CHAPTER 21
BUDGETING
EXERCISES
Ex. 21–1
a.
HAKIM DAVIS
Cash Budget
For the Four Months Ending December 31, 2006
September
Estimated cash receipts from:
Part-time job ..........................
Deposit...................................
Total cash receipts ..........
Estimated cash payments for:
Season football tickets .........
Additional entertainment ......
Tuition ....................................
Rent ........................................
Food .......................................
Deposit...................................
Total cash payments .......
Cash increase (decrease) ..........
Cash balance at beginning
of month ................................
Cash balance at end of month ..
October
November December
$ 1,000
$1,000
$1,000
$ 1,000
$1,000
$1,000
$ 1,000
500
$ 1,500
$ 250
$ 250
$
400
320
400
320
$ 970
$ 30
$ 970
$ 30
$
$
2,100
$2,130
2,130
$2,160
2,160
$ 2,690
$
180
250
3,250
400
320
500
$ 4,900
$(3,900)
6,000
$ 2,100
250
400
320
970
530
b. The four-month budgets do not change with any identified activity level; thus,
they are static budgets.
c.
While Davis’s budget might first appear satisfactory, Davis must earn enough
cash in order to pay for the spring semester tuition. His present budget
shows that he will be $560 short of the tuition amount ($3,250 – $2,690). Thus,
Davis will likely need to adjust the plan before the fall term even begins.
Some possibilities would be to rent a lower cost apartment or to get a roommate so that the rental cost is cut in half. The additional $200 per month
would yield $800 by the end of December, which would be sufficient to cover
the $560 spring tuition shortfall and provide a little extra. Other considerations include increasing his part-time job hours and reducing his monthly entertainment and food allowance, or making up the income difference with additional hours during Christmas break. The budget gives Davis time to adjust
158
his plans to future events. In this case, Davis can see that his present plan
will not provide sufficient cash, thus giving him four months to adjust. If Davis did not budget but went ahead with the original plan, he would be $560
short at the end of December with no time left to adjust.
Ex. 21–2
CENTRAL INDUSTRIAL SUPPLY
Flexible Selling and Administrative Expenses Budget
For the Month Ending May 31, 2006
Total sales........................................................
Variable cost:
Sales commissions ...................................
Advertising expense ..................................
Miscellaneous selling expense.................
Office supplies expense ............................
Miscellaneous administrative expense ....
Total variable cost ................................
Fixed cost:
Miscellaneous selling expense.................
Office salaries expense .............................
Miscellaneous administrative expense ....
Total fixed cost .....................................
Total selling and administrative expenses ...
$100,000
$115,000
$130,000
$
5,000
15,000
3,000
2,000
4,000
$ 29,000
$
5,750
17,250
3,450
2,300
4,600
$ 33,350
$ 6,500
19,500
3,900
2,600
5,200
$ 37,700
$
$
$ 2,000
10,000
1,500
$ 13,500
$ 51,200
2,000
10,000
1,500
$ 13,500
$ 42,500
2,000
10,000
1,500
$ 13,500
$ 46,850
Ex. 21–3
a.
TOWERS COMPANY—MOLDING DEPARTMENT
Flexible Production Budget
For the Three Months Ending March 31, 2006
January
February
March
Units of production ........................
55,000
50,000
45,000
Wages..............................................
Utilities ............................................
Depreciation ...................................
Total.................................................
$594,000
99,000
70,000
$763,000
$540,000
90,000
70,000
$700,000
$486,000
81,000
70,000
$637,000
January
55,000
×
0.60
33,000
February
50,000
×
0.60
30,000
March
45,000
×
0.60
27,000
Supporting calculations:
Units of production ........................
Hours per unit .................................
Total hours of production ..............
159
Wages per hour ..............................
Total wages.....................................
× $18.00
$594,000
× $18.00
$540,000
× $18.00
$486,000
Total hours of production ..............
Utility cost per hour .......................
Total utilities ...................................
33,000
× $3.00
$ 99,000
30,000
× $3.00
$ 90,000
27,000
× $3.00
$ 81,000
Depreciation is a fixed cost, so it does not “flex” with changes in production.
Since it is the only fixed cost, the variable and fixed costs are not classified in the
budget.
b.
Total flexible budget ......................
Actual cost ......................................
Excess of actual cost over budget
January
$763,000
775,000
$ (12,000)
February
$700,000
720,000
$ (20,000)
March
$637,000
665,000
$ (28,000)
The excess of actual cost over the flexible budget suggests that the Molding Department has not performed as well as originally thought. Indeed, the department
is spending more than would be expected, and it's getting worse, given the level
of production for the first three months.
Ex. 21–3
Continued
This solution is applicable only if the P.A.S.S. Software that accompanies the text
is used.
TOWERS COMPANY
Budget Report
For the Period Ended January 31, 2006
Difference
from Budget
Budget
Actual
Operating revenue......................
$825,000
$810,000
$(15,000)
(1.82)
Operating expenses:
January wages ......................
January utilities.....................
January depreciation ............
Total operating expenses
Net income (loss) .......................
$594,000
99,000
70,000
$763,000
$ 62,000
$565,000
135,000
75,000
$775,000
$ 35,000
$(29,000)
36,000
5,000
$ 12,000
$(27,000)
(4.88)
36.36
7.14
1.57
(43.55)
TOWERS COMPANY
Budget Report
For the Period Ended February 28, 2006
160
%
Difference
from Budget
Budget
Actual
Operating revenue......................
$850,000
$820,000
$(30,000)
(3.53)
Operating expenses:
February wages ....................
February utilities ...................
February depreciation ..........
Total operating expenses
Net income (loss) .......................
$540,000
90,000
70,000
$700,000
$150,000
$489,000
156,000
75,000
$720,000
$100,000
$(51,000)
66,000
5,000
$ 20,000
$(50,000)
(9.44)
73.33
7.14
2.86
(33.33)
Ex. 21–3
%
Concluded
TOWERS COMPANY
Budget Report
For the Period Ended March 31, 2006
Difference
from Budget
Budget
Actual
%
Operating revenue......................
$800,000
$750,000
$(50,000)
(6.25)
Operating expenses:
March wages .........................
March utilities ........................
March depreciation ...............
Total operating expenses
Net income (loss) .......................
$486,000
81,000
70,000
$637,000
$163,000
$495,000
95,000
75,000
$665,000
$ 85,000
$ 9,000
14,000
5,000
$ 28,000
$(78,000)
1.85
17.28
7.14
4.40
(47.85)
Ex. 21–4
STEELCASE CORPORATION
Fabrication Department
May 2006
(assumed data)
Units of production ....................
Variable cost:
Direct labor ............................
Direct materials .....................
Total variable cost ...........
Fixed cost:
Supervisor salaries ...............
15,000
17,500
20,000
$
98,0002
1,050,0005
$ 1,148,000
$
$
84,0001
900,0004
984,000
$
125,000
$
$
$
161
125,000
112,0003
1,200,0006
$ 1,312,000
125,000
Depreciation ..........................
Total fixed cost ................
Total department cost ................
$
30,000
155,000
$ 1,139,000
$
30,000
155,000
$ 1,303,000
$
30,000
155,000
$ 1,467,000
1 15,000
× 24/60 × $14
× 24/60 × $14
3 20,000 × 24/60 × $14
4 15,000 × 40 × $1.50
5 17,500 × 40 × $1.50
6 20,000 × 40 × $1.50
2 17,500
Ex. 21–5
a.
HARMONY AUDIO COMPANY
Sales Budget
For the Month Ending September 30, 2007
Unit
Sales Volume
Unit
Selling Price
Model DL:
East Region ................................
West Region ...............................
Total .......................................
4,200
3,150
7,350
$125
125
$ 525,000
393,750
$ 918,750
Model XL:
East Region ................................
West Region ...............................
Total .......................................
3,000
2,200
5,200
$180
180
$ 540,000
396,000
$ 936,000
Product and Area
Total revenue from sales ................
Total
Sales
$ 1,854,750
b.
HARMONY AUDIO COMPANY
Production Budget
For the Month Ending September 30, 2007
Expected units to be sold ....................................................
Plus desired inventory, September 30, 2007 .....................
Total ...............................................................................
Less estimated inventory, September 1, 2007 ...................
Total units to be produced ..................................................
162
Units
Model DL
Model XL
7,350
5,200
410
100
7,760
5,300
350
120
7,410
5,180
Ex. 21–6
JEFFRIES AND VALDEZ, CPAs
Professional Fees Budget
For the Year Ending December 31, 2006
Audit Department:
Staff ........................................................
Partners .................................................
Total ..................................................
Tax Department:
Staff ........................................................
Partners .................................................
Total ..................................................
Computer Consulting Department:
Staff ........................................................
Partners .................................................
Total ..................................................
Total professional fees ..............................
Billable
Hours
Hourly
Rate
Total
Revenue
32,500
4,800
37,300
$110
$250
$ 3,575,000
1,200,000
$ 4,775,000
28,700
3,950
32,650
$110
$250
$ 3,157,000
987,500
$ 4,144,500
24,600
5,700
30,300
$110
$250
$ 2,706,000
1,425,000
$ 4,131,000
$ 13,050,500
Ex. 21–7
JEFFRIES AND VALDEZ, CPAs
Professional Labor Cost Budget
For the Year Ending December 31, 2006
Audit Department ............................................................
Tax Department ...............................................................
Computer Consulting Department .................................
Total ..........................................................................
Average compensation per hour ...................................
Total labor cost ...............................................................
Billable Hours Required
Staff
Partners
32,500
4,800
28,700
3,950
24,600
5,700
85,800
14,450
× $50.00
× $150.00
$4,290,000
$ 2,167,500
Ex. 21–8
TASTE OF ITALY FROZEN PIZZA INC.
Direct Materials Purchases Budget
For the Month Ending August 31, 2006
Dough
Units required for production:
163
Tomato
Cheese
Total
12" pizza ................................
16" pizza ................................
Plus desired inventory,
August 31, 2006.....................
Total.............................................
Less estimated inventory,
August 1, 2006.......................
Total units to be purchased ......
Unit price.....................................
Total direct materials to be
purchased ..............................
18,2001
36,9004
9,1002
19,6805
12,7403
27,0606
450
55,550
240
29,020
350
40,150
600
54,950
× $1.40
180
28,840
× $2.20
480
39,670
× $2.60
$ 76,930
$ 63,448
$103,142
$243,520
1 18,200
× 1 lb.
× 0.50 lb.
3 18,200 × 0.70 lb.
4 24,600 × 1.50 lbs.
5 24,600 × 0.80 lb.
6 24,600 × 1.10 lbs.
2 18,200
Ex. 21–9
COCA-COLA ENTERPRISES—CHATTANOOGA PLANT
Direct Materials Purchases Budget
For the Month Ending September 30, 2006
(assumed data)
Carbonated
Concentrate
2-Liter Bottles
Water
Materials required for production:
Coke .................................
712* pounds 178,000 bottles
Sprite................................
426*
142,000
Total materials ......................
1,138 pounds 320,000 bottles
Direct material unit price ..... × $80
× $0.09
Total direct materials to be
purchased ........................ $91,040
$ 28,800
*Production in liters (bottles × 2 liters/bottle) ..........
Divide by 100 .............................................................
Multiply by concentrate pounds per 100 liters .......
Concentrate pounds required for production ........
164
Coke
356,000
÷
100
3,560
× 0.20
712
356,000 liters
284,000
640,000 liters
× $0.04
$ 25,600
Sprite
284,000
÷
100
2,840
× 0.15
426
Ex. 21–10
GOODMAN TIRE COMPANY
Direct Materials Purchases Budget
For the Year Ending December 31, 2006
Rubber
Steel Belts
Total
Pounds required for production:
Passenger tires1 .................................
962,500 lbs. 115,500 lbs.
2
Truck tires ......................................... 1,110,000
148,000
Plus desired inventory, Dec. 31, 2006 ...
40,000
6,000
Total.......................................................... 2,112,500 lbs. 269,500 lbs.
Less estimated inventory, Jan. 1, 2006 .
70,000
5,000
Total units purchased ............................. 2,042,500 lbs. 264,500 lbs.
Unit price.................................................. ×
$2.80
× $3.60
Total direct materials to be purchased . $5,719,000
$952,200
$6,671,200
1
Rubber: 38,500 units × 25 lbs. per unit = 962,500 lbs.
Steel belts: 38,500 units × 3 lbs. per unit = 115,500 lbs.
2
Rubber: 18,500 units × 60 lbs. per unit = 1,110,000 lbs.
Steel belts: 18,500 units × 8 lbs. per unit = 148,000 lbs.
Errors:
1.
The sales should be adjusted by the desired ending inventory in the finished
goods in order to determine the number of units to be produced (38,500 for
passenger tires and 18,500 for truck tires). The desired ending inventory
should be added to the sales figures to determine the current period production requirements.
2.
The materials used to satisfy current period production should be adjusted
by the estimated beginning materials inventory and desired ending materials
inventory to determine materials to be purchased.
Ex. 21–11
ACE RACKET COMPANY
Direct Labor Cost Budget
For the Month Ending August 31, 2006
Forming
Department
Hours required for production:
165
Assembly
Department
Junior1 ...................................................................
Ace Master2 ...........................................................
Total ..................................................................
Hourly rate ..................................................................
Total direct labor cost ................................................
1 Junior:
2 Ace
1,060
5,880
6,940
× $19.00
$131,860
1,590
9,800
11,390
× $12.00
$136,680
0.20 hour × 5,300 = 1,060 hours
0.30 hour × 5,300 = 1,590 hours
Master: 0.30 hour × 19,600 = 5,880 hours
0.50 hour × 19,600 = 9,800 hours
Ex. 21–12
City Suites Hotels, Inc.
Direct Labor Cost Budget
For a Weekday or a Weekend Day
Weekday
Weekend day
Room occupancy
Room capacity
Occupied percent (occupancy)
Rooms occupied
200
× 80%
160
200
× 40%
80
(c)
Housekeeping
No. of minutes to clean a room
Total minutes [(a) × (b)]
Total hours (÷ 60 min.)
Labor rate per hour
Housekeeping daily labor budget
45
7,200
120.00
× $9.00
$ 1,080
45
3,600
60.00
× $9.00
$ 540
(d)
Restaurant staff
Base restaurant staff
Incremental 20 room blocks [(a) ÷ 20]
Total staff
Total hours (× 8 hours)
Labor rate per hour
Restaurant staff daily labor budget
4
8
12
96
× $8.00
$ 768
4
4
8
64
× $8.00
$ 512
Total daily labor budget [(c) + (d)]
$ 1,848
$ 1,052
(a)
(b)
166
Ex. 21–13
a.
Levi Strauss & Co.
Production Budget
March 2006
(assumed data)
Dockers®
501 Jeans®
21,600
250
(300)
21,550
43,400
100
(140)
43,360
Expected units to be sold ...............................
Plus: March 31 desired inventory ..................
Less: March 1 estimated inventory................
Total units to be produced .............................
b.
Levi Strauss & Co.
Direct Labor Cost Budget
March 2006
(assumed data)
Inseam
Dockers® ...........................
501 Jeans® ........................
Total minutes .....................
Total direct labor
hours (÷ 60 minutes) ....
× Direct labor rate..............
Total direct labor cost .......
Outerseam
32,325*
52,032**
84,357
1,405.95
×
$11.00
$ 15,465.45
43,100*
60,704**
103,804
1,730.07
×
$11.00
$ 19,030.77
* (21,550/10 pairs) × 15 min.
(21,550/10 pairs) × 20 min.
(21,550/10 pairs) × 5 min.
(21,550/10 pairs) × 6 min.
=
=
=
=
32,325 minutes
43,100 minutes
10,775 minutes
12,930 minutes
** (43,360/10 pairs) × 12 min.
(43,360/10 pairs) × 14 min.
(43,360/10 pairs) × 8 min.
(43,360/10 pairs) × 6 min.
=
=
=
=
52,032 minutes
60,704 minutes
34,688 minutes
26,016 minutes
167
Pockets
10,775*
34,688**
45,463
757.72
× $13.00
$ 9,850.36
Zipper
12,930*
26,016**
38,946
649.10
× $13.00
$8,438.30
Ex. 21–14
DUTCH SHOE COMPANY
Factory Overhead Cost Budget
For the Month Ending January 31, 2006
Variable factory overhead costs:
Manufacturing supplies ..............................................
Power and light ...........................................................
Production supervisor wages ....................................
Production control salaries ........................................
Materials management salaries .................................
Total variable factory overhead costs ...................
$ 12,000
45,000
115,000
32,000
25,000
$229,000
Fixed factory overhead costs:
Factory insurance .......................................................
Factory depreciation ...................................................
Total fixed factory overhead costs ........................
Total factory overhead costs.............................................
$ 22,000
19,000
41,000
$270,000
Note: Advertising expenses, sales commissions, and executive officer salaries
are selling and administrative expenses.
Ex. 21–15
UNION CHEMICAL COMPANY
Cost of Goods Sold Budget
For the Month Ending April 30, 20—
Finished goods inventory, April 1 ...............
Work in process inventory, April 1 .............
Direct materials:
Direct materials inventory, April 1 ........
Direct materials purchases ....................
Cost of direct materials available
for use ................................................
Less: Direct materials inventory,
April 30 ...............................................
Cost of direct materials placed in
production ..........................................
Direct labor ...................................................
Factory overhead .......................................
Total manufacturing costs ..........................
Total work in process during the period ....
Less work in process inventory, April 30 ...
Cost of goods manufactured ......................
Cost of finished goods available for sale...
Less finished goods inventory, April 30.....
168
$
$
17,400
12,300
$ 14,200
750,000
$764,200
12,100
$752,100
140,000
250,000
1,142,100
$ 1,154,400
10,300
1,144,100
$ 1,161,500
18,400
Cost of goods sold .......................................
$ 1,143,100
Ex. 21–16
HERITAGE CERAMICS, INC.
Cost of Goods Sold Budget
For the Month Ending June 30, 2006
Finished goods inventory, June 1, 2006 ............
Work in process inventory, June 1, 2006 ...........
Direct materials:
Direct materials inventory, June 1, 2006 .......
Direct materials purchases ............................
Cost of direct materials available for use .....
Less direct materials inventory,
June 30, 2006 .............................................
Cost of direct materials placed in
production ..................................................
Direct labor ...........................................................
Factory overhead .................................................
Total manufacturing costs ..................................
Total work in process during the period ............
Less work in process inventory, June 30, 2006
Cost of goods manufactured ..............................
Cost of finished goods available for sale...........
Less finished goods inventory, June 30, 2006 ..
Cost of goods sold ...............................................
$ 10,120
$
2,900
$ 8,190
140,560
$148,750
9,150
$139,600
160,100
78,000
377,700
$380,600
1,350
379,250
$389,370
10,340
$379,030
Ex. 21–17
LION HEART COMPANY
Schedule of Collections from Sales
For the Three Months Ending May 31, 2006
Receipts from cash sales:
Cash sales (10% × current
month's sales) ............................................
March sales on account:
Collected in March ($360,0001 × 60%) ......
Collected in April ($360,000 × 30%) ..........
Collected in May ($360,000 × 10%) ...........
April sales on account:
Collected in April ($432,0002 × 60%).........
Collected in May ($432,000 × 30%) ...........
May sales on account:
169
March
April
May
$ 40,000
$ 48,000
$ 42,500
216,000
108,000
36,000
259,200
129,600
Collected in May ($382,5003 × 60%) ..........
Total cash collected ........................................
229,500
$256,000
$415,200
$437,600
1 $400,000
× 90% = $360,000
× 90% = $432,000
3 $425,000 × 90% = $382,500
2 $480,000
Ex. 21–18
Star Office Supplies Inc.
Schedule of Collections from Sales
For the Three Months Ending March 31, 2006
January
February
March
Receipts from cash sales:
Cash sales (40% × current month's sales) .
$ 80,000
$ 96,000
$ 90,000
December sales on account:
Collected in January (accounts
receivable balance) .............................
150,000
January sales on account:
Collected in January ($120,0001 × 20%)
Collected in February ($120,000 × 80%)
24,000
96,000
February sales on account: .........................
Collected in February ($144,0002 × 20%)
Collected in March ($144,000 × 80%) ....
28,800
115,200
March sales on account:
Collected in March ($135,0003 × 20%) ...
$254,000
$220,800
27,000
$232,200
1
$200,000 × 60% = $120,000
$240,000 × 60% = $144,000
3 $225,000 × 60% = $135,000
2
Ex. 21–19
DISTANCE LEARNING SYSTEMS INC.
Schedule of Cash Payments for Selling and Administrative Expenses
For the Three Months Ending August 31, 2006
June
June expenses:
Paid in June ($89,2001 × 75%) ...................
Paid in July ($89,200 × 25%) .....................
170
July
$ 66,900
$ 22,300
August
July expenses:
Paid in July ($101,5002 × 75%) ..................
Paid in August ($101,500 × 25%) ..............
August expenses:
Paid in August ($107,0003 × 75%)..............
Total cash payments .......................................
76,125
$ 25,375
$ 66,900
$ 98,425
80,250
$105,625
$104,200 – $15,000
– $15,000
3 $122,000 – $15,000
1
2 $116,500
Note: Insurance, property taxes, and depreciation are expenses that do not result
in cash payments in June, July, or August.
Ex. 21–20
ZONE FITNESS CENTER
Schedule of Cash Payments for Operations
For the Three Months Ending December 31, 2007
October
Payments of prior month’s expense1 ............
Payment of current month’s expense2 ..........
Total payment ..................................................
$ 21,400
67,270
$ 88,670
1
$21,400, given as Accrued Expenses Payable, October 1.
$28,830 = ($109,300 – $13,200) × 30%
$32,640 = ($122,000 – $13,200) × 30%
2
$67,270 = ($109,300 – $13,200) × 70%
$76,160 = ($122,000 – $13,200) × 70%
$88,690 = ($139,900 – $13,200) × 70%
November
$ 28,830
76,160
$104,990
December
$ 32,640
88,690
$121,330
Note: Insurance and depreciation are expenses that do not result in cash payments in October, November, and December.
Ex. 21–21
O’BRIEN MANUFACTURING COMPANY
Capital Expenditures Budget
For the Four Years Ending December 31, 2005–2008
2005
2006
171
2007
2008
Building ............................
Equipment........................
Information systems .......
Total..................................
1 $10,000,000
$6,000,000
$4,000,000
1,700,000
$6,000,000
$5,700,000
$4,500,0001
1,000,000
$
400,000
1,152,0002
$ 1,552,000 $5,500,000
× 45% = $4,500,000
0.80 × 0.80 = $1,152,000
2 $1,800,000 ×
PROBLEMS
Prob. 21–1B
1.
Unit Sales, Year Ended 2006
Budget Actual Sales
8" × 10" Frame:
East ..................................
Central .............................
West .................................
12" × 16" Frame:
East ..................................
Central .............................
West .................................
Increase (Decrease)
Actual Over Budget
Amount
Percent
28,000
21,000
34,500
28,980
21,840
33,051
980
840
(1,449)
3.50 %
4.00 %
(4.20)%
14,000
12,500
16,000
14,350
12,750
15,136
350
250
(864)
2.50 %
2.00 %
(5.40)%
2.
2006
Actual
Units
8" × 10" Frame:
East .............................................
Central ........................................
West ............................................
12" × 16" Frame:
East .............................................
Central ........................................
West ............................................
Percentage
Increase
(Decrease)
2007
Budgeted
Units
(rounded)
28,980
21,840
33,051
3.50%
4.00%
(4.20)%
29,994
22,714
31,663
14,350
12,750
15,136
2.50%
2.00%
(5.40)%
14,709
13,005
14,319
172
Prob. 21–1B
Concluded
3.
CLASSIC ART FRAME COMPANY
Sales Budget
For the Year Ending December 31, 2007
Unit Sales
Volume
Product and Area
8" × 10" Frame:
East ..................................................
Central .............................................
West .................................................
Total ............................................
12" × 16" Frame:
East ..................................................
Central .............................................
West .................................................
Total ............................................
Total revenue from sales .....................
Unit Selling
Price
Total Sales
29,994
22,714
31,663
84,371
$13.00
13.00
13.00
$
389,922
295,282
411,619
$ 1,096,823
14,709
13,005
14,319
42,033
$22.00
22.00
22.00
$
323,598
286,110
315,018
$ 924,726
$ 2,021,549
Prob. 21–2B
1.
NEW ENGLAND OUTDOOR GRILL COMPANY
Sales Budget
For the Month Ending May 31, 2006
Product and Area
Unit Sales
Volume
Unit Selling
Price
4,200
3,600
4,000
11,800
$ 900
850
950
$ 3,780,000
3,060,000
3,800,000
$10,640,000
1,800
1,500
1,900
5,200
$1,500
1,400
1,600
$ 2,700,000
2,100,000
3,040,000
$ 7,840,000
$18,480,000
Backyard Chef:
Maine................................................
Vermont ...........................................
New Hampshire ...............................
Total ............................................
Master Chef:
Maine................................................
Vermont ...........................................
New Hampshire ...............................
Total ............................................
Total revenue from sales .....................
173
Total Sales
2.
NEW ENGLAND OUTDOOR GRILL COMPANY
Production Budget
For the Month Ending May 31, 2006
Units
Backyard
Chef
Expected units to be sold ....................................................... 11,800
Plus desired inventory, May 31, 2006 .................................... 1,200
Total.......................................................................................... 13,000
Less estimated inventory, May 1, 2006 ................................. 1,500
Total units to be produced ..................................................... 11,500
Prob. 21–2B
Master
Chef
5,200
500
5,700
400
5,300
Continued
3.
NEW ENGLAND OUTDOOR GRILL COMPANY
Direct Materials Purchases Budget
For the Month Ending May 31, 2006
Grates
(units)
Required units for
production:
Backyard Chef .........
23,0001
Master Chef .............
31,8005
Plus desired inventory,
May 31, 2006 ............
800
Total ...............................
55,600
Less estimated inventory,
May 1, 2006 ..............
1,000
Total units to be
purchased ................
54,600
Unit price ....................... × $16.00
Total direct materials
to be purchased ...... $873,600
Direct Materials
Burner SubStainless
assemblies
Steel (lbs.)
(units)
Shelves
(units)
287,5002
344,5006
11,5003
10,6007
23,0004
15,9008
1,900
633,900
800
22,900
480
39,380
2,500
600
400
631,400
$4.00
22,300
× $125.00
38,980
× $8.00
$2,525,600
$2,787,500
$311,840
×
1
11,500 × 2 grates = 23,000 grates
11,500 × 25 lbs. = 287,500 lbs.
3
11,500 × 1 subassembly = 11,500 subassemblies
4
11,500 × 2 shelves = 23,000 shelves
5
5,300 × 6 grates = 31,800 grates
2
174
Total
$6,498,540
6
5,300 × 65 lbs. = 344,500 lbs.
5,300 × 2 subassemblies = 10,600 subassemblies
8
5,300 × 3 shelves = 15,900 shelves
7
Prob. 21–2B
Concluded
4.
NEW ENGLAND OUTDOOR GRILL COMPANY
Direct Labor Cost Budget
For the Month Ending May 31, 2006
Hours required for production:
Backyard Chef 1 .....................
Master Chef 2 .........................
Total ..................................
Hourly rate ..................................
Total direct labor cost ................
Stamping
Department
Forming
Department
5,750
3,180
8,930
× $14.00
$125,020
8,625
7,950
16,575
× $12.00
$198,900
Assembly
Department Total
17,250
13,250
30,500
× $10.00
$305,000
$628,920
1
This line is calculated as 11,500 Backyard Chef units from the production budget multiplied by the hours per unit in each department estimated for the Backyard Chef. 5,750 = 11,500 × 0.50; 8,625 = 11,500 × 0.75; 17,250 = 11,500 × 1.50
2
This line is calculated as 5,300 Master Chef units from the production budget
multiplied by the hours per unit in each department estimated for the Master
Chef. 3,180 = 5,300 × 0.60; 7,950 = 5,300 × 1.50; 13,250 = 5,300 × 2.50
Prob. 21–3B
1.
PRECIOUS MEMORIES FILM COMPANY
Sales Budget
For the Month Ending October 31, 2006
Instant Image ........................................
Pro Image ..............................................
Total revenue from sales .....................
2.
Unit Sales
Volume
Unit Sales
Price
32,500
26,400
$ 75.00
110.00
Total Sales
$2,437,500
2,904,000
$5,341,500
PRECIOUS MEMORIES FILM COMPANY
Production Budget
For the Month Ending October 31, 2006
Units
175
Instant
Image
Expected units to be sold ....................................................
Plus desired inventory, October 31, 2006 ..........................
Total.......................................................................................
Less estimated inventory, October 1, 2006........................
Total units to be produced ..................................................
3.
32,500
5,400
37,900
4,800
33,100
26,400
1,900
28,300
2,400
25,900
PRECIOUS MEMORIES FILM COMPANY
Direct Materials Purchases Budget
For the Month Ending October 31, 2006
Celluloid
Units required for production:
Instant Image ...................................
Pro Image ........................................
Plus desired units of inventory,
October 31, 2006 .............................
Total.......................................................
Less estimated units of inventory,
October 1, 2006 ...............................
Total units to be purchased ................
Unit price...............................................
Total direct materials to be
purchased ........................................
1 33,100
Pro
Image
2 33,100
× 0.40 lbs.
Prob. 21–3B
× 2.50 ozs.
Silver
Total
13,2401
15,5403
82,7502
103,6004
3,400
32,180
2,900
189,250
2,700
29,480
× $1.80
3,000
186,250
×
$7.00
$ 53,064
$1,303,750 $1,356,814
3 25,900
× 0.60 lbs.
4 25,900
× 4.00 ozs.
Continued
4.
PRECIOUS MEMORIES FILM COMPANY
Direct Labor Cost Budget
For the Month Ending October 31, 2006
Hours required for production:
Instant Image ...................................
Pro Image ........................................
Total ............................................
Hourly rate ............................................
Total direct labor cost ..........................
1 33,100
2 33,100
Coating
Department
Slitting
Department
Total
6,6201
10,3603
16,980
× $15.00
$254,700
8,2752
7,7704
16,045
× $18.00
$288,810
$543,510
× 0.20 hour
× 0.25 hour
176
3 25,900
4 25,900
× 0.40 hour
× 0.30 hour
5.
PRECIOUS MEMORIES FILM COMPANY
Factory Overhead Cost Budget
For the Month Ending October 31, 2006
Indirect factory wages ...............................................................................
Depreciation of plant and equipment .......................................................
Power and light ..........................................................................................
Insurance and property tax .......................................................................
Total.............................................................................................................
Prob. 21–3B
$600,000
145,000
46,000
18,400
$809,400
Continued
6.
PRECIOUS MEMORIES FILM COMPANY
Cost of Goods Sold Budget
For the Month Ending October 31, 2006
Finished goods inventory, October 1, 2006 ..
$ 300,0001
Work in process, October 1, 2006 .................
$
28,500
Direct materials:
Direct materials inventory,
October 1, 2006 ..................................... $
25,8602
Direct materials purchases .......................
1,356,814
Cost of direct materials available for use $ 1,382,674
Less direct materials inventory,
October 31, 2006 ...................................
26,4203
Cost of direct materials placed in
production ............................................. $ 1,356,254
Direct labor ......................................................
543,510
Factory overhead ............................................
809,400
Total manufacturing costs .............................
2,709,164
Total work in process during period .............
$2,737,664
Less work in process, October 31, 2006 .......
34,200
Cost of goods manufactured .........................
2,703,464
Cost of finished goods available for sale......
$ 3,003,464
Less finished goods inventory,
October 31, 2006 ........................................
293,5004
Cost of goods sold ..........................................
$ 2,709,964
1
Instant Image (4,800 × $35) .....................................................................
Pro Image (2,400 × $55)...........................................................................
Finished goods inventory, October 1, 2006 ..........................................
177
$ 168,000
132,000
$ 300,000
2
Celluloid (2,700 × $1.80) ..........................................................................
Silver (3,000 × $7.00) ...............................................................................
Direct materials inventory, October 1, 2006 ..........................................
$
3
Celluloid (3,400 × $1.80) ..........................................................................
Silver (2,900 × $7.00) ...............................................................................
Direct materials inventory, October 31, 2006 ........................................
$
4
Instant Image (5,400 × $35) .....................................................................
Pro Image (1,900 × $55) ...........................................................................
Finished goods inventory, October 31, 2006 ........................................
$ 189,000
104,500
$ 293,500
Prob. 21–3B
4,860
21,000
$ 25,860
6,120
20,300
$ 26,420
Concluded
7.
PRECIOUS MEMORIES FILM COMPANY
Selling and Administrative Expenses Budget
For the Month Ending October 31, 2006
Selling expenses:
Sales salaries expense ............................................
Advertising expense ................................................
Telephone expense—selling ...................................
Travel expense—selling ..........................................
Total selling expenses .........................................
Administrative expenses:
Office salaries expense ...........................................
Depreciation expense—office equipment ..............
Telephone expense—administrative ......................
Office supplies expense ..........................................
Miscellaneous administrative expense ..................
Total administrative expenses ............................
Total operating expenses ...............................................
$685,000
146,500
5,000
38,500
$ 875,000
$224,800
5,300
1,900
3,000
4,200
239,200
$ 1,114,200
8.
PRECIOUS MEMORIES FILM COMPANY
Budgeted Income Statement
For the Month Ending October 31, 2006
Revenue from sales ........................................................
Cost of goods sold ..........................................................
Gross profit......................................................................
Operating expenses:
Selling expenses ......................................................
Administrative expenses .........................................
Total operating expenses ....................................
178
$5,341,500
2,709,964
$2,631,536
$875,000
239,200
1,114,200
Income from operations .................................................
Other income:
Interest revenue .......................................................
Other expenses:
Interest expense .......................................................
Income before income tax ..............................................
Income tax expense ........................................................
Net income .......................................................................
$ 1,517,336
$ 18,900
12,300
6,600
$ 1,523,936
609,574
$ 914,362
Prob. 21–4B
1.
FROZEN DELIGHT ICE CREAM COMPANY
Cash Budget
For the Three Months Ending October 31, 2006
Estimated cash receipts from:
Cash sales .............................................
Collection of accounts receivablea......
Dividends ...............................................
Total cash receipts ..........................
Estimated cash payments for:
Manufacturing costsb ...........................
Selling and administrative expenses
Capital expenditures.............................
Other purposes:
Note payable (including interest) ...
Income tax ........................................
Dividends .........................................
Total cash payments ..................
Cash increase or (decrease) .....................
Cash balance at beginning of month .......
Cash balance at end of month ..................
Minimum cash balance ..............................
Excess or (deficiency) ...............................
Computations:
a Collections of accounts receivable:
June sales .............................................
July sales ...............................................
August sales..........................................
September sales ...................................
Total ..................................................
1$500,000 × 60% = $300,000
2$500,000 × 40% = $200,000
179
August
September
October
$ 61,000
480,000
1,500
$542,500
$ 70,000
529,400
$
$599,400
$ 680,100
$292,000
180,000
$314,000
210,000
$ 360,000
225,000
140,000
82,500
597,600
102,500
42,000
$472,000
$ 70,500
55,000
$125,500
45,000
$ 80,500
$566,000
$ 33,400
125,500
$158,900
45,000
$113,900
August
September
$180,000
300,0001 $200,0002
329,4003
$480,000
$529,400
15,000
$ 842,500
$ (162,400)
158,900
$ (3,500)
45,000
$ (48,500)
October
$ 219,6004
378,0005
$ 597,600
3$610,000
× 90% × 60% = $329,400
× 90% × 40% = $219,600
5$700 × 90% × 60% = $378,000
4$610,000
Prob. 21–4B
Concluded
Computation (concluded)
b
Payments for manufacturing costs:
Payment of accounts payable, beginning
of month balance ..................................
Payment of current month's cost .............
Total .......................................................
*($320,000 – $30,000) × 80% = $232,000
**($320,000 – $30,000) × 20% = $58,000
2.
August
$ 60,000
232,000*
$292,000
September
$ 58,000**
256,000
$314,000
October
$ 64,000
296,000
$360,000
The budget indicates that the minimum cash balance will not be maintained
in October. This is due to the capital expenditures and note repayment requiring significant cash outflows during this month. This situation can be corrected by borrowing and/or by the sale of the marketable securities, if they
are held for such purposes. At the end of August and September, the cash
balance will exceed the minimum desired balance, and the excess could be
considered for temporary investment.
Prob. 21–5B
1.
SIGNATURE PEN COMPANY
Budgeted Income Statement
For the Year Ending December 31, 2007
Sales .................................................................
Cost of goods sold:
Direct materials ..........................................
Direct labor .................................................
Factory overhead .......................................
Cost of goods sold ...............................
Gross profit......................................................
Operating expenses:
Selling expenses:
Sales salaries and commissions ........
Advertising ............................................
Miscellaneous selling expense ...........
Total selling expenses ....................
180
$900,0001
$180,0002
70,0003
100,0004
350,000
$550,000
$130,0005
60,000
28,3006
$218,300
Administrative expenses:
Office and officers salaries.................. $ 95,1007
Supplies ................................................
14,0008
Miscellaneous administrative expense
19,0009
Total administrative expenses .......
Total operating expenses..........................
Income before income tax ..............................
Income tax expense ........................................
Net income .......................................................
128,100
346,400
$203,600
85,000
$118,600
1
200,000 units × $4.50
200,000 units × $0.90
3 200,000 units × $0.35
4 (200,000 units × $0.25) + $42,000 + $8,000
5 (200,000 units × $0.40) + $50,000
6 (200,000 units × $0.12) + $4,300
7 (200,000 units × $0.15) + $65,100
8 (200,000 units × $0.05) + $4,000
9 (200,000 units × $0.08) + $3,000
2
Prob. 21–5B
Continued
2.
SIGNATURE PEN COMPANY
Budgeted Balance Sheet
December 31, 2007
Assets
Current assets:
Cash ............................................................
Accounts receivable ..................................
Inventories:
Finished goods .....................................
Work in process ...................................
Materials ................................................
Prepaid expenses ......................................
Total current assets .............................
Property, plant, and equipment:
Plant and equipment..................................
Less accumulated depreciation ...............
Total assets .....................................................
$147,6001
104,700
$74,800
25,600
46,700
147,100
2,400
$ 401,800
$390,0002
177,2003
212,800
$ 614,600
Liabilities
Current liabilities:
Accounts payable ......................................
Stockholders' Equity
181
$ 59,000
Common stock ................................................
Retained earnings ...........................................
Total stockholders' equity.........................
Total liabilities and stockholders' equity ......
$200,000
355,6004
555,600
$614,600
1
Cash balance, December 31, 2007:
Balance, January 1, 2007 ..................................................
Cash from operations:
Net income ....................................................................
Depreciation of plant and equipment .........................
Less: Dividends to be paid 2007 .................................
Plant and equipment to be acquired in 2007 ...
Balance, December 31, 2007 .............................................
2 $340,000 + $50,000 = $390,000
3 $135,000 + $42,000 = $177,200
Prob. 21–5B
4
$ 85,000
$118,600
42,000
$ 48,000
50,000
160,600
(98,000)
$147,600
Concluded
Retained earnings balance, December 31, 2007:
Balance, January 1, 2007 .....................................................................
Plus net income for 2007......................................................................
Less dividends to be declared in 2007 ...............................................
Balance, December 31, 2007 ................................................................
182
$285,000
118,600
$403,600
48,000
$355,600