199. High Life Corporation has the following sales budget for the last four months of 2014:
Month Sales
September $400,000
October 320,000
November 440,000
December 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.
July and August sales were $400,000 and $240,000, respectively.
Required:
Prepare a schedule of budgeted cash collections from sales for September, October, and November.
200. Sales for October, November, and December are expected to be $200,000, $180,000, and $220,000,
respectively, for the Gurumai Company. All sales are on account (terms 2/15, net 30 days) and are collected 50
percent in the month of sale and 50 percent in the following month. One-half of all sales discounts are taken on
the average. Materials are purchased one month before being needed, and all purchases and expenses are paid
for as incurred. Activities for the quarter are expected to be:
October
November
Materials used
$40,000
$36,000
Salaries
70,000
68,000
Maintenance and repairs
18,000
18,000
Depreciation
36,000
36,000
Utilities and other
14,000
14,000
Dividends paid
-0-
10,000
Payment on bonds
8,000
8,000
Required:
Using the given information, prepare a cash budget for November.
Cash receipts:
Sales:
October ($200,000 ´ 0.50 ´ 0.99*)
$99,000
November ($180,000 ´ 0.50 ´ 0.99*)
89,100
Total
$188,100
Cash disbursements:
Materials
$44,000
Salaries and wages
68,000
Maintenance and repairs
18,000
Utilities and other
14,000
Dividends
10,000
Payment on bonds
8,000
162,000
Net cash inflow (outflow)
$ 26,100
201. Thunderbolt Corporation is in the process of preparing its budget for next year. Cost of goods sold has
been estimated at 60 percent of sales. Merchandise purchases are to be made during the month preceding the
month of the sales. Thunderbolt pays 60 percent in the month of purchase, and 40 percent in the month
following. Wages are estimated at 20 percent of sales and are paid during the month of sale. Other operating
costs amounting to 10 percent of sales are to be paid in the month following the sale. The accounts payable
balance on June 30 was $48,000.
Month Sales
June $170,000
July 200,000
August 120,000
September 150,000
October 160,000
November 100,000
Required:
Prepare a schedule of cash disbursements for July, August, and September.
202. Edison, Inc., a retailer of specialty art supplies, prepares a monthly master budget. Data for the September
master budget are given below:
a.
The August 31st balance sheet:
Cash
$ 25,500
Accounts payable
$ 53,760
Accounts receivable
90,000
Capital stock
265,000
Inventory
28,800
Retained earnings
25,540
Building and equipment (net)
200,000
b.
Actual sales for August and budgeted sales for September, October, and November are given below:
August
$120,000
September
360,000
October
200,000
November
180,000
c.
Sales are 25 percent for cash and 75 percent on credit. All credit sales are collected in the month following the sale. There are no bad
debts.
d.
The gross margin percentage is 60 percent of sales. The desired ending inventory is equal to 20 percent of the following month’s cost of
goods sold. One fifth of the purchases are paid for in the month of purchase and the others are purchased on account and paid in full the
following month.
e.
The monthly cash operating expenses are $80,000, including the monthly depreciation expense of $7,000.
f.
During September, Edison, Inc., will purchase new office equipment for $17,000 cash.
g.
Dividends of $13,500 were declared and paid in September.
h.
The company must maintain a minimum cash balance of $25,000. A line of credit is used to maintain this balance. Borrowing will be made
in increments of $1,000. All borrowing is done at the beginning of the month and repayments are made at the end of the month. The annual
interest rate is 12 percent, paid when the loan is repaid (ignore accrual of interest).
Required:
Prepare a balance sheet, income statement, and cash budget for the month of September.
Balance Sheet:
Cash
$ 25,000
Accounts payable
$104,960
Accounts receivable
270,000
Loans payable
3,000
Inventory
16,000
Capital stock
265,000
Building and equipment (net)
210,000
Retained earnings
148,040
$521,000
$521,000
203. The city of Charleston had the following sales of water for the selected months of 2014:
Month
Sales
February
$50,000
March
45,000
April
60,000
May
42,500
June
70,000
July
120,000
All sales are on credit. Historically, 50 percent is collected in the month of sale, 35 percent during the first month following the sale, and 15 percent
in the second month following the sale.
Cost of water averages 75 percent of sales. Water is purchased in the month of sale. All purchases are paid during the month following the purchase.
Operating costs of $10,000 are paid each month.
The April 1 cash balance is expected to be the minimum balance of $5,000.
Money can be borrowed from a local bank in increments of $1,000. (Do not include interest charges in your budget.)
Required:
Prepare a cash budget for April, May, and June.
April
May
June
Total
Beginning cash balance
$ 5,000
$14,500
$ 8,500
$ 5,000
Plus: Cash collections:
Month of sale (0.50)
30,000
21,250
35,000
86,250
Month following (0.35)
15,750
21,000
14,875
51,625
Second mo. following (0.15)
7,500
6,750
9,000
23,250
Total cash available
$58,250
$63,500
$67,375
$166,125
Less disbursements:
Water
$33,750
$45,000
$31,875
$110,625
Operating costs
10,000
10,000
10,000
30,000
Total disbursements
$43,750
$55,000
$41,875
$140,625
Ending cash balance
$14,500
$ 8,500
$25,500
$ 25,500
204. Ruger, Inc., is looking for feedback on performance. The company compares the budget for the year with
the actual costs.
Ruger had the following budgeted data:
Budgeted variable costs per unit:
Direct materials
$11.00
Direct labor
15.00
Supplies
0.80
Indirect labor
1.00
Power
0.10
Budgeted fixed overhead for 2014:
Supervision
$ 9,000
Depreciation
13,000
Rent
12,000
Required:
Prepare a flexible budget for production costs for the following range of activity: 2,500 units; 4,000 units; 6,000 units.
2,500 Units
4,000 Units
6,000 Units
Direct materials
$11.00
$ 27,500
$ 44,000
$ 66,000
Direct labor
15.00
37,500
60,000
90,000
Supplies
0.80
2,000
3,200
4,800
Indirect labor
1.00
2,500
4,000
6,000
Power
0.10
Budgeted fixed overhead for 2014:
Supervision
9,000
9,000
9,000
Depreciation
13,000
13,000
13,000
Total costs
$103,750
$145,600
$201,400
205. Missoula, Inc., is looking for feedback on performance. The company compares the budget for the year
with the actual costs.
Missoula, Inc., had the following budgeted data:
Unit sales for 2014
10,000
Unit production for 2014
10,000
Budgeted fixed overhead for 2014:
Supervision
$18,000
Depreciation
20,000
Rent
10,000
Budgeted variable costs per unit:
Direct materials
$18.00
Direct labor
25.00
Supplies
0.20
Indirect labor
1.00
Power
0.10
The following actually occurred:
Actual unit sales for 2014
11,000
Actual unit production for 2014
12,000
Actual fixed overhead for 2014:
Supervision
$17,850
Depreciation
20,000
Rent
10,000
Actual variable costs for 2014:
Direct materials
$214,000
Direct labor
320,000
Supplies
2,500
Indirect labor
10,000
Power
1,500
Required:
a.
Prepare a performance report for all costs showing static budget variances.
b.
Prepare a performance report for all costs showing flexible budget variances.
206. Compare and contrast static budgets, flexible budgets, and activity-based budgets.
A static budget is a budget developed for one level of activity. Once a sales number is calculated, the
production, marketing, and administrative budgets are based on that sales number. A static budget does not take
into consideration fluctuations in actual demand and sales for an organization. Since actual activity rarely equals
a budgeted level, static budgets are not usually relevant when performance reports are needed. They are useful
for planning purposes.
207. Collibri, Inc., has done a cost analysis for its production of banners. The following activities and cost
drivers have been developed:
Activity
Cost Formula
Maintenance
$13,000 + $2 per machine hour
Machining
$45,000 + $6 per machine hour
Inspection
$70,000 + $500 per batch
Setups
$2,000 per batch
Purchasing
$80,000 + $150 per purchase order
Following are the actual costs of producing 75,000 banners:
1,000 machine hours; 15 batches; 10 purchase orders
Maintenance
$14,000
Machining
50,000
Inspection
70,000
Setups
32,000
Purchasing
82,000
Required:
Prepare an activity-based performance report.
Actual
Budget 75,000
Maintenance
$ 14,000
$ 15,000
$1,000 F
Machining
50,000
51,000
1,000 F
Inspection
70,000
77,500
7,500 F
Setups
32,000
30,000
2,000 U
Purchasing
82,000
81,500
500 U
Total
$248,000
$255,000
$7,000 F
208. Ringwold, Inc., has done a cost analysis for its production of baseball cards. The following activities and
cost drivers have been developed:
Activity
Cost Formula
Photography
$50 + $35 per labor hour
Printing
$25,000 + $0.01 per machine hour
Setups
$25 per batch
Purchasing
$25 + $25 per purchase order
Following are the actual costs of producing 35,000 cards:
60 labor hours; 500 machine hours; 5 batches; 30 purchase orders
Photography
?
Printing
$25,000
Setups
?
Purchasing
$770
The following variances were given in the activity performance report:
Photography
$10 F
Printing
?
Setups
$20 U
Purchasing
?
Required:
Find the missing values.
Actual
Budget
Variance
Photography
$ 2,140
$ 2,150
$10 F
Printing
25,000
25,005
5 F
Setups
20 U
Purchasing
770
775
5 F
Total costs
$28,055
$28,055
$-0-
209. Splendor, Inc., has done a cost analysis for its production of motorcycle lights.
The following activities and cost drivers have been developed:
Activity
Cost Formula
Maintenance
$5,000 + $8 per machine hour
Machining
$25,000 + $4 per machine hour
Inspection
$90,000 + $1,000 per batch
Setups
$5,000 per batch
Purchasing
$100,000 + $100 per purchase order
Required:
Prepare an activity-based budget for the following:
210. Discuss the features of an ideal budgetary process.
60,000 Units
100,000 Units
Maintenance
$ 85,000
$ 149,000
Machining
65,000
97,000
Inspection
120,000
130,000
Setups
150,000
200,000
Purchasing
2,100,000
3,100,000