148. Rapid-Lube provides oil changes and lubes. The estimated number of oil changes for April and May are
3,600 and 4,000. Each oil change takes 12 minutes of direct labor. The wage rate is $10 per hour. Overhead is
$3,700 per month and $2 per oil change.
A.
Budgeted direct labor for April is $__________________.
B.
Budgeted direct labor for May is $__________________.
C.
Budgeted overhead for April is $__________________.
D.
Budgeted overhead for May is $__________________.
A.
Budgeted direct labor for April = $7,200
[$7,200 = (3,600 ´ .2 ´ $10)]
B.
Budgeted direct labor for May = $8,000
[$8,000 = (4,000 ´ .2 ´ $10)]
C.
Budgeted overhead for April = $10,900
[$10,900 = $3,700 + $2 ´ 3,600]
D.
Budgeted overhead for May = $11,700
[$11,700 = $3,700 + $2 ´ 4,000]
Sales ($180 * 80,000 )
$14,400,000
Cost of goods sold
$5,800,371
Gross margin
$8,599,629
Less: Variable selling and administrative
$432,000
Fixed selling and administrative expenses
$127,800
Operating income
$8,039,829
Less: Income taxes
$2,813,940
Net income
$5,225,889
149. Terrill Company makes and sells two types of shaving cream: foamy, and gel. Last year, Foamy sold for
$2.30 per can, and Gel sold for $3.15 per can. Sales volume was as follows:
Quarter 1
Quarter 2
Quarter 4
76,000
80,000
70,000
50,000
80,000
60,000
Terrill expects sales for Foamy to increase by 5% over the same quarter last year. The Gel price will increase to $3.50, but aggressive advertising is
expected to raise volume by 5% in quarters 1 and 4 and by 10% in quarters 2 and 3.
Prepare a sales budget for the coming year.
150. Allison Company makes luggage. One popular model is the Traveler (a 21″ wheeled carry-on). Budgeted
sales for this model are:
Month
Unit Sales
March
25,000
April
34,000
May
50,000
June
70,000
Desired ending inventory is 20 percent of the next month’s sales. Inventory on March 1 is 3,100 units. Prepare a production budget for as many
months as possible.
March
April
May
Sales
25,000
34,000
50,000
+ Desired ending inventory
6,800
10,000
14,000
Units needed
31,800
44,000
64,000
Less: beginning inventory
(3,100)
(6,800)
(10,000)
Production
28,700
37,200
54,000
Quarter 1
Quarter 2
Quarter 3
Quarter 4
Foamy
$183,540
$193,200
$198,030
$169,050
Gel
183,750
308,000
346,500
220,500
Quarter 1
Quarter 2
Foamy
$2.30 x (76,000 + (76,000 x 5%))
$2.30 x (80,000 + (80,000 x 5%))
Gel
$3.50 x (50,000 + (50,000 x 5%))
$3.50 x (80,000 + (80,000 x 10%))
Quarter 3
Quarter 4
Foamy
$2.30 x (82,000 + (82,000 x 5%))
$2.30 x (70,000 + (70,000 x 5%))
Gel
$3.50 x (90,000 + (90,000 x 10%))
$3.50 x (60,000 + (60,000 x 5%))
151. CutMaster Salons anticipates giving 100 permanents in May, 130 in June, and 120 in July. CutMaster
needs one permanent wave kit for each perm, along with two boxes of wave tissues. Its inventory policy is to
have 10 percent of the following month’s materials needs on hand. On May 1, there were 15 wave kits and four
boxes of wave tissues on hand. (Round any fractions of a unit to the nearest whole unit.)
A.
The wave kits to be purchased in May equal __________________.
B.
The wave kits to be purchased in June equal __________________.
C.
The boxes of tissues to be purchased in May equal __________________.
D.
The boxes of tissues to be purchased in June equal __________________.
A.
May wave kit purchases = 98
[98 = 100 + 13 – 15]
B.
June wave kit purchases = 129
[129 = 130 + 12 – 13]
C.
May purchases of tissue boxes = 222
[222 = 100(2 boxes) + 130(2 boxes)(0.10) – 4]
D.
June purchases of tissue boxes = 258
[258 = 130(2 boxes) + 120(2 boxes)(0.10) – 130(2 boxes)(.10)]
152. Foster Company makes power tools. The sales budget for drills for the first four months of the year is:
Month
Unit Sales
January
20,000
February
15,000
March
22,000
April
25,000
Foster has taken a just-in-time approach to production and wants only 5 percent of the next month’s sales needs in ending inventory. January 1
inventory of drills was zero. Each drill takes 15 minutes of direct labor at $18 per hour. The factory overhead formula is $27,000 + $1.20 per direct
labor hour.
A.
Budgeted production for January is __________________.
B.
Budgeted production for February is __________________.
C.
Budgeted production for the entire first quarter of the year is __________________.
D.
Budgeted direct labor cost for January is $__________________.
E.
Budgeted direct labor cost for February is $__________________.
F.
Budgeted variable overhead for March is __________________.
G.
Budgeted total overhead for March is __________________.
A.
Budgeted production for January = 20,750
[20,750 = 20,000 + 750 – 0]
B.
Budgeted production for February = 15,350
[15,350 = 15,000 + 1,100 – 750]
Budgeted production for the entire first quarter of the year = 58,250
[58,250 = 20,750 + 15,350 + 22,150*]
*(22,000 + 1,250 – 1,100)
D.
Budgeted direct labor cost for January = $93,375
[93,375 = 20,750 ´ .25* ´ $18]
*(15/60)
Budgeted direct labor cost for February = $69,075
[69,075 = 15,350 ´ .25 ´ $18]
F.
Budgeted variable overhead for March = $6,645
[6,645 = 22,150 ´ .25 ´ $1.20]
March budgeted total overhead = $33,645
[33,645 = $27,000 + 6,645]
153. Uma Company production has variable overhead costs of $8 per direct labor hour and fixed overhead costs
of $56,000 per month. Budgeted production for the next three months is as follows:
Month
Production
October
6,000
November
5,500
December
8,000
Each unit requires three hours of direct labor.
A.
Uma’s total variable overhead for October is $__________________.
B.
Uma’s total overhead for October is $__________________.
C.
Uma’s total variable overhead for November is $__________________.
D.
Uma’s total fixed overhead for December is $__________________.
E.
Uma’s total budgeted overhead for the last three months of the year equals $__________________.
Variable
Fixed
Total
Month
overhead
overhead
overhead
October
$144,000
$56,000
$200,000
November
$132,000
$56,000
$188,000
December
$192,000
$56,000
$248,000
A.
October total variable overhead = (3)(6,000)($8) = $144,000
October total overhead = $144,000 + $56,000 = $200,000
C.
November total variable overhead = (3)(5,500)($8) = $132,000
D.
December total fixed overhead = $56,000
E.
Total budgeted overhead for the last three months of the year = $636,000
636,000 = $200,000 + $188,000 + $248,000
$188,000 = $132,000 + $56,000
November Total Budgeted Overhead
$248,000 = ((3)(8,000)($8)+56,000)
December Total Budgeted Overhead
154. Kanban Company estimated sales of 40,000 units at $6 each. Budgeted cost of goods sold per unit includes
$1.20 of direct materials, six minutes of direct labor time at $15 per hour, and unit overhead cost of $1.30.
Kanban pays a sales commission of ten percent of sales revenue. Fixed selling and administrative expenses are
budgeted at $25,000. Prepare a statement of operating income.
A.
Budgeted variable marketing expense is $__________________.
B.
Budgeted operating income is $__________________.
C.
Recalculate budgeted operating income assuming fixed selling and administrative expenses double and the selling price per unit
increases 10%.
Sales ($6 ´ 40,000)
$240,000
Cost of goods sold ($1.20 + $1.50 + $1.30)(40,000)
160,000
Gross profit
$ 80,000
Less: Sales commission ($240,000 ´ 0.10)
(24,000)
Less: Fixed selling and administrative expense
(25,000)
Operating income
$ 31,000
155. You have decided to throw a party next weekend for 20 friends. The friends are going to bring health food,
so all you have to have available are the drinks. You estimate that, on average, each person will drink four
bottles of soft drinks. Three of your friends will drink only natural soda without unneeded color – so Sulo
Ginger Ale should work well for them. For the others, you decide to buy Sulo Cola. Before going online, you
check the refrigerator – you already have six bottles of Sulo Ginger Ale and 14 of Sulo Cola. Since this is the
end of the semester – you decide that you don’t really want any of the soft drinks on hand after the party. Now,
you are ordering on the Internet.
A.
How many bottles of Sulo Ginger Ale do you plan to buy?
B.
How many bottles of Sulo Cola do you plan to buy?
Ginger Ale
Cola
To drink at the party:
3 friends ´ 4 bottles
17 friends ´ 4 bottles
+ Desired ending inventory
0
0
Bottles needed
Bottles to purchase
6
54
Budgeted variable marketing expense is $24,000.
B.
Budgeted operating income is $31,000.
C.
Budgeted operating income is $27,600. (see table below)
Sales ($6.60 ´ 40,000)
$264,000
Cost of goods sold ($1.20 + $1.50 + $1.30)(40,000)
160,000
Gross profit
$104,000
Less: Sales commission ($264,000 ´ 0.10)
(26,400)
Less: Fixed selling and administrative expense
(50,000)
Operating income
$ 27,600
156. Quillin Company had the following budgeted information for October:
1.
October 1 cash balance $3,500
2.
Expected sales 2,500 units at $25 each (half in cash, remainder on credit due in November)
3.
Inventory purchases 3,000 units at $14 each (all in cash)
4.
Rent $1,450
5.
Payroll $1,000
6.
Utilities and other costs $4,500
7.
Accounts receivable balance Oct. 1, $35,000 (includes $700 bad debts allowance)
A.
What is the budgeted collection on accounts receivable for October?
B.
What are the total cash disbursements for October?
C.
What is the ending cash balance for October?
D.
Assuming sales are collected 75 percent in the month of sale and 25% the following month, what is the ending cash balance for
October?
A
$34,300 (see
C
$20,100 (see
D
$35,725 (see
157. Fredder Company usually sells about 20 percent of its merchandise during a month for cash with the
remaining sales on account. The company’s accounts receivable payment history is as follows: 30 percent in the
month of sale, 50 percent in the month following, and 15 percent in the second month following sale. Total
budgeted sales for the second quarter are as follows:
April
$100,000
May
120,000
June
80,000
Assume all questions relate to the month of June.
A.
What are the expected cash sales?
B.
What are the expected receipts from accounts receivable for sales made in April?
C.
What are the expected receipts from accounts receivable for sales made in May?
D.
What are the total expected cash receipts?
E.
From the above accounts receivable history information, receipts from accounts receivable do not equal 100 percent Why not? Does
this amount appear on the cash budget?
A.
June cash sales = $80,000 ´ 0.2 = $16,000
B.
Receipts on accounts receivable for sales made in April = (0.8)($100,000)(0.15) = $12,000
C.
Receipts on accounts receivable for sales made in May = (0.8)($120,000)(0.50) = $48,000
D.
Total cash expected in June = $16,000 + $12,000 + $48,000 + (0.8)($80,000)(0.30) = $95,200
involved.
158. Rivers Company purchases merchandise on account. In general, Rivers pays 50 percent in the month of
purchase and 50 percent in the following month. All payments in the month of purchase qualify for a 2 percent
cash discount. First quarter budgeted purchases are:
January
$90,000
February
80,000
March
96,000
A.
What are the total cash disbursements expected in February?
B.
What are the total cash disbursements expected in March?
C.
Now suppose that there is no cash discount for purchases made in the month of purchase. Now what are the total cash disbursements
expected in February? In March?
A.
$84,200 (see table below)
B.
$87,040 (see table below)
February
March
January purchases (0.5)($90,000)
$45,000
February purchases:
(0.5)($80,000)(0.98)
39,200
(0.5)($80,000)
$40,000
March purchases (0.5)($96,000)(0.98)
47,040
Total cash disbursements
$84,200
$87,040
February cash disbursements = $85,000
March cash disbursements = $88,000
February
March
January purchases (0.5)($90,000)
$45,000
(0.5)($80,000)
40,000
(0.5)($80,000)
$40,000
March purchases (0.5)($96,000)
_______
48,000
Total cash disbursements
$85,000
$88,000
159. Wexler Company expects sales of $40,000 in July, $50,000 in August, and $30,000 in September. Wexler’s
experience is that 40 percent of sales are cash, and the remainder is on account. Accounts receivable are paid:
70 percent in the month of sale, and 25 percent in the following month.
A.
What are the expected cash receipts on accounts receivable in August for July sales?
B.
What are the expected cash receipts on accounts receivable in August for August sales?
C.
What are the total expected cash receipts on accounts receivable in August?
D.
What are the total expected cash receipts in August?
E.
How much of July sales are deemed to be uncollectible?
160. Shorter Company developed the following data for the month of June.
1.
June 1 cash balance $2,300
2.
Cash sales in June $67,000
3.
Credit sales for June are $20,000; for May $10,000; and for April $16,000. 60 percent of credit sales are collected in the month of sale, 20
percent in the following month, and 10 percent in the second month following the sale.
4.
Purchases for May were $34,000 and for June are $40,000. Half of purchases are paid in the month of purchase and the remainder in the
following month.
5.
June salaries are $28,400, utilities are $1,090, and depreciation on the building is $1,000.
A.
Anticipated cash receipts from accounts receivable in June equal $__________________.
B.
Anticipated total cash available in June is $__________________.
C.
June cash payments for purchases are $__________________.
D.
Anticipated cash balance on June 30 is $__________________.
A.
Anticipated cash receipts from accounts receivable in June = $15,600
[15,600 = ($20,000 ´ .6) + ($10,000 ´ .2) + ($16,000 ´ .1)]
B.
Anticipated total cash available in June = $84,900
[84,900 = $67,000 + $15,600 + $2,300]
C.
June cash payments for purchases = $37,000
[37,000 = ($40,000 ´ .5) + ($34,000 ´ .5)]
A.
Expected cash receipts on accounts receivable in August for July sales = $6,000
[(0.6 ´ $40,000 ´ 0.25) = $6,000]
B.
Expected cash receipts on accounts receivable in August for August sales = $21,000
[$21,000 = (0.60 ´ $50,000 ´ 0.70)]
C.
Total expected cash receipts on accounts receivable in August = $27,000
[$27,000 = (0.6 ´ $40,000 ´ 0.25) + (0.60 ´ $50,000 ´ 0.70)]
D.
Total expected cash receipts in August = $47,000
[$47,000 = (0.6 ´ $40,000 ´ 0.25) + (0.60 ´ $50,000 ´ 0.70) + (0.4 ´ $50,000)]
E.
July sales of $40,000 ´ .6 = $24,000 on account
$24,000 ´ .05 = $1,200 uncollectible
161. Calino Company developed the following data for the month of August.
1.
August 1 cash balance $12,300
2.
Cash sales in August $80,000
3.
Credit sales for August are $30,000; for July $40,000; and for June $40,000. 70 percent of credit sales are collected in the month of sale,
15 percent in the following month, and 10 percent in the second month following the sale.
4.
Purchases for July were $50,000 and for August are $40,000. One-fourth of purchases are paid in the month of purchase and the remaining
three-quarters in the following month.
5.
August salaries are $31,400, utilities are $3,220, and depreciation on the building and equipment is $10,000.
A.
Anticipated cash receipts from accounts receivable in August are $__________________.
B.
Anticipated total cash available from all sources in August is $__________________.
C.
August cash payments for purchases made in July and August are $__________________.
D.
Anticipated cash balance on August 31 is $__________________.
A.
August cash receipts from accounts receivable = $31,000
B.
August anticipated total cash available from all sources = $123,300
C.
August cash payments for purchases = $47,500
Anticipated cash balance on August 31 = $41,680
June ($40,000 ´ 0.10)
$ 4,000
July ($40,000 ´ 0.15)
6,000
August ($30,000 ´ 0.70)
21,000
Total
$31,000
Beginning balance
$ 12,300
Cash sales
80,000
Payments from Accounts Receivable
31,000
111,000
Cash available
$123,300
Payments on July purchases ($50,000 ´ 0.75)
37,500
Payments on August purchases ($40,000 ´ 0.25)
10,000
Salaries
31,400
Utilities
3,220
Total disbursements
82,120
Cash balance, August 31
$ 41,180
162.
It is May 28 and you have just gotten a summer job that will pay you (net of taxes) $800 per month. You start
June 1 and will work until school starts – halfway through August. Your scholarship pays for tuition, room and
board. But you must buy books, pay for transportation to and from school, and pay for clothing, any extra
meals, entertainment, and so on. You have gathered the following data:
1.
One round trip airline ticket is $260, and you’d like to come home for Thanksgiving (your parents will drive you there in August, and you
will try to catch a ride home with another student in December).
2.
Books are estimated to cost about $500 per semester for your anticipated major
3.
Supplies should be another $150
4.
Clothing might run $100 – you already have almost everything you think you’ll need.
5.
There are 16 weeks in the semester, and you think you’ll need $50 per week for allowance to cover extra meals and entertainment
6.
Before school even starts, you need to cover any summer expenses, including going out with friends. $30 a week sounds about right, since
all your friends will be working and saving for college as well. There are 11 weeks of summer.
Right now, you have $200 in your checking account.
A.
Prepare a cash budget for the summer and the first semester of college. (Do the entire time period; do not break it down by week or
by month.)
B.
Comment on the estimated ending balance. What actions can you take, if any, to increase it?
student loan, should be located in advance.
163. Miller Corporation has the following sales budget for the first four months of the current year:
Month
Sales
January
$400,000
February
320,000
March
440,000
April
360,000
Historically, the following trend has been established regarding cash collection of sales:
65 percent in month of sale
25 percent in month following sale
8 percent in second month following sale
2 percent uncollectible
The company allows a 2 percent cash discount for payments made by customers during the month of the sale. November and December sales were
$400,000 and $240,000, respectively. All sales are on account.
Required: Prepare a schedule of budgeted cash collections from sales for January, February, and March.
January
February
March
November
($400,000)
$ 32,000
December
($240,000)
60,000
$ 19,200
January
($400,000)
254,800
100,000
$ 32,000
February
($320,000)
203,840
80,000
March
($440,000)
280,280
Total cash collections
$346,800
$323,040
$392,280
164.
Allan Corporation has the following sales budget for March of $440,000. About 10 percent are cash sales and the remainder is sold
on account.
The company expects that 60 percent of credit sales will be collected in the month of the sale, 25 percent in the next month and 10
percent in the following month.
Materials purchased on account are expected to be $250,000. Allan pays 35 percent in the month of the purchase, 50 percent in the
month following the purchase and the remaining 15 percent in the second month after the purchase.
Salaries and wages of the workers are approximately $45,000 per month. The employees are paid weekly so on average 95 percent
of their wages are paid in the month to which they relate and the remaining 5 percent is paid in the following month.
Utilities average $4,300 per month.
Rent on the building is $9,000 per month.
Insurance is $3,000 per month and advertising costs are $1,000 per month.
February sales were $320,000 and purchases of materials in February were $170,000; January sales were $200,000 and purchases of
materials in January were $130,000.
The cash balance on March 1st is $5,400.
Required:
A.
Prepare a schedule of cash receipts
B.
Prepare a schedule of cash payments (Accounts payable payments)
C.
Prepare a cash budget
Cash receipts for March
January collection
18,000
February collection
72,000
March cash sales
44,000
March accounts receivable sales
237,600
Total cash collection
371,600
Cash disbursements for March
January payment
19,500
February payment
85,000
March payment
87,500
Total cash disbursements
192,000
Beginning cash balance
5,400
Cash collections
371,600
Cash available
377,000
Less: disbursements:
Payments for:
Raw materials
192,000
Salaries
45,000
Utilities
4,300
Rent
9,000
Insurance
3,000
Advertising
1,000
Total disbursements
254,300
Ending cash balance
122,700
165. Trish Morrow owns and operates Yummy Bakery which sells a wide variety of cupcakes. She has
compiled the following data and information in order to put together a cash budget for September and October.
· Budgeted sales for September are 65,000 cupcakes and 98,000 in October. Each cupcake sells for $3.50.
· On average 60 percent are cash sales and 40 percent are done on account.
· The company expects to collect 75 percent of credit sales in the month of the sale and 20 percent in the
month after the sale.
· All necessary raw materials are purchased on account. Purchases are paid 85 percent in the month of the
purchase and 15 percent in the following month. Purchases for September are estimated to be $200,000 and
$290,000 in October.
· Monthly expenses include:
o Wages $10,000
o Rent $4,000
o Utilities $3,500
o Insurance $2,500
o Advertising $2,290
· Cash balance on September 1st was $6,000.
· The company has a policy to maintain a minimum cash balance of $5,000. If necessary the company will
borrow to meet its short-term needs. All borrowing is done at the beginning of the month and all payments on
principal and interest are made at the end of the next month. The annual interest rate is 7%. The company
must borrow in multiples of $1,000.
· August sales were 43,000 cupcakes and raw materials purchased equal $230,000.
Prepare a cash budget for September and October.
September collections:
Total sales*
227,500
Cash sales**
136,500
Accounts receivable collections-September***
68,250
Accounts receivable collections-August****
12,040
Total cash collections
216,790
*65,000 x $3.50
**$227,500 x 60%
***($227,500 x 40%) x 75%
****((43,000 x $3.5) x 40%) x 20%
October collections
Total sales*
343,000
Cash sales**
205,800
Accounts receivable collections-October***
102,900
Accounts receivable collections-September****
18,200
Total cash collections
326,900
*98,000 x $3.50
**$343,000 x 60%
***($343,000 x 40%) x 75%
****($227,500 x 40%) x 20%
166. Dickson Company has the following projected account balances for September 30 of the current year:
Accounts payable
$20,000
Sales
$400,000
Accounts receivable
50,000
Capital stock
200,000
Depreciation, factory
12,000
Retained earnings (beginning)
64,000
Inventories (8/31)
90,000
Maintenance, factory
14,000
Inventories (9/30)
90,000
Cash
28,000
Materials used
100,000
Equipment, net
120,000
Office salaries
40,000
Buildings, net
200,000
Insurance, factory
2,000
Utilities, factory
8,000
Factory wages
70,000
Selling expenses
30,000
Bonds payable
80,000
Required:
A.
Prepare a budgeted income statement for the month ended September 30.
B.
Prepare a budgeted balance sheet as of September 30.
Sales
$400,000
Cost of goods sold:
Beginning inventory
$ 90,000
Materials used
100,000
Factory wages
70,000
Depreciation
12,000
Insurance
2,000
Maintenance
14,000
Utilities
8,000
Ending inventory
(90,000)
206,000
Gross margin
$194,000
Operating expenses:
Selling expenses
$ 30,000
Office expenses
40,000
70,000
Net income
$124,000
Cash
$ 28,000
Accounts payable
$ 20,000
Accounts receivable
50,000
Bonds payable
80,000
Inventories
90,000
Capital stock
200,000
Equipment, net
120,000
Retained earnings
188,000
Buildings, net
200,000
Total
$488,000
Total
$488,000
167. What are the advantages of budgeting?
There are several advantages of budgeting:
168. Which budget is the first one that must be completed in the master budgeting process and why?
169. You decide
You are the senior accountant at Cannon Manufacturing and have been asked by the budget director to prepare
170. Does a not-for-profit agency need to budget? Why or why not?
171. Briefly describe the attributes of an ideal budgetary system. What features of budgeting have been
identified that encourage positive behavior?
172. Describe some problems with participative budgeting.
Some potential problems are: