Chapter 9
Budgeting
Solutions to Questions
9-1
A budget is a detailed quantitative plan
for the acquisition and use of financial and other
resources over a given time period. Budgetary
control involves the use of budgets to control
the actual activities of a firm.
9-2
1. Budgets communicate management’s
plans throughout the organization.
2. Budgets force managers to think about
and plan for the future.
3. The budgeting process provides a means
of allocating resources to those parts of the organization where they can be used most effectively.
4. The budgeting process can uncover potential bottlenecks before they occur.
5. Budgets coordinate the activities of the
entire organization by integrating the plans of its
various parts. Budgeting helps to ensure that
everyone in the organization is pulling in the
same direction.
6. Budgets define goals and objectives that
can serve as benchmarks for evaluating subsequent performance.
9-3
Responsibility accounting is a system in
which a manager is held responsible for those
items of revenues and costs—and only those
items—that the manager can control to a significant extent. Each line item in the budget is
made the responsibility of a manager who is
then held responsible for differences between
budgeted and actual results.
9-4
A master budget represents a summary
of management’s plans and goals for the future,
and outlines the way in which these plans are to
be accomplished. The master budget is composed of a number of smaller, specific budgets
encompassing sales, production, raw materials,
direct labour, manufacturing overhead, selling
and administrative expenses, and inventories.
The master budget generally also contains a
budgeted income statement, budgeted balance
sheet, and cash budget.
9-5
The level of sales impacts virtually every
other aspect of the firm’s activities. It determines the production budget, cash collections,
cash disbursements, and selling and administrative budget that in turn determine the cash
budget and budgeted income statement and
balance sheet.
9-6
A budget committee is a group of key
personnel responsible for policy matters related
to the budget program, coordination of the
budget preparation, handling budget-related
disputes and approval of the final budget. Companies use a budget committee to make the entire process more efficient and effective.
9-7
A perpetual budget is a 12-month
budget that rolls forward one month as the current month is completed. The purpose of perpetual or continuous budgets is to always keep
managers focused one year ahead.
9-8
A participative budget is one in which
persons with responsibility over cost control
prepare their own budgets. This is in contrast to
a budget that is imposed from above. The major
advantages of a participative budget are: (1)
Individuals at all levels of the organization are
recognized as members of the team whose
views and judgments are valued. (2) Budget
estimates prepared by front-line managers are
often more accurate and reliable than estimates
prepared by top managers who have less intimate knowledge of markets and day-to-day operations. (3) Motivation is generally higher when
individuals participate in setting their own goals
than when the goals are imposed from above.
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Solutions Manual, Chapter 9
1
Participative budgets create commitment. (4) A
manager who is not able to meet a budget that
has been imposed from above can always say
that the budget was unrealistic and impossible
to meet. With a self-imposed budget, this excuse is not available.
Participative budgets do carry with them
the risk of budgetary slack. The budgets prepared by lower-level managers should be carefully reviewed to prevent too much slack.
9-9
Budget slack is the difference between
the revenues and expenses a manager believes
can be achieved and the amounts included in
the budget. Managers create slack in an attempt
to increase the likelihood of receiving bonuses
contingent upon meeting or beating budget.
They may also create slack so that they do not
have to work as hard to attain their budget.
9-10 Zero-base budgeting requires that managers start their expense budgets at zero levels
and justify all costs as if all programs were being
proposed for the first time. In traditional budgeting, by contrast, budget data are usually generated on an incremental basis, with last year’s
budget being the starting point.
profit. With not-for-profit and government agencies this is generally not the case. Often, no relationship exists between those who provide
funds and the uses to which these funds are put.
9-16 A static budget is prepared only for the
planned or budgeted level of activity. A flexible
budget provides estimates for revenues and expenses for any level of activity within a specified
range. A flexible budget can be prepared after a
reporting period is over to show managers what
revenues and expenses should have been, given
the actual level of activity for that period.
9-17 A flexible budget variance is the difference between actual and budgeted amounts for
revenues and expenses. For revenues, the flexible budget variance is caused by a difference
between the budgeted and actual selling price
per unit. For expenses, the variance is caused
either by differences between the budgeted and
actual unit cost of the item, or by differences
between the budgeted and actual quantity of
the item used.
9-11 No, although this is clearly one of the
purposes of the cash budget. The principal purpose is to provide information on probable cash
needs during the budget period, so that bank
loans and other sources of financing can be anticipated and arranged well in advance.
9-12 For a merchandising company (such as
Zellers or Sport Chek) the merchandise purchases budget replaces the production budget.
9-13 Activity-based budgeting can help identify the need for additional production capacity
and it can lead to more accurate budgets.
9-14 Some of the unique budgeting problems
faced by multinational companies include foreign
exchange fluctuations, hyperinflation, and governmental restrictions affecting a variety of factors including labour practices, advertising, and
so on.
9-15 With profit-oriented entities, there is an
intricate relationship between expenses and
revenues. Expenditures are made for the purpose of generating sufficient revenue to earn a
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2
Managerial Accounting, 9th Canadian Edition
Exercise 9-1 (20 minutes)
1.
August sales:
$70,000 × 5%
September sales:
$180,000 × 70%, 5%
October sales:
$400,000 × 25%, 70%,
5%
November sales:
$800,000 × 25%, 70%
December sales:
$700,000 × 25%
Total cash collections
October November December
$ 3,500
$
126,000 $ 9,000
100,000
Total
3,500
135,000
280,000
$ 20,000
400,000
200,000
560,000
760,000
$229,500 $489,000
175,000
175,000
$755,000 $1,473,500
Notice that even though sales peak in November, cash collections peak
in December. This occurs because the bulk of the company’s customers
pay in the month following sale. The lag in collections that this creates is
even more pronounced in some companies. Indeed, it is not unusual for
a company to have the least cash available in the months when sales
are greatest.
2. Accounts receivable at December 31:
From November sales: $800,000 × 5%................. $ 40,000
From December sales:
$700,000 × (70% + 5%) .................................. 525,000
Total accounts receivable ..................................... $565,000
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Solutions Manual, Chapter 9
3
Exercise 9-2 (10 minutes)
July
Budgeted sales in units ............ 30,000
Add desired ending inven4,500
tory* ....................................
Total needs.............................. 34,500
Less beginning inventory .......... 3,000
Required production ................. 31,500
August
45,000
6,000
51,000
4,500
46,500
September
Quarter
60,000
5,000
135,000
5,000
65,000
6,000
59,000
140,000
3,000
137,000
*10% of the following month’s sales
For September the desired E.I. = October sales of 50,000 x 10%.
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4
Managerial Accounting, 9th Canadian Edition
Exercise 9-3 (15 minutes)
First
Quarter—Year 2
Second
Third
Fourth
Required production of calculators ........... 120,000 190,000 300,000 200,000
Number of chips per calculator ................
× 3
× 3
× 3
× 3
Total production needs—chips ................. 360,000 570,000 900,000 600,000
Production needs—chips..........................
Add desired ending inventory—chips ........
Total needs—chips ..................................
Less beginning inventory—chips ..............
Required purchases—chips ......................
Cost of purchases at $2 per chip ..............
First
Second
Year 2
Third
Year 3
First
160,000
× 3
480,000
Fourth
360,000
570,000
900,000
600,000
114,000
180,000
120,000
96,000
474,000
750,000 1,020,000
696,000
72,000
114,000
180,000
120,000
402,000
636,000
840,000
576,000
$804,000 $1,272,000 $1,680,000 $1,152,000
Year
2,430,000
96,000
2,526,000
72,000
2,454,000
$4,908,000
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Solutions Manual, Chapter 9
5
Exercise 9-4 (20 minutes)
1. Assuming that the direct labour workforce is adjusted each quarter, the direct labour budget would be:
Units to be produced ...................
Direct labour time per unit (hours)
Total direct labour hours needed ..
Direct labour cost per hour ..........
Total direct labour cost ................
1st
Quarter
5,000
×0.40
2,000
×$11.00
$22,000
2nd
Quarter
4,400
×0.40
1,760
×$11.00
$19,360
3rd
Quarter
4,500
×0.40
1,800
×$11.00
$19,800
4th
Quarter
4,900
×0.40
1,960
×$11.00
$21,560
Year
18,800
×0.40
7,520
×$11.00
$82,720
2. Assuming that the direct labour workforce is not adjusted each quarter and that overtime wages are
paid, the direct labour budget would be:
Units to be produced ...................
Direct labour time per unit (hours)
Total direct labour hours needed ..
Regular hours paid ......................
Overtime hours paid ....................
Wages for regular hours
(@ $11.00 per hour) .................
Overtime wages (@ $11.00 per
hour × 1.5 hours) .....................
Total direct labour cost ................
1st
Quarter
2nd
Quarter
3rd
Quarter
4th
Quarter
Year
$19,800
$19,800
$19,800
$19,800
$79,200
3,300
$23,100
0
$19,800
0
$19,800
2,640
$22,440
5,940
$85,140
5,000
×0.40
2,000
1,800
200
4,400
×0.40
1,760
1,800
0
4,500
×0.40
1,800
1,800
0
4,900
×0.40
1,960
1,800
160
18,800
×0.40
7,520
7,200
360
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6
Managerial Accounting, 9th Canadian Edition
Exercise 9-5 (15 minutes)
1.
Small Corporation
Manufacturing Overhead Budget
1st
Quarter
2nd
Quarter
3rd
Quarter
4th
Quarter
5,400
× $1.75
$ 9,450
35,000
44,450
15,000
20,400
× $1.75
$ 35,700
140,000
175,700
60,000
$28,750
$28,400
$29,100
$29,450
$115,700
2. Total budgeted manufacturing overhead for the year (a) ......................................
Total budgeted direct labour-hours for the year (b) ..............................................
Predetermined overhead rate for the year (a) ÷ (b) .............................................
$175,700
20,400
$8.61
Budgeted direct labour-hours .......
Variable overhead rate ................
Variable manufacturing overhead .
Fixed manufacturing overhead .....
Total manufacturing overhead .....
Less depreciation ........................
Cash disbursements for manufacturing overhead ........................
5,000
× $1.75
$ 8,750
35,000
43,750
15,000
4,800
× $1.75
$ 8,400
35,000
43,400
15,000
5,200
× $1.75
$ 9,100
35,000
44,100
15,000
Year
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Solutions Manual, Chapter 9
7
Exercise 9-6 (15 minutes)
Hirst Company
Selling and Administrative Expense Budget
Budgeted unit sales ..................................
Variable selling and administrative expense
per unit .................................................
Variable expense ......................................
Fixed selling and administrative expenses:
Advertising.............................................
Executive salaries ...................................
Insurance ..............................................
Property taxes........................................
Depreciation ..........................................
Total fixed selling and administrative expenses...................................................
Total selling and administrative expenses ...
Less depreciation ......................................
Cash disbursements for selling and administrative expenses...................................
1st
Quarter
2nd
Quarter
3rd
Quarter
4th
Quarter
Year
x $2.75
$ 33,000
x $2.75
$ 38,500
x $2.75
$ 30,250
x $2.75
$ 27,500
x $2.75
$129,250
12,000
40,000
12,000
40,000
6,000
12,000
40,000
12,000
40,000
6,000
16,000
48,000
160,000
12,000
6,000
64,000
12,000
14,000
11,000
10,000
47,000
16,000
16,000
6,000
16,000
68,000
101,000
16,000
74,000
112,500
16,000
74,000
104,250
16,000
74,000
101,500
16,000
290,000
419,250
64,000
$ 85,000
$ 96,500
$ 88,250
$ 85,500
$355,250
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8
Managerial Accounting, 9th Canadian Edition
Exercise 9-7 (20 minutes)
Cash balance, beginning ..........
Add collections from customers
Total cash available ..................
Less disbursements:
Purchase of inventory ............
Operating expenses ...............
Equipment purchases ............
Dividends .............................
Total disbursements .................
Excess (deficiency) of cash
available over disbursements .
Financing:
Borrowings ...........................
Repayments (including interest)....................................
Total financing .........................
Cash balance, ending ...............
Quarter (000 omitted)
3
4
2
1
$ 6 * $ 5
65
70
71 *
75
35 *
28
8 *
2 *
73
45
30
8
2
85
(2) *
(10)
7
0
7
$5
$ 5 $ 5
96 * 92
101
97
*
*
*
*
*
15 *
0
15
$ 5
Year
$ 6
323 *
329
48
30 *
10 *
2 *
90
35 *
25
10
2 *
72
11 *
25
9
0
0
22
(17) *
(17)
$ 8
(23)
(1)
$ 8
(6)
(6)
$ 5
163
113 *
36 *
8
320
*Given.
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Solutions Manual, Chapter 9
9
Exercise 9-8 (15 minutes)
AutoLav Inc.
Flexible Budget
Overhead Costs
Sales
Variable expenses:
Cleaning supplies .........................
Utilities .......................................
Maintenance ................................
Total variable expenses ...................
Contribution margin………………….
Fixed expenses:
Operator wages ...........................
Depreciation ................................
Rent...................... ......................
Insurance....................…………
Selling and administrative..........
Total fixed expenses .......................
Operating income ...........................
Cost Formula
(per car)
Activity (cars)
7,000 8,000 9,000
$10.00
$70,000 $80,000 $90,000
0.75
0.60
0.15
1.50
$8.50
5,250 6,000 6,750
4,200 4,800 5,400
1,050 1,200 1,350
10,500 12,000 13,500
59,500 68,000 76,500
10,000
20,000
8,000
1,000
4,000
43,000
$16,500
10,000
20,000
8,000
1,000
4,000
43,000
$25,000
10,000
20,000
8,000
1,000
4,000
43,000
$33,500
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10
Managerial Accounting, 9th Canadian Edition
Exercise 9-9 (30 minutes)
1.
AutoLav Inc.
Flexible Budget Performance Report
For the Month Ended August 31
Actual number of cars .................. 7,800
Overhead Costs
Cost
Formula
(per
car)
Sales
$10.00
Variable expenses:
Cleaning supplies .........................
0.75
Utilities ........................................
0.60
Maintenance ................................
0.15
Total variable expenses ...................
1.50
Actual
$78,000
Flexible
Budget
$78,000
5,725
4,795
1,400
11,920
5,850
4,680
1,170
11,700
Contribution margin ........................
8.50
66,080
66,300
Fixed expenses:
Operator wages ...........................
Depreciation ................................
Rent ............................................
Insurance ....................................
Selling and administrative .............
Total fixed expenses .......................
Operating income ...........................
10,270
20,100
8,000
1,090
3,750
43,210
$22,870
10,000
20,000
8,000
1,000
4,000
43,000
$23,300
Flexible
Budget
Variance
$0
(125)
115
230
220
220 U
270
100
0
90
(250)
210
$430
Students may question the variances for fixed costs. Operator wages can
differ from what was budgeted for a variety of reasons including an unanticipated increase in the wage rate; changes in the mix of workers between
those earning lower and higher wages; changes in the number of operators
on duty; and overtime. Depreciation may have increased because of the
acquisition of new equipment or because of a loss on equipment that must
be scrapped—perhaps due to poor maintenance. (This assumes that the
loss flows through the depreciation account on the performance report.)
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Solutions Manual, Chapter 9
F
U
U
U
11
U
U
U
F
U
U
Exercise 9-9 Part 2.
Overhead Costs
Sales
Variable expenses:
Cleaning supplies
Utilities
Maintenance
Total variable expenses
Contribution margin……
Fixed expenses:
Operator wages
Depreciation
Rent
Insurance
Selling and administrative
Total fixed expenses
Operating income
Actual
(7,800
cars)
Flexible
Budget
Variance
Flexible
Budget
(7,800 cars)
Sales
Volume
Variance
Static
Budget
(8,000 cars)
$78,000
$0
$78,000
$2,000 U
$80,000
5,725
4,795
1,400
11,920
66,080
(125) F
115 U
230 U
220 U
220 U
5,850
4,680
1,170
11,700
66,300
150 F
120 F
30 F
300 F
1,700 U
6,000
4,800
1,200
12,000
68,000
10,270
20,100
8,000
1,090
3,750
43,210
$22,870
270 U
100 U
0
90 U
(250) F
210 U
$430 U
10,000
20,000
8,000
1,000
4,000
43,000
$23,300
0
0
0
0
0
0
1,700 U
10,000
20,000
8,000
1,000
4,000
43,000
$25,000
Total static-budget variance: $2,130 U
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12
Managerial Accounting, 9th Canadian Edition
Exercise 9-10 (30 minutes)
1.
(a)
(b)
Budgeted Activity
Activity Cost Pool
Rate
Direct labour support $3 per DLH
Batch setups
$500 per setup
Materials handling
$200 per setup
Purchasing
$150 per order
Quality inspections
$50 per inspection
Customer orders
$25 per order
Product design
$2,000 per modification
Total
a
(6,000 x 2.5) + (15,000 x 2)
b
(6,000 ÷ 500) + (15,000 ÷ 1,500)
c
16 + 20
d
(6,000 x .1) + (15,000 x .1)
e
1,000 + 750
f
5+3
2. Total overhead budget:
Budgeted activity costs per part 1.
Organization sustaining costs
Total overhead costs
(c)
Activity
45,000 hoursa
22 setupsb
22 setupsb
36 ordersc
2,100 inspectionsd
1,750 orderse
8 modificationsf
(b x c)
Budgeted
Activity Cost
$135,000
11,000
4,400
5,400
105,000
43,750
16,000
$320,550
$320,550
250,000
$570,550
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Solutions Manual, Chapter 9
13
Exercise 9-10 (continued)
3. Total budgeted production costs (including direct costs):
Item
Direct material costs:
R-192: $45 x 6,000
T-295: $30 x 15,000
Direct labour costs:
R-192: $20 x 15,000
T-295: $20 x 30,000
Activity costs (part 1)
Organization sustaining costs
Total production costs
Budgeted
Amount
$ 270,000
450,000
300,000
600,000
320,550
250,000
$2,190,550
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14
Managerial Accounting, 9th Canadian Edition
Problem 9-11 (30 minutes)
1. Davis and Smith used a top-down approach to prepare the budget. That
is, they prepared the budget with little or no input from the individuals
who would have to implement the budget. In contrast, the recommended approach is a participative budget in which the individuals who
have cost control responsibility initiate and fully participate in the budgeting process. Participatory budgets have a number of advantages including: 1) those who are closest to the action are likely to have better
information; 2) managers are likely to be more committed to and understand a budget they participated in preparing than a budget that is imposed from above; and 3) participative budgets help to foster a sense
that everyone’s input is valued.
2. While Davis and Smith are undoubtedly pleased with their work, the dissatisfaction expressed by some employees with the budget process is a
sign that there may be storm clouds ahead. If employees feel that the
budget is unrealistic, the fact that it was imposed can lead to resentment, anger, and a sense of helplessness. Employees may, as a consequence, spend their time and energy complaining about the budget
rather than creatively solving problems. And if the budget is indeed unrealistic and managers are held responsible for meeting the budget, unproductive finger-pointing is likely to result as reality fails to live up to
expectations.
CMA Solution, adapted
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Solutions Manual, Chapter 9
15
Problem 9-12 (30 minutes)
1. September cash sales ..............................................
September collections on account:
July sales: $20,000 × 18% ....................................
August sales: $30,000 × 70% ...............................
September sales: $40,000 × 10% .........................
Total cash collections ...............................................
3,600
21,000
4,000
$36,000
2. Payments to suppliers:
August purchases (accounts payable) ....................
September purchases: $25,000 × 20% ..................
Total cash payments ................................................
$16,000
5,000
$21,000
3.
$ 7,400
Calgon Products
Cash Budget
For the Month of September
Cash balance, September 1..................................
$ 9,000
Add cash receipts:
Collections from customers................................
36,000
Total cash available before current financing .........
45,000
Less disbursements:
Payments to suppliers for inventory ................... $21,000
Selling and administrative expenses ...................
9,000 *
Equipment purchases ........................................ 18,000
Dividends paid ..................................................
3,000
Total disbursements ............................................
51,000
Excess (deficiency) of cash available over disbursements ......................................................
(6,000)
Financing:
Borrowings .......................................................
11,000
Repayments .....................................................
0
Interest ............................................................
0
Total financing ....................................................
11,000
Cash balance, September 30 ................................
$ 5,000
*$13,000 – $4,000 = $9,000.
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16
Managerial Accounting, 9th Canadian Edition
Problem 9-13 (45 minutes)
1. Black is using the budget as a club to pressure employees and as a way
to find someone to blame rather than as a legitimate planning and control tool. His planning seems to consist of telling everyone to increase
sales volume by 40%. This kind of “planning” requires no analysis, no
intelligence, no business insight, and is very likely viewed with contempt
by the employees of the company.
2. The way in which the budget is being used is likely to breed hostility,
tension, mistrust, lack of respect, and actions designed to meet targets
using any means available. Unreasonable targets imposed from the top,
coupled with a “no excuses” policy and the threat of being fired, create
an ideal breeding ground for questionable business practices. Managers
who would not, under ordinary circumstances, cheat or cut corners may
do so if put under this kind of pressure.
3. As the old saying goes, Kelly Cantano is “between a rock and a hard
place.” The Code of Ethical Conduct for Management Accountants states
that management accountants have a responsibility to “disclose fully all
relevant information that could reasonably be expected to influence an
intended user’s understanding of the reports, comments, and recommendations presented.” Assuming that Kelly helps prepare the Production Department’s reports to top management, collaborating with her
boss in hiding losses due to defective disk drives would clearly violate
this standard. Apart from the misrepresentation on the accounting reports, the policy of shipping defective returned units to customers is
bound to have a negative effect on the company’s reputation. If this
policy were to become widely known, it would very likely have a devastating effect on the company’s future sales. Moreover, this practice may
be illegal under statutes designed to protect consumers.
Having confronted her boss with no satisfactory resolution of the problem, Kelly must now decide what to do. The Code of Ethical Conduct for
Management Accountants suggests that Kelly go to the next higher level
in management to present her case. Unfortunately, in the prevailing
moral climate at CompuDrive, she is unlikely to win any blue ribbons for
blowing the whistle on her boss. All of the managers below Black are
likely to be in fear of losing their own jobs and many of them may have
taken actions to meet Black’s targets that they are not proud
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Solutions Manual, Chapter 9
17
Problem 9-13 (continued)
of either. It would take tremendous courage for Kelly to take the problem all the way up to Black himself—particularly in view of his less-thanhumane treatment of subordinates. And going to the Board of Directors
is unlikely to work either since Black and his venture capital firm apparently controls the Board. Resigning, with a letter of memorandum to the
individual who is most likely to be concerned and to be able to take action, may be the only ethical course of action that is left open to Kelly in
this situation. Of course, she must pay her rent, so hopefully she has
good alternative employment opportunities.
Note: This problem is very loosely based on the MiniScribe scandal reported in the December, 1992 issue of Management Accounting as well
as in other business publications. After going bankrupt, it was discovered that managers at MiniScribe had perpetrated massive fraud as a
result of the unrelenting pressure to meet unrealistic targets. Q. T.
Wiles, the real chairman of MiniScribe, was reported to have behaved
much as described in this problem. Kelly Cantano is, alas, a fabrication.
Hopefully, there were people like Kelly at MiniScribe who tried to do
something to stop the fraud.
© McGraw-Hill Ryerson Ltd. 2012. All rights reserved.
18
Managerial Accounting, 9th Canadian Edition
Problem 9-14 (45 minutes)
1.
Production budget:
July
August
September October
Budgeted sales (units) ........... 60,000 75,000 105,000
Add desired ending inventory . 23,000 29,000
18,600
Total needs ........................... 83,000 104,000 123,600
Less beginning inventory ....... 22,000 23,000
29,000
Required production .............. 61,000 81,000
94,600
Note: July E.I. = 8,000 units + 75,000 (next months sales) x 20%
October E.I. = 8,000 units + 30,000 (Nov. Sales) x 20%
53,000
14,000
67,000
18,600
48,400
2. During July and August the company is building inventories in anticipation of peak sales in September. Therefore, production exceeds sales
during these months. In September and October inventories are being
reduced in anticipation of a decrease in sales during the last months of
the year. Therefore, production is less than sales during these months
to cut back on inventory levels.
3. Direct materials budget:
Required production (units) ..
Material D236 needed per
unit ..................................
Production needs (kgs.) .......
Add desired ending inventory (kgs.) ........................
Total Material D236 needs ....
Less beginning inventory
(kgs.) ...............................
Material D236 purchases
(kgs.) ...............................
July
61,000
August September
81,000
94,600
x 4 kgs. x 4 kgs.
244,000 324,000
x 4 kgs.
378,400
129,600 151,360
373,600 475,360
Third
Quarter
236,600
x 4 kgs.
946,400
77,440 *
77,440
455840
1,023,840
129,000 129,600
151,360
129,000
244,600 345,760
304,480
894,840
* 48,400 units (October production) × 4 kgs. per unit = 193,600
kgs.; 193,600 kgs. × 0.4 = 77,440 kgs.
As shown in part (1), production is greatest in September. However, as
shown in the raw material purchases budget, the purchases of materials
is greatest a month earlier because materials must be on hand to support the heavy production scheduled for September.
© McGraw-Hill Ryerson Ltd. 2012. All rights reserved.
Solutions Manual, Chapter 9
19
Problem 9-15 (30 minutes)
1.
Taylor Company
Direct Materials Purchases Budget
Required production .............................
Raw materials per unit ..........................
Production needs .................................
Add desired ending inventory ................
Total needs ..........................................
Less beginning inventory ......................
Raw materials to be purchased .............
Cost of raw materials to be purchased at
$2.50 per kilogram ............................
1st
Quarter
2nd
Quarter
3rd
Quarter
4th
Quarter
$46,500
$54,000
$55,500
$39,250 $195,250
6,000
x3
18,000
4,200
22,200
3,600
18,600
7,000
x3
21,000
4,800
25,800
4,200
21,600
8,000
x3
24,000
3,000
27,000
4,800
22,200
5,000
x3
15,000
3,700
18,700
3,000
15,700
Year
26,000
x3
78,000
3,700
81,700
3,600
78,100
Schedule of Expected Cash Disbursements for Materials
Accounts payable, beginning balance ....
1st Quarter purchases ..........................
2nd Quarter purchases .........................
3rd Quarter purchases ..........................
4th Quarter purchases ..........................
Total cash disbursements for materials ..
$11,775
32,550
$44,325
$13,950
37,800
$51,750
$16,200
38,850
$55,050
$ 11,775
46,500
54,000
$16,650
55,500
27,475
27,475
$44,125 $195,250
© McGraw-Hill Ryerson Ltd. 2012. All rights reserved.
20
Managerial Accounting, 9th Canadian Edition
Problem 9-15 (continued)
2.
Taylor Company
Direct Labour Budget
Units to be produced ..........................
Direct labour time per unit (hours) ......
Total direct labour-hours needed .........
Direct labour cost per hour .................
Total direct labour cost .......................
1st
Quarter
2nd
Quarter
3rd
Quarter
4th
Quarter
6,000
7,000
8,000
5,000
x 0.50
x 0.50
x 0.50
x 0.50
3,000
3,500
4,000
2,500
x $12.00 x $12.00 x $12.00 x $12.00
$ 36,000 $ 42,000 $ 48,000 $ 30,000
Year
26,000
x 0.50
13,000
x $12.00
$156,000
© McGraw-Hill Ryerson Ltd. 2012. All rights reserved.
Solutions Manual, Chapter 9
21
Problem 9-16 (30 minutes)
1.
1.1.
Culbert Dessert Corporation
Direct Labour Budget
Units to be produced ...................
Direct labour time per unit (hours)
Total direct labour-hours needed ..
Direct labour cost per hour ..........
Total direct labour cost ................
2.
1.1.
1st
Quarter
8,000
0.30
2,400
$10.50
$25,200
2nd
Quarter
11,000
0.30
3,300
$10.50
$34,650
3rd
Quarter
9,000
0.30
2,700
$10.50
$28,350
4th
Quarter
Year
13,000
0.30
3,900
$10.50
$40,950
41,000
0.30
12,300
$10.50
$129,150
Year
Culbert Dessert Corporation
Manufacturing Overhead Budget
Budgeted direct labour-hours .......
Variable overhead rate ................
Variable manufacturing overhead .
Fixed manufacturing overhead .....
Total manufacturing overhead .....
Less depreciation ........................
Cash disbursements for manufacturing overhead ........................
1st
Quarter
2nd
Quarter
3rd
Quarter
4th
Quarter
3,900
$1.50
$ 5,850
23,000
28,850
7,000
12,300
$1.50
$18,450
92,000
110,450
28,000
$19,600
$20,950
$20,050
$21,850
$82,450
2,400
$1.50
$ 3,600
23,000
26,600
7,000
3,300
$1.50
$ 4,950
23,000
27,950
7,000
2,700
$1.50
$ 4,050
23,000
27,050
7,000
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22
Managerial Accounting, 9th Canadian Edition
Problem 9-17 (45 minutes)
1. Schedule of expected cash collections:
From accounts receivable.
From April sales:
20% × 200,000 ............
75% × 200,000 ............
4% × 200,000 ..............
From May sales:
20% × 300,000 ............
75% × 300,000 ............
From June sales:
20% × 250,000 ............
Total cash collections .......
April
Month
May
$141,000 $ 7,200
40,000
June
Quarter
$148,200
$ 8,000
40,000
150,000
8,000
225,000
60,000
225,000
50,000
$181,000 $217,200 $283,000
50,000
$681,200
150,000
60,000
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Solutions Manual, Chapter 9
23
Problem 9-17 (continued)
2. Cash budget:
Cash balance, beginning ..........................
Add receipts:
Collections from customers....................
Total available ..............
Less disbursements:
Merchandise purchases ....................
Payroll.......................
Lease payments.........
Advertising ................
Equipment purchases .
Total disbursements .....
Excess (deficiency) of
receipts over disbursements ...............
Financing:
Borrowings ................
Repayments ..............
Interest .....................
Total financing .............
Cash balance, ending ...
April
Month
May
June
Quarter
$ 26,000
$ 27,000
$ 20,200
$ 26,000
181,000
207,000
217,200
244,200
283,000
303,200
681,200
707,200
108,000
9,000
15,000
70,000
8,000
210,000
120,000
9,000
15,000
80,000
—
224,000
180,000
8,000
15,000
60,000
—
263,000
408,000
26,000
45,000
210,000
8,000
697,000
(3,000)
20,200
40,200
10,200
30,000
—
—
30,000
$ 27,000 $
—
—
—
—
20,200
—
(30,000)
(1,200)
(31,200)
$ 9,000
30,000
(30,000)
(1,200)
(1,200)
$ 9,000
3. If the company needs a minimum cash balance of $20,000 to start each
month, the loan cannot be repaid in full by June 30. If the loan is repaid
in full, the cash balance will drop to only $9,000 on June 30, as shown
above. Some portion of the loan balance will have to be carried over to
July, at which time the cash inflow should be sufficient to complete repayment.
© McGraw-Hill Ryerson Ltd. 2012. All rights reserved.
24
Managerial Accounting, 9th Canadian Edition
Problem 9-18 (60 minutes)
1. Schedule of cash receipts:
Cash sales—June ...............................................
Collections on accounts receivable:
May 31 balance ..............................................
June (50% × 190,000) ....................................
Total cash receipts .............................................
$ 60,000
72,000
95,000
$227,000
Schedule of cash payments for purchases:
May 31 accounts payable balance .......................
June purchases (40% × 200,000) ......................
Total cash payments ..........................................
$ 90,000
80,000
$170,000
Pixelize, Inc.
Cash Budget
For the Month of June
Cash balance, beginning ....................................
Add receipts from customers (above) .................
Total cash available............................................
Less disbursements:
Purchase of inventory (above) .........................
Selling and administrative expenses .................
Purchases of equipment ..................................
Total cash disbursements ...................................
Excess of receipts over disbursements ................
Financing:
Borrowings—note ...........................................
Repayments—note ..........................................
Interest ..........................................................
Total financing ..................................................
Cash balance, ending .........................................
$ 8,000
227,000
235,000
170,000
51,000
9,000
230,000
5,000
18,000
(15,000)
(500)
2,500
$ 7,500
© McGraw-Hill Ryerson Ltd. 2012. All rights reserved.
Solutions Manual, Chapter 9
25
Problem 9-18 (continued)
2.
Pixelize, Inc.
Budgeted Income Statement
For the Month of June
Sales .....................................................
Cost of goods sold:
Beginning inventory .............................
Add purchases .....................................
Goods available for sale .......................
Ending inventory..................................
Cost of goods sold ...............................
Gross margin .........................................
Selling and administrative expenses
($51,000 + $2,000) .............................
Operating income ...................................
Interest expense ....................................
Net income ............................................
3.
$250,000
$ 30,000
200,000
230,000
40,000
190,000
60,000
53,000
7,000
500
$ 6,500
Pixelize, Inc.
Budgeted Balance Sheet
June 30
Assets
Cash .......................................................................
Accounts receivable (50% × 190,000) ......................
Inventory ................................................................
Buildings and equipment, net of depreciation
($500,000 + $9,000 – $2,000) ..............................
Total assets .............................................................
Liabilities and Shareholders’ Equity
Accounts payable (60% × 200,000) .........................
Note payable...........................................................
Common stock ........................................................
Retained earnings ($85,000 + $6,500) .....................
Total liabilities and equity .........................................
$ 7,500
95,000
40,000
507,000
$649,500
$120,000
18,000
420,000
91,500
$649,500
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26
Managerial Accounting, 9th Canadian Edition
Problem 9-19 (60 minutes)
1. The sales budget for the third quarter:
July
Aug.
Sept.
Quarter
Budgeted sales (units) .....
6,500
5,000
4,000
15,500
Selling price per unit ........
x $60
x $60
x $60
x $60
Total budgeted sales ........ $390,000 $300,000 $240,000 $930,000
The schedule of expected cash collections from sales:
July
Aug.
Sept.
Quarter
Accounts receivable, beginning balance ............ $160,000
$160,000
July sales:
$390,000 × 50%, 45% . 195,000 $175,500
370,500
August sales:
$300,000 × 50%, 45% .
150,000 $135,000 285,000
September sales:
$240,000 × 50% ..........
120,000 120,000
Total cash collections ....... $355,000 $325,500 $255,000 $935,500
2. The production budget for July through October:
Budgeted sales (units) ......................
Add desired ending inventory ............
Total needs ......................................
Less beginning inventory...................
Required production (units)...............
July
6,500
1,000
7,500
1,300
6,200
Aug.
5,000
800
5,800
1,000
4,800
Sept.
4,000
600
4,600
800
3,800
Oct.
3,000
500
3,500
600
2,900
© McGraw-Hill Ryerson Ltd. 2012. All rights reserved.
Solutions Manual, Chapter 9
27
Problem 9-19 (continued)
3. The direct materials purchases budget for the third quarter:
July
Required production—units
(above) ............................
6,200
Raw materials needs per
unit .................................. x 3 kgs.
Production needs (kgs.) ....... 18,600
Add desired ending inventory ..................................
2,880
Total needs ......................... 21,480
Less beginning inventory
3,720
Raw materials to be purchased ............................. 17,760
Cost of raw materials to be
purchased at $3.50 per
kg. ................................... $62,160
Aug.
Sept.
Quarter
4,800
3,800
14,800
x 3 kgs.
14,400
x 3 kgs.
11,400
x 3 kgs.
44,400
2,280
16,680
2,880
1,740 *
13,140
2,280
1,740
46,140
3,720
13,800
10,860
42,420
$48,300
$38,010
$148,470
*2,900 units (October) × 3 kgs. per unit = 8,700 kgs.;
8,700 kgs. × 20% = 1,740 kgs.
The schedule of expected cash disbursements:
Accounts payable, beginning
balance ................................
July purchases:
$62,160 × 70%, 30% ...........
August purchases:
$48,300 × 70%, 30% ...........
September purchases:
$38,010 × 70% ....................
Total cash disbursements .........
July
Aug.
Sept.
$11,400
Quarter
$11,400
43,512 $18,648
33,810 $14,490
62,160
48,300
26,607
26,607
$54,912 $52,458 $41,097 $148,467
© McGraw-Hill Ryerson Ltd. 2012. All rights reserved.
28
Managerial Accounting, 9th Canadian Edition
Problem 9-20 (120 minutes)
It may be helpful to see the Sales Budget Summary first.
Sales Budget
March (actual) April
May
June
Total Sales
$60,000
$70,000
$85,000
$90,000
Cash (20%)
$12,000
$14,000
$17,000
$18,000
Credit (80%)
48,000
56,000
68,000
72,000
All credit sales are collected in the month following the sale.
July
$50,000
$10,000
40,000
1. Schedule of expected cash collections:
Cash sales.............................
Credit sales ...........................
Total collections .....................
April
May
June
Total
April
May
June
Total
$14,000 $17,000 $18,000 $ 49,000
48,000 56,000 68,000 172,000
$62,000 $73,000 $86,000 $221,000
2. a. Merchandise purchases budget:
Budgeted cost of goods sold .... $42,000 $51,000 $54,000 $147,000
Add desired ending inventory* . 15,300 16,200
9,000
9,000
Total needs ............................. 57,300 67,200 63,000 156,000
Less beginning inventory ......... 12,600 15,300 16,200
12,600
Required purchases ................. $44,700 $51,900 $46,800 $143,400
*
At April 30: $51,000 × 30% = $15,300.
At June 30: $50,000 July sales × 60% × 30% = $9,000.
b. Schedule of cash disbursements for purchases:
For March purchases .............
For April purchases ................
For May purchases ................
For June purchases ...............
Total cash disbursements .......
April
May
June
Total
$18,300
$18,300
22,350 $22,350
44,700
25,950 $25,950
51,900
23,400
23,400
$40,650 $48,300 $49,350 $138,300
© McGraw-Hill Ryerson Ltd. 2012. All rights reserved.
Solutions Manual, Chapter 9
29
Problem 9-20 (continued)
3. Schedule of cash disbursements for selling and administrative expenses:
Salaries and wages ....................
Shipping ...................................
Advertising................................
Other expenses .........................
Total cash disbursements for
operating expenses .................
April
May
June
Total
$ 7,500 $ 7,500 $ 7,500 $22,500
4,200
5,100
5,400 14,700
6,000
6,000
6,000 18,000
2,800
3,400
3,600
9,800
$20,500 $22,000 $22,500 $65,000
4. Cash budget:
Cash balance, beginning ............
Add cash collections ..................
Total cash available .................
Less disbursements:
For inventory purchases ..........
For selling and administrative
expenses .............................
For equipment purchases ........
For dividends ..........................
Total disbursements...................
Excess (deficiency) of cash ........
Financing:
Borrowings .............................
Repayments ...........................
Interest ($10,000 × 1% × 3) ..
Total financing ..........................
Cash balance, ending.................
April
May
June
Total
48,300
49,350
138,300
20,500 22,000
11,500
3,000
0
0
72,650 73,300
(1,650) 8,050
22,500
0
3,500
75,350
18,700
65,000
14,500
3,500
221,300
8,700
$ 9,000 $ 8,350 $ 8,050 $ 9,000
62,000 73,000 86,000 221,000
71,000 81,350 94,050 230,000
40,650
10,000
0
0
10,000
0
0 (10,000) (10,000)
0
0
(300)
(300)
10,000
0 (10,300)
(300)
$ 8,350 $ 8,050 $ 8,400 $ 8,400
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30
Managerial Accounting, 9th Canadian Edition
Problem 9-20 (continued)
5. Income Statement:
Neotec Company
Income Statement
For the Quarter Ended June 30
Sales .......................................................
Cost of goods sold:
Beginning inventory (given) ....................
Add purchases (Part 2) ...........................
Goods available for sale ..........................
Ending inventory (Part 2) .......................
Gross margin............................................
Selling and administrative expenses:
Salaries and wages (Part 3) ....................
Shipping (Part 3)....................................
Advertising (Part 3) ................................
Depreciation ..........................................
Other expenses (Part 3) .........................
Operating income .....................................
Less interest expense (Part 4) ...................
Net income ..............................................
$245,000
$ 12,600
143,400
156,000
9,000
22,500
14,700
18,000
6,000
9,800
147,000
98,000
71,000
27,000
300
$ 26,700
Note: CGS can also be computed as follows:
Sales of $245,000 x 60% = $147,000
© McGraw-Hill Ryerson Ltd. 2012. All rights reserved.
Solutions Manual, Chapter 9
31
Problem 9-20 (continued)
6. Balance sheet:
Neotec Company
Balance Sheet
June 30
Assets
Current assets:
Cash (Part 4) .................................................................
Accounts receivable (80% × $90,000).............................
Inventory (Part 2) ..........................................................
Total current assets ..........................................................
Buildings and equipment, net
($214,100 + $14,500 – $6,000) ......................................
Total assets ......................................................................
$ 8,400
72,000
9,000
89,400
222,600
$312,000
Liabilities and Shareholders’ Equity
Current liabilities:
Accounts payable (Part 2: 50% × $46,800) ..
Shareholders’ equity:
Common stock ............................................
Retained earnings* .....................................
Total liabilities and equity ...............................
* Retained earnings, beginning ...................
Add net income.......................................
Total.......................................................
Less dividends ........................................
Retained earnings, ending .......................
$ 23,400
$190,000
98,600
288,600
$312,000
$ 75,400
26,700
102,100
3,500
$ 98,600
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32
Managerial Accounting, 9th Canadian Edition
Problem 9-21 (60 minutes)
1. a. Schedule of expected cash collections:
Year 1—Fourth quarter sales:
$300,000 × 65% .......................
Year 2—First quarter sales:
$400,000 × 33% .......................
$400,000 × 65% .......................
Year 2—Second quarter sales:
$500,000 × 33% .......................
$500,000 × 65% .......................
Year 2—Third quarter sales:
$600,000 × 33% .......................
$600,000 × 65% .......................
Year 2—Fourth quarter sales:
$480,000 × 33% .......................
Total cash collections ....................
First
Year 2 Quarter
Second
Third
Fourth
Total
$195,000
$ 195,000
132,000
132,000
260,000
$260,000
165,000
165,000
325,000
$325,000
198,000
$390,000
198,000
390,000
158,400
$327,000 $425,000 $523,000 $548,400
158,400
$1,823,400
© McGraw-Hill Ryerson Ltd. 2012. All rights reserved.
Solutions Manual, Chapter 9
33
Problem 9-21 (continued)
b. Schedule of budgeted cash disbursements for merchandise purchases:
Year 1—Fourth quarter purchases:
$180,000 × 80% .......................
Year 2—First quarter purchases:
$260,000 × 20% .......................
$260,000 × 80% .......................
Year 2—Second quarter purchases:
$310,000 × 20% .......................
$310,000 × 80% .......................
Year 2—Third quarter purchases:
$370,000 × 20% .......................
$370,000 × 80% .......................
Year 2—Fourth quarter purchases:
$240,000 × 20% .......................
Total cash disbursements ..............
First
Year 2 Quarter
Second
Third
Fourth
Total
$144,000
$ 144,000
52,000
52,000
208,000
$208,000
62,000
62,000
248,000
$248,000
74,000
$296,000
74,000
296,000
48,000
$196,000 $270,000 $322,000 $344,000
48,000
$1,132,000
© McGraw-Hill Ryerson Ltd. 2012. All rights reserved.
34
Managerial Accounting, 9th Canadian Edition
Problem 9-21 (continued)
2.
Budgeted sales..................
Variable expense rate ........
Variable expenses..............
Fixed expenses .................
Total expenses ..................
Less depreciation ..............
Cash disbursements ..........
First
Year 2 Quarter
Second
Third
Fourth
$400,000 $500,000 $600,000 $480,000
x 12%
x 12%
x 12%
x 12%
48,000
60,000
72,000
57,600
90,000
90,000
90,000
90,000
138,000 150,000 162,000 147,600
20,000
20,000
20,000
20,000
$118,000 $130,000 $142,000 $127,600
Year
$1,980,000
x 12%
237,600
360,000
597,600
80,000
$ 517,600
© McGraw-Hill Ryerson Ltd. 2012. All rights reserved.
Solutions Manual, Chapter 9
35
Problem 9-21 (continued)
3. Cash budget for Year 2:
First
Cash balance, beginning .................... $ 20,000
Add collections from sales .................. 327,000
Total cash available ............................ 347,000
Less disbursements:
Merchandise purchases ................... 196,000
Operating expenses ........................ 118,000
Dividends .......................................
10,000
Land...............................................
0
Total disbursements ........................... 324,000
Excess (deficiency) of receipts over
disbursements ...............................
23,000
Financing:
Borrowings .....................................
0
Repayments....................................
0
Interest ($60,000 × 1% × 9) ..........
0
Total financing ...................................
0
Cash balance, ending ......................... $ 23,000
Year 2 Quarter
Second
Third
$ 23,000 $ 18,000
425,000 523,000
448,000 541,000
Fourth
Year
$ 18,500 $ 20,000
548,400 1,823,400
566,900 1,843,400
270,000
130,000
10,000
80,000
490,000
322,000
142,000
10,000
48,500
522,500
344,000
127,600
10,000
0
481,600
1,132,000
517,600
40,000
128,500
1,818,100
(42,000)
18,500
85,300
25,300
60,000
0
0
0
0
0
60,000
0
$ 18,000 $ 18,500
0
60,000
(60,000)
(60,000)
(5,400)
(5,400)
(65,400)
(5,400)
$ 19,900 $ 19,900
© McGraw-Hill Ryerson Ltd. 2012. All rights reserved.
36
Managerial Accounting, 9th Canadian Edition
Problem 9-22 (60 minutes)
1. Collections on sales:
July
August Sept.
Quarter
Cash sales ..............................
$ 8,000 $14,000 $10,000 $ 32,000
Credit sales:
May: $30,000 × 80% × 20% ..
4,800
4,800
June: $36,000 × 80% × 70%,
20% ..................................
20,160
5,760
25,920
July: $40,000 × 80% × 10%,
70%, 20% .........................
3,200 22,400
6,400
32,000
Aug.: $70,000 × 80% × 10%,
70% ..................................
5,600 39,200
44,800
Sept.: $50,000 × 80% × 10%
4,000
4,000
Total cash collections ...............
$36,160 $47,760 $59,600 $143,520
2. a. Merchandise purchases budget:
Budgeted cost of goods sold* ..
Add desired ending inventory**
Total needs .............................
Less beginning inventory .........
Required inventory purchases ..
July
August
Sept.
Oct.
$24,000 $42,000 $30,000 $27,000
31,500 22,500 20,250
55,500 64,500 50,250
18,000 31,500 22,500
$37,500 $33,000 $27,750
*Cost of goods sold is 60% of sales, based on income statements provided
in the problem.
*75% of the next month’s budgeted cost of goods sold.
b. Schedule of expected cash disbursements for merchandise purchases:
Accounts payable, June 30 .......
July purchases ........................
August purchases ....................
September purchases ..............
Total cash disbursements .........
July
August
Sept.
Quarter
$11,700
$11,700
18,750 $18,750
37,500
16,500 $16,500 33,000
13,875 13,875
$30,450 $35,250 $30,375 $96,075
© McGraw-Hill Ryerson Ltd. 2012. All rights reserved.
Solutions Manual, Chapter 9
37
Problem 9-22 (continued)
3.
Scott Products, Inc.
Cash Budget
For the Quarter Ended September 30
Cash balance, beginning ........
Add collections from sales
Total cash available .............
Less disbursements:
For inventory purchases ......
For selling expenses ............
For administrative expenses
For land .............................
For dividends ......................
Total disbursements ..............
Excess (deficiency) of cash
available over disbursements ................................
Financing:
Borrowings .........................
Repayment .........................
Interest* ............................
Total financing ......................
Cash balance, ending ............
* $10,000 × 1% × 3 =
$4,000 × 1% × 2 =
July
August
Sept.
Quarter
$ 8,000 $ 8,410 $ 8,020 $ 8,000
36,160
47,760 59,600 143,520
44,160 56,170
67,620 151,520
30,450
7,200
3,600
4,500
0
45,750
35,250
11,700
5,200
0
0
52,150
30,375
8,500
4,100
0
1,000
43,975
96,075
27,400
12,900
4,500
1,000
141,875
(1,590)
4,020
23,645
9,645
10,000
4,000
14,000
0
0 (14,000) (14,000)
0
0
(380)
(380)
10,000
4,000 (14,380)
(380)
$ 8,410 $ 8,020 $ 9,265 $ 9,265
$300
80
$380
© McGraw-Hill Ryerson Ltd. 2012. All rights reserved.
38
Managerial Accounting, 9th Canadian Edition
Problem 9-23 (90 minutes)
1.
Budgeted sales....................
Add desired ending inventory* ................................
Total needs .........................
Less beginning inventory .....
Required production ............
April
May
10,600
40,600
6,000
34,600
15,000
68,000
10,600
57,400
June
Quarter
30,000 53,000 75,000 158,000
13,600 13,600
88,600 171,600
15,000
6,000
73,600 165,600
*20% of the next month’s sales.
2. Material #226:
Required production—
units ............................
Material #226 per unit .....
Production needs—
kilograms .....................
Add desired ending inventory* ......................
Total needs—kilograms ....
Less beginning inventory .
Required purchases—
kilograms .....................
Required purchases at
$4.00 per kilogram........
April
May
June
Quarter
34,600
× 2 kgs.
57,400
× 2 kgs.
73,600
× 2 kgs.
165,600
× 2 kgs.
69,200
114,800
147,200
331,200
68,880
138,080
23,000
88,320
203,120
68,880
76,080
223,280
88,320
76,080
407,280
23,000
115,080
134,240
134,960
384,280
$460,320
$536,960
$539,840 $1,537,120
* 60% of the following month’s production needs. For June: July
production 68,000 + 9,000 – 13,600 = 63,400 units; 63,400
units × 2 kgs. per unit = 126,800 kgs.; 126,800 kgs. × 60% =
76,080 kgs.
© McGraw-Hill Ryerson Ltd. 2012. All rights reserved.
Solutions Manual, Chapter 9
39
Problem 9-23 (continued)
Material #301:
April
May
Required production—
units ............................
34,600
57,400
Material #301 per unit .....
× 5 mt. × 5 mt.
Production needs—
173,000 287,000
metres .........................
Add desired ending inventory* ............................
86,100 110,400
Total needs—metres ........ 259,100 397,400
Less beginning inventory..
35,000
86,100
Required purchases—
metres .........................
224,100 311,300
Required purchases at
$1.50 per metre ............ $336,150 $466,950
June
Quarter
73,600
× 5 mt.
368,000
165,600
× 5 mt.
828,000
95,100
463,100
110,400
95,100
923,100
35,000
352,700
888,100
$529,050
$1,332,150
* 30% of the following month’s production needs. For June:
July production 68,000 + 9,000 – 13,600 = 63,400 units;
63,400 units × 5 mt. per unit = 317,000 mt.;
317,000 mt. × 30% = 95,100 mt.
3. Direct labour budget:
Cutting .......
Assembly ....
Finishing .....
Units
Produced
165,600
165,600
165,600
Direct Labour
Hours
Per
Unit
Total
0.15
0.60
0.10
24,840
99,360
16,560
140,760
Cost per
DLH
$16.00
$14.00
$18.00
Total Cost
$ 397,440
1,391,040
298,080
$2,086,560
© McGraw-Hill Ryerson Ltd. 2012. All rights reserved.
40
Managerial Accounting, 9th Canadian Edition
Problem 9-23 (continued)
4. Manufacturing overhead budget:
Expected production for the year ..............................
Actual production through March 31 .........................
Expected production, April through December ...........
Variable manufacturing overhead rate per unit
($124,800 ÷ 48,000 units) ....................................
Variable manufacturing overhead .............................
Fixed manufacturing overhead ($4,166,000 × 9/12) ..
Total manufacturing overhead ..................................
Less depreciation ($2,619,000 × 9/12) .....................
Cash disbursement for manufacturing overhead ........
380,000
48,000
332,000
× $2.60
$ 863,200
3,124,500
3,987,700
1,964,250
$2,023,450
CMA Solution, adapted
© McGraw-Hill Ryerson Ltd. 2012. All rights reserved.
Solutions Manual, Chapter 9
41
Problem 9-24 (120 minutes)
1. Schedule of expected cash collections:
January February
Cash sales (40% of this
month’s sales) ..................
Credit sales* .......................
Total collections ...................
$28,000
36,000
$64,000
March
Quarter
$32,000 $34,000 $ 94,000
42,000 48,000 126,000
$74,000 $82,000 $220,000
*60% of the preceding month’s sales.
2. Merchandise purchases budget:
Budgeted cost of goods sold
(70% of sales)..................
Add desired ending inventory*................................
Total needs .........................
Less beginning inventory .....
Required purchases .............
January February
March
Quarter
$49,000 $56,000
$59,500 $164,500
11,200
11,900
60,200
67,900
9,800
11,200
$50,400 $56,700
7,700
7,700
67,200
172,200
11,900
9,800
$55,300 $162,400
*At March 30: April sales $55,000 × 70% × 20% = $7,700.
Schedule of expected cash disbursements—merchandise purchases
December purchases ...........
January purchases ..............
February purchases .............
March purchases .................
Total disbursements ............
January February
$32,550
12,600
$45,150
March
Quarter
$ 32,550
$37,800
50,400
14,175 $42,525
56,700
13,825
13,825
$51,975 $56,350 $153,475
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42
Managerial Accounting, 9th Canadian Edition
Problem 9-24 (continued)
3. Schedule of expected cash disbursements—selling and administrative
expenses
Commissions .......................
Rent ...................................
Other expenses ...................
Total disbursements ............
January February
$12,000
1,800
5,600
$19,400
March
$12,000 $12,000
1,800
1,800
6,400
6,800
$20,200 $20,600
Quarter
$36,000
5,400
18,800
$60,200
4. Cash budget:
January February
Cash balance, beginning ....
Add cash collections ..........
Total cash available .........
Less cash disbursements:
For inventory ..................
For operating expenses ...
For equipment ................
Total disbursements ..........
Excess (deficiency) of cash
Financing:
Borrowings .....................
Repayments ...................
Interest* ........................
Total financing ..................
Cash balance, ending ........
$ 6,000
64,000
70,000
* $3,000 × 1% × 3 =
$6,000 × 1% × 2 =
Total interest
$ 90
120
$210
45,150
19,400
3,000
67,550
2,450
3,000
0
0
3,000
$ 5,450
$ 5,450
74,000
79,450
51,975
20,200
8,000
80,175
(725)
6,000
0
0
6,000
$ 5,275
March
Quarter
$ 5,275 $ 6,000
82,000 220,000
87,275 226,000
56,350
20,600
0
76,950
10,325
153,475
60,200
11,000
224,675
1,325
0
(5,000)
(210)
(5,210)
$ 5,115 $
9,000
(5,000)
(210)
3,790
5,115
© McGraw-Hill Ryerson Ltd. 2012. All rights reserved.
Solutions Manual, Chapter 9
43
Problem 9-24 (continued)
5.
Lim Corporation
Income Statement
For the Quarter Ended March 31
Sales ($70,000 + $80,000 + $85,000) .......
Cost of goods sold:
Beginning inventory (Given) ...................
Add purchases (Part 2) ...........................
Goods available for sale ..........................
Less ending inventory (Part 2) ................
Gross margin............................................
Selling and administrative expenses:
Commissions (Part 3) .............................
Rent (Part 3) .........................................
Depreciation (Given) ..............................
Other expenses (Part 3) .........................
Operating income .....................................
Less interest expense ...............................
Net income ..............................................
$235,000
$ 9,800
162,400
172,200
7,700
36,000
5,400
2,400
18,800
164,500
70,500
62,600
7,900
210
$ 7,690
© McGraw-Hill Ryerson Ltd. 2012. All rights reserved.
44
Managerial Accounting, 9th Canadian Edition
Problem 9-24 (continued)
6.
Lim Corporation
Balance Sheet
March 31
Assets
Current assets:
Cash (Part 4) .............................................................
Accounts receivable ($85,000 × 60%).........................
Inventory (Part 2) ......................................................
Total current assets ......................................................
Fixed assets—net
($110,885 + $3,000 + $8,000 – $2,400) .....................
Total assets ..................................................................
$ 5,115
51,000
7,700
63,815
119,485
$183,300
Liabilities and Shareholders’ Equity
Accounts payable (Part 2: $55,300 × 75%) .....
Bank loan payable .........................................
Shareholders’ equity:
Common stock (Given) ................................
Retained earnings* .....................................
Total liabilities and equity ...............................
* Retained earnings, beginning .................
Add net income.....................................
Retained earnings, ending .....................
$ 41,475
4,000
$100,000
37,825
137,825
$183,300
$30,135
7,690
$37,825
© McGraw-Hill Ryerson Ltd. 2012. All rights reserved.
Solutions Manual, Chapter 9
45
Problem 9-25 (30 minutes)
1. The cost formulas in the flexible budget performance report below were
obtained by dividing the costs from the static budget in the problem
statement by the budgeted level of activity (700 samples). The fixed
costs are carried over from the static budget.
Centrico Medical Laboratory
Flexible Budget Performance Report
For the Month Ended September 30
Budgeted activity (in samples) ........... 700
Actual activity (in samples) ................ 920
Costs
Variable costs:
Medical supplies ............
Lab tests .......................
Refreshments for staff
and volunteers ............
Administrative supplies ..
Total variable cost ............
Actual
Flexible
Costs
Budget
Incurred Based
Cost
for 920
on 920 Flexible
Formula
Lab
Lab sam- Budget
Variance
(per unit) samples
ples
$15.20
18.45
$14,878
16,173
$13,984 $894 U
16,974 801 F
2.05
0.70
$36.40
1,779
284
33,114
1,886
644
33,488
107 F
360 F
374 F
Fixed costs:
Staff salaries .................
Equipment depreciation .
Rent .............................
Utilities .........................
Total fixed cost ................
19,800
3,150
2,250
486
25,686
19,800
2,850
2,250
450
25,350
0
300 U
0
36 U
336 U
Total cost ........................
$58,800
$58,838 $ 38 F
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46
Managerial Accounting, 9th Canadian Edition
Problem 9-25 (continued)
2. The overall variance is favourable and none of the unfavourable variances is particularly large. Nevertheless, the favourable variance for lab
tests is somewhat worrisome. Perhaps the medical laboratory has not
been doing all of the necessary lab tests that it should be doing as a result of being overworked because of the increase in tests due to the
chemical spill. This may be worth investigating and points out that favourable variances should warrant attention as much as unfavourable
variances. In addition, there is an unfavourable variance for medical
supplies, which may be explained by the medical laboratory being less
efficient since there were some volunteers assisting at the lab to help
because of the chemical spill.
Some may wonder why there is a variance for depreciation. Fixed costs
can change; they just don’t vary with the level of activity. Depreciation
may have increased because of the acquisition of new equipment or because of a loss on equipment that must be scrapped. (This assumes that
the loss flows through the depreciation account on the performance report.)
© McGraw-Hill Ryerson Ltd. 2012. All rights reserved.
Solutions Manual, Chapter 9
47
Case 9-26 (45 minutes)
1.The key problem with the top-down approach used in prior years by
Playco appears to be that very little input other than a one-hour
meeting with the CFO, was sought from the senior product managers, despite the fact that on average, they had been with the
company for many years. Since these managers are closest to the
action in terms of the competitive environment, the distribution
network, the production process, and so on, they are in the best
position to provide key input to the budget process. The fact that
the budgets in the past were developed by the senior management team, who are not necessarily close to the day-to-day operations, likely explains why there have been accuracy problems in
the past.
2. Some of the problems include:
There appears to be very little negotiation. Instead senior
management is simply imposing their budget on the senior
product managers. In a sense, the senior production managers have been misled into thinking the approach is participative but in reality the same top-down approach is being
used, albeit in a slightly different way.
The senior management team is seeking input from other
members of the product division as evidenced by the V.P. of
production comments about his conversations with production people in the golf equipment division. This may undermine the authority of the senior product managers.
There appears to be little trust between senior management
and the product managers as evidenced by the comments
related to the need for “very challenging” budgets given the
link between bonuses and performance versus the budget.
There is no “team” concept in the process being employed.
It seems to be senior management versus the senior product
managers.
Some possible consequences:
The senior product managers may become very demotivated since their input on the budget was requested,
and largely ignored.
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48
Managerial Accounting, 9th Canadian Edition
Case 9-26 continued
The senior product managers will not be highly committed to
attaining the budget targets if they think they are unrealistic.
The senior product managers may engage in dysfunctional
activities such as reducing quality, lowering customer service
levels, etc. in an effort to meet the unrealistic budgets.
The budget process may not be taken seriously by the senior
product managers in the coming years if they believe their
ability to influence the budget is minimal. This could lead to
the same problem of inaccurate budgets that caused Playco
to adopt a participative approach.
At the extreme, some senior product managers may leave
the company depending on how serious they believe the
breach of trust to be.
3.Changes to the process:
Make the budget negotiations real negotiations. The senior
management team needs to be willing to back-off their position and compromise. If not, they should reinstate the topdown approach.
Involve more key individuals from the product divisions at
the budget review meetings. This would make the setting
feel like more of a team effort and less of a “senior management versus the senior product manager.”
If senior management is truly concerned about budget slack,
they should do careful reviews of significant variances between actual results and the budget on an on-going basis. A
consistent pattern of actual performance being better than
budget may be suggestive of slack but explanations should
be sought before assuming the product managers are engaging in slack creation.
Consider delinking the bonuses from budget performance.
Instead, managers could be evaluated on performance versus last year, or versus the other product lines. This would
create less incentive to game the budgeting process.
© McGraw-Hill Ryerson Ltd. 2012. All rights reserved.
Solutions Manual, Chapter 9
49
Case 9-27 (120+ minutes)
1. a Sales budget:
April
.
Budgeted sales in
65,000
units .......................
Selling price per unit ...
× $10
Total sales .................. $650,000
May
June
100,000
50,000
215,000
× $10
$1,000,000
× $10
$500,000
× $10
$2,150,000
b Schedule of expected cash collections:
.
February sales (10%) . $ 26,000
March sales
280,000
$ 40,000
(70%, 10%)............
April sales
130,000
455,000
(20%, 70%, 10%)...
May sales
200,000
(20%, 70%)............
June sales (20%) .......
Total cash collections .. $436,000
$695,000
c
Merchandise purchases budget:
.
Budgeted sales in
65,000
units .......................
Add budgeted ending
40,000
inventory* ...............
Total needs ................
105,000
Less beginning in26,000
ventory ...................
Required unit pur79,000
chases.....................
Unit cost ....................
× $4
Required dollar pur$316,000
chases.....................
Quarter
$
26,000
320,000
$ 65,000
650,000
700,000
900,000
100,000
$865,000
100,000
$1,996,000
100,000
50,000
215,000
20,000
12,000
12,000
120,000
40,000
62,000
20,000
227,000
26,000
80,000
42,000
201,000
× $4
$320,000
× $4
$168,000
× $4
$ 804,000
*40% of the next month’s sales in units.
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50
Managerial Accounting, 9th Canadian Edition
Case 9-27 (continued)
d. Budgeted cash disbursements for merchandise purchases:
March purchases
(Accounts payable) ...................
April purchases ......
May purchases .......
June purchases ......
Total cash disbursements .........
April
May
$100,000
158,000
$258,000
$158,000
160,000
$318,000
June
Quarter
$160,000
84,000
$ 100,000
316,000
320,000
84,000
$244,000
$ 820,000
© McGraw-Hill Ryerson Ltd. 2012. All rights reserved.
Solutions Manual, Chapter 9
51
Case 9-27 (continued)
2.
Knockoffs Unlimited
Cash Budget
For the Three Months Ending June 30
Cash balance, beginning..
Add receipts from customers (Part 1 b.) .........
Total cash available .........
Less disbursements:
Purchase of inventory
(Part 1 d.) .................
Advertising...................
Rent ............................
Salaries and wages .......
Sales commissions (4%
of sales) ....................
Utilities ........................
Dividends paid .............
Equipment purchases ...
Total disbursements ........
Excess (deficiency) of receipts over disbursements ..........................
Financing:
Borrowings ..................
Repayments .................
Interest* .....................
Total financing ................
Cash balance, ending ......
April
$ 74,000
May
June
$ 50,000 $ 50,000
Quarter
$ 74,000
436,000
510,000
695,000
745,000
865,000
915,000
1,996,000
2,070,000
258,000
200,000
18,000
106,000
318,000
200,000
18,000
106,000
244,000
200,000
18,000
106,000
820,000
600,000
54,000
318,000
26,000
7,000
15,000
0
630,000
40,000
7,000
0
16,000
705,000
20,000
7,000
0
40,000
635,000
86,000
21,000
15,000
56,000
1,970,000
(120,000)
40,000
280,000
100,000
170,000
0
0
170,000
$ 50,000
10,000
0
0 (180,000)
0
(5,300)
10,000 (185,300)
$ 50,000 $ 94,700
180,000
(180,000)
(5,300)
(5,300)
$ 94,700
* $170,000 × 1% × 3 = $5,100
$10,000 × 1% × 2
=
200
Total interest
= $5,300
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52
Managerial Accounting, 9th Canadian Edition
Case 9-27 (continued)
3.
Knockoffs Unlimited
Budgeted Income Statement
For the Three Months Ended June 30
Sales revenue (Part 1 a.) ....................
Variable expenses:
Cost of goods sold
(215,000 units @ $4 per necklace) .
Commissions
(215,000 units @ 4% of sales) .......
Contribution margin............................
Fixed expenses:
Advertising ($200,000 x 3) ...............
Rent ($18,000 x 3) ..........................
Wages and salaries ($106,000 x 3) ...
Utilities ($7,000 x 3).........................
Insurance ($3,000 x 3).....................
Depreciation ($14,000 x 3) ...............
Operating income ...............................
Less interest expense (Part 2) .............
Net income ........................................
$2,150,000
$860,000
86,000
600,000
54,000
318,000
21,000
9,000
42,000
946,000
1,204,000
1,044,000
160,000
5,300
$ 154,700
© McGraw-Hill Ryerson Ltd. 2012. All rights reserved.
Solutions Manual, Chapter 9
53
Case 9-27 (continued)
4.
Knockoffs Unlimited
Budgeted Balance Sheet
June 30
Assets
Cash (Part 2) ..........................................................
Accounts receivable (see below) ...............................
Inventory (12,000 units @ $4 per unit) .....................
Prepaid insurance ($21,000 – $9,000) ......................
Fixed assets, net of depreciation
($950,000 + $56,000 – $42,000) ...........................
Total assets .............................................................
$ 94,700
500,000
48,000
12,000
964,000
$1,618,700
Liabilities and Shareholders’ Equity
Accounts payable, purchases
(50% × $168,000 from Part 1 c.)...........................
Dividends payable ...................................................
Common shares ......................................................
Retained earnings (see below) .................................
Total liabilities and equity .........................................
$ 84,000
15,000
800,000
719,700
$1,618,700
Accounts receivable at June 30:
10% × May sales of $1,000,000 .............
80% × June sales of $500,000 ...............
Total .....................................................
$100,000
400,000
$500,000
Retained earnings at June 30:
Balance, March 31 .................................
Add net income (Part 3) .........................
Total .....................................................
Less dividends declared..........................
Balance, June 30 ...................................
$580,000
154,700
734,700
15,000
$719,700
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54
Managerial Accounting, 9th Canadian Edition
Case 9-28 (45 minutes)
1. Flexible budgets would allow Anne Gibson to directly compare EdDEV’s
actual selling expenses (based on the current month’s actual activity)
with the budgeted selling expenses. In general, flexible budgets:
• provide management with the tools to evaluate the effects of varying
levels of activity on costs, profits, and cash position.
• enable management to improve planning and decision making.
• improve the analysis of actual results.
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Solutions Manual, Chapter 9
55
Case 9-28 (continued)
2.
EdDEV, Inc.
Revised Monthly Selling Expense Report
November
Overhead Costs
Actual
Flexible
Budget
Variance
Unit sales .......................
Dollar sales.....................
Orders processed ............
Salespersons ..................
310,000
$12,400,000
5,800
96
Advertising expense ........
Staff salaries expense .....
Sales salaries expense1 ...
Commissions expense2 ....
Per diem expense3 ..........
Office expense4 ..............
Shipping expense5 ..........
Total
$ 1,660,000 $10,000 U
125,000
0
115,400
200 U
496,000
0
162,600
4,200 U
358,400
7,600 F
976,500
16,000 F
$ 3,893,900 $ 9,200 F
$0
Flexible
Budget
Sales
Volume
Variance
310,000
$12,400,000
5,800
96
280,000
$1,200,000 $11,200,000
6,500
90
$ 1,650,000
125,000
115,200
496,000
158,400
366,000
992,500
$ 3,903,100
$0
0
7,200 U
48,000 U
9,900 U
26,000 U
90,000 U
$181,100 U
Total static-budget variance: $171,900 U
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56
Static
Budget
Managerial Accounting, 9th Canadian Edition
$1,650,000
125,000
108,000
448,000
148,500
340,000
902,500
$ 3,722,000
Case 9-28 (continued)
Supporting computations for flexible budget:
1
Monthly salary for salesperson:
$108,000 ÷ 90 salespersons = $1,200 per salesperson
or
$1,296,000 ÷ 12 ÷ 90 salespersons = $1,200 per salesperson
Flexible budget amount:
$1,200 per salesperson × 96 salespersons = $115,200
2
Commission rate:
$3,200,000 ÷ $80,000,000 = 0.04
or
$448,000 ÷ $11,200,000 = 0.04
Flexible budget amount for commissions:
$12,400,000 × 0.04 = $496,000
3
($148,500 ÷ 90 salespersons) ÷ 15 days per salesperson =
$110 per day
or
($1,782,000 ÷ 12 ÷ 90 salespersons) ÷ 15 days per salesperson =
$110 per day
Flexible budget amount for per diem:
($110 per day × 15 days per salesperson) × 96 salespersons =
$158,400
4
($4,080,000 – $3,000,000) ÷ 54,000 orders = $20 per order
Flexible budget amount for office expenses:
($3,000,000 ÷ 12) + ($20 per order × 5,800 orders) = $366,000
5
[$6,750,000 – ($3 per unit × 2,000,000 units)] ÷ 12 =
$62,500 monthly fixed expense
Flexible budget amount for shipping expenses:
$62,500 + ($3 per unit × 310,000 units) = $992,500
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Solutions Manual, Chapter 9
57
Case 9-28 (continued)
3. The calculations for part (2) above indicate that the entire $171,900 unfavourable static budget variance is driven by the actual sales activity level
of 310,000 being 30,000 units higher than the static budget. The flexible
budget, based on actual unit sales of 310,000 shows total selling expenses
of $3,903,100 compared to the static budget of $3,722,000, based on
sales of 280,000 units. This results in a $181,100 unfavourable sales
volume variance. Note that for expenses, selling more units than planned
will always result in an unfavourable sales volume variance, except in the
un-likely event that all expenses are fixed.
The flexible budget variance for EdDEV is actually $9,200 favourable in
November, largely because actual office and shipping expenses were in
total, $23,600 below the flexible budget amount. This case illustrates the
importance and value of using flexible budgets to evaluate managers’ performance. If only the static budget had been prepared, Snowden would
have concluded that managers at EdDEV had done a poor job controlling
selling expenses. However, as the flexible budget shows, in fact, managers
performed well in controlling selling expenses during November, given the
actual level of activity of 310,000 units.
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58
Managerial Accounting, 9th Canadian Edition
Case 9-29 (90 minutes)
1.
a. Sales Budget
Sales in units (storage systems)
Unit sales price
Sales in dollars
b. Production Budget
Sales in units (storage systems)
Add: Desired ending finished
goods
inventory
Finished goods
requirements
Less: Beginning finished goods
inventory
Production requirements
Jan
Feb.
March
11,000
10,000
13,000
60
$660,000
60
$600,000
60
$780,000
Jan
Feb.
March
11,000
10,000
13,000
2,000
2,600
2,200
13,000
12,600
15,200
2,200
10,800
2,000
10,600
2,600
12,600
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Solutions Manual, Chapter 9
59
Case 9-29 (continued)
c. Raw materials purchases
budget
Units of production required
Units of raw materials required (5 kg
per unit)
Add Desired ending inventory
Total requirements
Less Beginning
inventory
Raw materials to purchase:
In Units (kilograms)
In Dollars ($.60 per kilogram)
d. Direct labour and
Overhead budget
Units of production required
Direct labour hours
required (1.25 per unit)
Direct labour cost ($16/hr)
Manufacturing overhead:
Variable (50% of DL)
Fixed*
Total manufacturing
overhead
Total cost of direct labour and
manufacturing overhead
Jan
Feb.
March
10,800
10,600
12,600
54,000
13,250
67,250
53,000
15,750
68,750
63,000
13,750
76,750
13,500
13,250
15,750
53,750
$ 32,250
55,500
$33,300
61,000
$36,600
Jan
10,800
Feb.
10,600
March
12,600
13,500
$216,000
13,250
15,750
$212,000 $252,000
$108,000
85,600
$106,000 $126,000
85,600
85,600
193,600
$409,600
191,600
211,600
$403,600 $463,600
*$75,000 + $1,400 + $8,000 + $1,200 = $85,600
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60
Managerial Accounting, 9th Canadian Edition
Case 9-29 (continued)
e. Selling & administrative
budget
Sales in units (storage systems)
Variable:
Shipping ($4 per unit)
Sales commissions (10% of
sales)
Total
Fixed**
Total
f. Budgeted income
statement
Sales revenue
Less variable expenses:
Cost of goods sold
Selling and administrative
Total variable expenses
Contribution margin
Less fixed expenses:
Manufacturing overhead*
Selling and administrative**
Total fixed expenses
Operating income (loss)
Less interest expense***
Net income (loss)
Jan
11,000
44,000
66,000
110,000
34,100
Feb.
10,000
$ 40,000
60,000
100,000
March
13,000
$ 52,000
78,000
130,000
34,100
$144,100
34,100
$134,100
$164,100
Jan
$660,000
Feb.
$600,000
March
$780,000
363,000
110,000
473,000
187,000
330,000
100,000
430,000
170,000
429,000
130,000
559,000
221,000
85,600
34,100
119,700
67,300
4,500
$ 62,800
85,600
34,100
119,700
50,300
5,344
$ 44,956
85,600
34,100
119,700
101,300
4,872
$ 96,428
*$75,000 + $1,400 + $8,000 + $1,200 = $85,600
**$300 + $9,000 + $250 + $4,000 + $14,550 + $6,000 = $34,100
***Loans outstanding at
beginning of month x 6% ÷ 12
$900,000 $1,068,900
$974,414
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Solutions Manual, Chapter 9
61
Case 9-29 (continued)
g. Cash budget
Operating cash receipts:
Cash sales
From previous month's sales
From 2nd previous month's
sales
Total
Operating cash
payments:
Raw Materials Purchases:
Current month
Previous month
Direct labour
Variable overhead
Fixed overhead
Variable selling and admin.
Fixed selling and admin.
Purchase of equipment
Total
Net operating cash inflows
(outflows)
Interest
Beginning balance
Available before borrowing
or repayment
Borrowing
Repayment
Ending balance
Jan
Feb.
March
$264,000
216,000
$240,000
198,000
$312,000
180,000
180,000
660,000
216,000
654,000
198,000
690,000
12,900
24,000
216,000
108,000
84,400
110,000
19,100
300,000
874,400
(214,400)
13,320
14,640
19,350
19,980
212,000
252,000
106,000
126,000
84,400
84,400
100,000
130,000
19,100
19,100
___________ _________
554,170
646,120
(4,500)
80,000
99,830
(5,344)
30,000
43,880
(4,872)
30,000
(138,900)
168,900
$ 30,000
124,486
94,486
$ 30,000
69,008
39,008
$ 30,000
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62
Managerial Accounting, 9th Canadian Edition
Case 9-29 (continued)
2.
Budgeted balance sheet
March 31, 2012
Assets
Cash ..............................................................................
Accounts receivable ........................................................
Inventory: Raw materials
$ 8,250
Finished goods
72,600
Property and equipment, net
($1,300,000 – $148,600) .............................................
Total assets....................................................................
Liabilities and Shareholders’ Equity
Accounts payable, purchases (60% × $36,600)................
12% Long-term Note payable*........................................
Common shares .............................................................
Retained earnings (see below) ........................................
Total liabilities and Shareholders’ equity ...........................
$
30,000
648,000
80,850
1,151,400
$1,910,250
$
21,960
935,406
735,000
217,884
$1,910,250
Retained earnings at March 31:
Balance, January 1 ................................ $13,700
Add net income ..................................... 204,184
Total ..................................................... 217,884
Less dividends declared .........................
0
Balance, March 31 ................................. $217,884
*Opening balance March 1 less repayment on March 31 ($974,414 $39,008)
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Solutions Manual, Chapter 9
63
R9-30
The responses to the questions will depend on the nature of the budgeting
process at the NFP organization interviewed by the groups.
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64
Managerial Accounting, 9th Canadian Edition