Budgetary Planning
21 – 41
Ex. 171
Butler Manufacturing manufactures two products, (1) Regular and (2) Deluxe. The budgeted units
to be produced are as follows:
Units of Product
2013 Regular Deluxe Total
July 10,000 15,000 25,000
August 6,000 10,000 16,000
September 9,000 14,000 23,000
October 8,000 12,000 20,000
It takes 2 pounds of direct materials to produce the Regular product and 5 pounds of direct materials
to produce the Deluxe product. It is the company’s policy to maintain an inventory of direct materials
on hand at the end of each month equal to 30% of the next month’s production needs for the
Regular product and 20% of the next month’s production needs for the Deluxe product. Direct
materials inventory on hand at June 30 were 6,000 pounds for the Regular product and 15,000
pounds for the Deluxe product. The cost per pound of materials is $5 Regular and $8 Deluxe.
Instructions
Prepare separate direct materials budgets for each product for the third quarter of 2013.
Test Bank for Accounting, Tools for Business Decision Making, Fifth Edition
FOR INSTRUCTOR USE ONLY
21 – 42
Ex. 172
Garver Industries has budgeted the following unit sales:
2013 Units
January 10,000
February 8,000
March 9,000
April 11,000
May 15,000
The finished goods units on hand on December 31, 2012, was 2,000 units. Each unit requires 3
pounds of raw materials that are estimated to cost an average of $4 per pound. It is the
company’s policy to maintain a finished goods inventory at the end of each month equal to 20%
of next month’s anticipated sales. They also have a policy of maintaining a raw materials
inventory at the end of each month equal to 30% of the pounds needed for the following month’s
production. There were 8,640 pounds of raw materials on hand at December 31, 2012.
Instructions
For the first quarter of 2013, prepare (1) a production budget and (2) a direct materials budget.
Budgetary Planning
FOR INSTRUCTOR USE ONLY
21 – 43
Ex. 173
Benet Company has budgeted the following unit sales:
2013 2013
Quarter Units Quarter Units
1 105,000 1 90,000
2 60,000
3 75,000
4 120,000
The finished goods inventory on hand on December 31, 2012 was 21,000 units. It is the
company’s policy to maintain a finished goods inventory at the end of each quarter equal to 20%
of the next quarter’s anticipated sales.
Instructions
Prepare a production budget for 2013.
Ex. 174
The following facts are known:
• The total pounds needed for production are 2 times the units to be produced.
• The desired ending direct materials inventory is 20% of the total pounds needed for
production.
• The beginning direct materials inventory is equal in number to 10% of the units to be produced.
• Cost per pound is $5.
• Total cost of the direct materials purchases is $1,035,000.
Instructions
Prepare a direct materials budget for the period.
Test Bank for Accounting, Tools for Business Decision Making, Fifth Edition
FOR INSTRUCTOR USE ONLY
21 – 44
Solution 174 (12–17 min.)
Ex. 175
Tall Oak, Inc. produces rulers from plastic resin. Tall Oak has estimated production and sales of
rulers in units for the next 2 months as:
May June
Estimated production 42,000 48,000
Estimated sales 50,000 36,000
Each ruler requires 0.25 pounds of resin. The cost of resin is $4.50 per pound. Tall Oak wants to
have 20% of the next month’s materials requirements on hand at the end of each month.
Instructions
Prepare a direct materials purchases budget for the month of May.
Budgetary Planning
FOR INSTRUCTOR USE ONLY
21 – 45
Ex. 176
Pulham Company is preparing its direct labor budget for 2013 from the following production
budget based on a calendar year:
Quarter Units
1 60,000
2 30,000
3 45,000
4 75,000
Each unit requires 2 hours of direct labor. The union contract provides for a 10% increase in
wage rate to $11 per hour on October 1.
Instructions
Prepare a direct labor budget for 2013.
Ex. 177
For each item given, identify the budget in which it will appear. If an item will appear on more than
one budget, then indicate as many budgets as are relevant.
Budget Code:
DM Direct Materials Budget
DL Direct Labor Budget
P Production Budget
S Sales Budget
C Cash Budget
BBS Budgeted Balance Sheet
BIS Budgeted Income Statement
SA Selling and Administrative Expense Budget
MOH Manufacturing Overhead Budget
Test Bank for Accounting, Tools for Business Decision Making, Fifth Edition
FOR INSTRUCTOR USE ONLY
21 – 46
Ex. 177 (Cont.)
___________ 1. Ending cash balance
___________ 2. Total selling and administrative expenses
___________ 3. Total sales (in dollars)
___________ 4. Interest expense
___________ 5. Ending raw materials inventory (in dollars)
___________ 6. Ending finished goods inventory (in dollars)
Ex. 178
Leaf Industries is preparing its master budget for 2013. Relevant data pertaining to its sales
budget are as follows:
Sales for the year are expected to total 8,000,000 units. Quarterly sales are 25%, 30%, 15%, and
30%, respectively. The sales price is expected to be $2.00 per unit for the first quarter and then
be increased to $2.20 per unit in the second quarter.
Instructions
Prepare a sales budget for 2013 for Leaf Industries.
Budgetary Planning
FOR INSTRUCTOR USE ONLY
21 – 47
Ex. 179
Shep Company combines its operating expenses for budget purposes in a selling and
administrative expense budget. For the first quarter of 2013, the following data are developed:
1. Sales: 20,000 units; unit selling price: $30
2. Variable costs per dollar of sales:
Sales commissions 6%
Delivery expense 2%
Advertising 4%
3. Fixed costs per quarter:
Sales salaries $24,000
Office salaries 19,000
Depreciation 6,000
Insurance 2,000
Utilities 1,000
Instructions
Prepare a selling and administrative expense budget for the first quarter of 2013.
Ex. 180
Thread Company is preparing its manufacturing overhead budget for 2013. Relevant data consist
of the following.
Units to be produced (by quarters): 10,000, 12,000, 14,000, 16,000.
Direct labor: Time is 1 hour per unit.
Variable overhead costs per direct labor hour: Indirect materials $0.80; indirect labor $1.20; and
maintenance $0.50.
Fixed overhead costs per quarter: Supervisory salaries $42,000; depreciation $16,000; and
maintenance $12,000.
Test Bank for Accounting, Tools for Business Decision Making, Fifth Edition
21 – 48
Ex. 180 (Cont.)
Instructions
Prepare the manufacturing overhead budget for the year, showing quarterly data.
Ex. 181
Walt Bach Company has accumulated the following budget data for the year 2013.
1. Sales: 40,000 units, unit selling price $50.
2. Cost of one unit of finished goods: Direct materials 2 pounds at $5 per pound, direct labor 1.5
hours at $12 per hour, and manufacturing overhead $6 per direct labor hour.
3. Inventories (raw materials only): Beginning, 10,000 pounds; ending, 15,000 pounds.
4. Raw materials cost: $5 per pound.
5. Selling and administrative expenses: $200,000.
6. Income taxes: 30% of income before income taxes.
Instructions
(a) Prepare a schedule showing the computation of cost of goods sold for 2013.
(b) Prepare a budgeted income statement for 2013.
Budgetary Planning
FOR INSTRUCTOR USE ONLY
21 – 49
Solution 181 (16 min.)
Ex. 182
The Northeast Regional Division of Union Corp. has been requested to prepare a quarterly
budgeted income statement for 2013. The regional manager expects that sales in the first quarter
of 2013 will increase by 10% over the same quarter of the preceding year and will then increase
by 5% for each succeeding quarter in 2013.
The corporate head office has requested that the regional manager maintain an inventory in
dollars equal to 25% of the next quarter’s sales. Quarterly purchases average 55% of quarterly
sales. Budgeted ending inventory on December 31, 2012 is $176,000. Quarterly salaries are
$20,000 plus 5% of sales. All salaries are classified as sales salaries. Other quarterly expenses
are estimated to be as follows:
Rent expense $24,000
Depreciation on office equipment $12,000
Utilities expense $3,600
Miscellaneous expenses 2% of sales
The income statement for the first quarter of 2012 was as follows:
Test Bank for Accounting, Tools for Business Decision Making, Fifth Edition
FOR INSTRUCTOR USE ONLY
21 – 50
Ex. 182 (Cont.)
Income Statement
For the Quarter Ended March 31, 2012
Sales …………………………..…………………………………………………………… $720,000
Cost of goods sold ……………………………………………………………………… 396,000
Gross profit ……………………………………………………………………………….. 324,000
Operating expenses
Sales salaries ……………………………………………………………………… $52,000
Rent expense ……………………………………………………………………… 24,000
Depreciation ……………………………………………………………………….. 12,000
Utilities ………………………………………………………………………………. 3,600
Miscellaneous …………………………………………………………………….. 12,800
Total operating expenses ………………………………………………. 104,400
Net income ……………………………………………………………………………….. $219,600
Instructions
Prepare a budgeted quarterly income statement in tabular form for the first quarter of 2013.
(Show computations.)
Budgetary Planning
FOR INSTRUCTOR USE ONLY
21 – 51
Ex. 183
In September 2013, the budget committee of Jason Company assembles the following data:
1. Expected Sales
October $1,800,000
November 1,700,000
December 1,600,000
2. Cost of goods sold is expected to be 60% of sales.
3. Desired ending merchandise inventory is 20% of the next month’s cost of goods sold.
4. The beginning inventory at October 1 will be the desired amount.
Instructions
Prepare the budgeted income statement for October through gross profit on sales, including a
cost of goods sold schedule.
Test Bank for Accounting, Tools for Business Decision Making, Fifth Edition
FOR INSTRUCTOR USE ONLY
21 – 52
Ex. 184
Burr, Inc. provided the following information:
July August
Projected sales $220,000 $260,000
Projected merchandise purchases $150,000 $180,000
• Burr estimates that it will collect 40% of its sales in the month of sale, 35% in the month after
the sale, and 22% in the second month following the sale. Three percent of all sales are
estimated to be bad debts.
• Burr pays 30% of merchandise purchases in the month purchased and 70% in the following
month.
• General operating expenses are budgeted to be $20,000 per month of which depreciation is
$2,000 of this amount. Burr pays operating expenses in the month incurred.
• Burr makes loan payments of $3,000 per month of which $400 is interest and the remainder is
principal.
Instructions
Calculate Burr’s budgeted cash disbursements for August.
Ex. 185
Casa Development, Inc. has budgeted sales revenues as follows:
Budgeted Sales Revenues
January $55,000
February 75,000
March 90,000
April 80,000
May 60,000
June 35,000
Past experience has indicated that 80% of sales each month are on credit and that collection of
credit sales occurs as follows: 60% in the month of sale, 30% in the month following the sale,
and 5% in the second month following the sale. The other 5% is uncollectible.
Instructions
Prepare a schedule which shows expected cash receipts from sales for the months of April, May,
and June.
Budgetary Planning
FOR INSTRUCTOR USE ONLY
21 – 53
Solution 185 (20–25 min.)
Ex. 186
Cruises, Inc. has budgeted sales revenues as follows:
June July August
Credit sales $135,000 $125,000 $ 90,000
Cash sales 90,000 255,000 195,000
Total sales $225,000 $380,000 $285,000
Past experience indicates that 60% of the credit sales will be collected in the month of sale and
the remaining 40% will be collected in the following month. Purchases of inventory are all on
credit and 50% is paid in the month of purchase and 50% in the month following purchase.
Budgeted inventory purchases are:
June $300,000
July 240,000
August 105,000
Other cash disbursements budgeted: (a) selling and administrative expenses of $48,000 each
month, (b) dividends of $103,000 will be paid in July, and (c) purchase of equipment in August for
$30,000 cash.
Test Bank for Accounting, Tools for Business Decision Making, Fifth Edition
21 – 54
Ex. 186 (Cont.)
The company wishes to maintain a minimum cash balance of $50,000 at the end of each month.
The company borrows money from the bank at 6% interest if necessary to maintain the minimum
cash balance. Borrowed money is repaid in months when there is an excess cash balance. The
beginning cash balance on July 1 was $50,000. Assume that borrowed money in this case is for
one month.
Instructions
Prepare a cash budget for the months of July and August. Prepare separate schedules for
expected collections from customers and expected payments for purchases of inventory.