead and to establish
goals and objectives that can be quantified.
 Budgeting compels departmental managers to make plans that are in congruence
with the plans of other departments as well as the objectives of the entire firm.
 The budgeting process promotes internal communication and coordination.
 Budgets provide directions for day-to-day control of operations, clarify duties to
be performed, and assign responsibility for these duties.
 Budgets help in measuring performance and providing incentives.
 Budgets provide a vehicle for resource allocation.
2.
a. Schedule
Sales Budget
b. Subsequent Schedule
Production Budget
Selling Expense Budget
Budgeted Income Statement
Ending Inventory Budget (units)
Production Budget
Production Budget (units)
Direct-Material Budget
Direct-Labor Budget
Manufacturing-Overhead Budget
Direct-Material Budget
Cost-of-Goods-Manufactured Budget
Direct-Labor Budget
Cost-of-Goods-Manufactured Budget
Manufacturing-Overhead Budget
Cost-of-Goods-Manufactured Budget
Cost-of-Goods-Manufactured Budget
Cost-of-Goods-Sold Budget
Cost-of-Goods-Sold Budget (includes
ending inventory in dollars)
Budgeted Income Statement
Budgeted Balance Sheet
Selling Expense Budget
Budgeted Income Statement
Research and Development Budget
Budgeted Income Statement
Administrative Expense Budget
Budgeted Income Statement
Budgeted Income Statement
Budgeted Balance Sheet
Budgeted Statement of Cash Flows
Capital Expenditures Budget
Cash Receipts and Disbursements Budget
Budgeted Balance Sheet
Budgeted Statement of Cash Flows
Cash Receipts and Disbursements
Budget
Budgeted Balance Sheet
Budgeted Statement of Cash Flows
Budgeted Balance Sheet
Budgeted Statement of Cash Flows
Budgeted Statement of Cash Flows
PROBLEM 9-43 (60 MINUTES)
1.
Sales budget:
Box C
500,000
 $.90
$450,000
Sales (in units)
Sales price per unit
Sales revenue
2.
Box P
500,000
 $1.30
$650,000
$1,100,000
Production budget (in units):
Sales .......................................................................................
Add: Desired ending inventory ...........................................
Total units needed ................................................................
Deduct: Beginning Inventory ...............................................
Production requirements .....................................................
3.
Total
Box C
500,000
5,000
505,000
10,000
495,000
Box P
500,000
15,000
515,000
20,000
495,000
Raw-material budget:
PAPERBOARD
Production requirement (number of boxes) ..........
Raw material required per box (pounds) ................
Raw material required for
production (pounds) .............................................
Add: Desired ending
raw-material inventory..........................................
Total raw-material needs ..........................................
Deduct: Beginning raw-material inventory ............
Raw material to be purchased .................................
Price (per pound) ......................................................
Cost of purchases (paperboard) .............................
Box C
495,000

.3
Box P
495,000

.7
Total
148,500
346,500
495,000
5,000
500,000
15,000
485,000
 $.20
$ 97,000
CORRUGATING MEDIUM
Production requirements (number of boxes) ........
Raw material required per box (pounds) ................
Raw material required for
production (pounds) .............................................
Add: Desired ending
raw-material inventory..........................................
Total raw-material needs ..........................................
Deduct: Beginning raw-material inventory ............
Raw material to be purchased .................................
Price (per pound) ......................................................
Cost of purchases (corrugating medium) ..............
Total cost of raw-material purchases
($97,000 + $25,250) ...............................................
4.
Box P
495,000

.3
Total
99,000
148,500
247,500
10,000
257,500
5,000
252,500
 $.10
$ 25,250
$122,250
Direct-labor budget:
Production requirements (number of boxes)
Direct labor required per box (hours) .....................
Direct labor required for production (hours)
Direct-labor rate ........................................................
Total direct-labor cost ..............................................
5.
Box C
495,000

.2
Box C
495,000
 .0025
Box P
495,000
 .005
1,237.5
2,475
Total
3,712.5
 $12
$44,550
Manufacturing-overhead budget:
Indirect material .............................................................................................
Indirect labor ..................................................................................................
Utilities ............................................................................................................
Property taxes ................................................................................................
Insurance ........................................................................................................
Depreciation ...................................................................................................
Total overhead ...............................................................................................
$
10,500
50,000
25,000
18,000
16,000
29,000
$ 148,500
6.
Selling and administrative expense budget:
Salaries and fringe benefits of sales personnel .........................................
Advertising .....................................................................................................
Management salaries and fringe benefits ...................................................
Clerical wages and fringe benefits...............................................................
Miscellaneous administrative expenses .....................................................
Total selling and administrative expenses .................................................
7.
$
75,000
15,000
90,000
26,000
4,000
$ 210,000
Budgeted income statement:
Sales revenue [from sales budget, req. (1)] ................................................
Less: Cost of goods sold:
Box C: 500,000  $.21* .............................................................. $105,000
Box P: 500,000  $.43* ............................................................. 215,000
Gross margin ..................................................................................................
Selling and administrative expenses ...........................................................
Income before taxes ......................................................................................
Income tax expense (40%) ............................................................................
Net income ......................................................................................................
*Calculation of manufacturing cost per unit:
(a)
Predetermined overhead rate
=
budgeted manufacturing overhead
volume of direct-labor hours
=
$148,500
(495,000)(.0025)  (495,000)(.005)
=
$148,500
 $40 per hour
3,712.5 hours
$1,100,000
320,000
$ 780,000
210,000
$ 570,000
228,000
$ 342,000
(b)
Calculation of manufacturing cost per unit:
Box C
Direct material:
Paperboard
.3 lb.  $.20 per lb ..........................................
.7 lb.  $.20 per lb ..........................................
Corrugating medium
.2 lb.  $.10 per lb ..........................................
.3 lb.  $.10 per lb ..........................................
Direct labor:
.0025 hr.  $12 per hr ....................................
.005 hr.  $12 per hr ......................................
Applied manufacturing overhead:
.0025 hr.  $40 per hr ....................................
.005 hr.  $40 per hr ......................................
Manufacturing cost per unit ......................................
Box P
$.06
$.14
.02
.03
.03
.06
.10
___
$.21
.20
$.43