Problem 20-2B (continued)
(2)
A1 MANUFACTURING
Cash Budget
For July, August, and September
July August Sept.
Beginning cash balance*…………….….……... $12,900 $12,600 $24,371
Cash receipts (from part 1)………………..…... 59,680 66,840 74,200
Total cash available ……………………….…..…. 72,580 79,440 98,571
Cash disbursements
Rent…………………………………..………………..…
Interest on bank loan**
July ($2,600 x 1%)………………….…….….…..
August ($2,286 x 1%)…………….……………..
Preliminary cash balance …..….…….…........
7,100
26
_______
$12,914
7,100
23
$26,657
7,100
_______
$48,211
Additional loan from bank….….….…….….….
*July’s beginning cash balance includes a loan payable of $2,600.
** Rounded to the nearest dollar. Answers vary slightly if rounded to the nearest cent.
Problem 20-3B (50 minutes)
Part 1
HCS MFG.
Budgeted Income Statement
For Months of July, August, and September, 2015
July August September
Sales*……………………………….….……..….….$1,265,000 $1,391,500 $1,530,650
Cost of goods sold*……………..….….….….. 660,000 726,000 798,600
Administrative salaries….….….…….….... 40,000 40,000 40,000
Depreciation-Office equipment............. 50,000 50,000 50,000
Other……………..………………..….….…..…... 12,000 12,000 12,000
* Volume for the next three months increases by 10% per month
Sales Cost of Goods
Units (@ $115) Sold (@ $60)
June ($1,300,000/$130)……………..…......…..10,000
July……………………………………….….…………11,000 $1,265,000 $660,000
August……………………………………….………..12,100 1,391,500 726,000
September……………………………………..…….13,310 1,530,650 798,600
Part 2: Analysis Component
The plan for increasing sales volume by reducing the price and increasing
advertising would cause the company to generate less net income in each of the
three months of the next quarter than was earned in June. The expected results
Financial and Managerial Accounting, 6th Edition
Problem 20-4B (130 minutes)
Part 1
NABAR MANUFACTURING
Sales Budgets
July, August, and September 2015
Budgeted
Units
Budgeted
Unit Price
Budgeted
Total Dollars
July 2015………………..………………….……….….….…21,000 $17.00 $ 357,000
Part 2
NABAR MANUFACTURING
Production Budget
July, August, and September 2015
July August Sept. Total
Next month’s budgeted sales……………. 19,000 20,000 24,000
Ratio of inventory to future sales......... x 70% x 70% x 70%
Budgeted ending inventory………..…….. 13,300 14,000 16,800
Problem 20-4B (continued)
Part 3
NABAR MANUFACTURING
Raw Materials Budget
July, August, and September 2015
July August Sept. Total
Production budget (units)…….……..……. 17,500 19,700 22,800
Materials requirement per unit………….. x 0.50 x 0.50 x 0.50
Materials needed for production……….. 8,750 9,850 11,400
Add budgeted ending inventory........... 1,970 2,280 1,980
Total cost of raw material purchases... $ 50,760 $ 81,280 $ 88,800 $220,840
Part 4
NABAR MANUFACTURING
Direct Labor Budget
July, August, and September 2015
July August Sept. Total
Budgeted production (units)………........ 17,500 19,700 22,800
Labor requirements per unit (hours).... x 0.50 x 0.50 x 0.50
Part 5
NABAR MANUFACTURING
Factory Overhead Budget
July, August, and September 2015
July August Sept. Total
Budgeted production (units)……………. 17,500 19,700 22,800
Variable factory overhead rate*...........
x $1.35 x $1.35 x $1.35
*$2.70 per direct labor hour x 0.50 direct labor hours per unit
Financial and Managerial Accounting, 6th Edition
1190
Problem 20-4B (continued)
Part 6
NABAR MANUFACTURING
Selling Expense Budgets
July, August, and September 2015
July August Sept. Total
Budgeted sales……………...……..…..……$357,000 $323,000 $340,000
Sales commission percent..................x 10% x 10% x 10%
Sales commissions expense…............ 35,700 32,300 34,000 $102,000
Part 7
NABAR MANUFACTURING
General and Administrative Expense Budgets
July, August, and September 2015
July August Sept. Total
Salaries……………..………….….…….…..….…..$ 9,000 $ 9,000 $ 9,000 $27,000
Problem 20-4B (Continued)
Part 8
NABAR MANUFACTURING
Cash Budgets
July, August, and September 2015
July August Sept.
Beginning cash balance……………….…….…..…….$ 40,000 $ 96,835 $141,180
Cash receipts from customers (note A)…..…........ 357,000 346,800 328,100
Total cash available……………………………………….397,000 443,635 469,280
Cash disbursements
Income taxes……………..………….….……..….……..
Dividends…………………………………………….….….
10,000
20,000
Loan interest ($24,000 x 1%)………….…………………. 240
Long-term note interest ($300,000 x .0.9%)…………
Purchase of equipment………..….…….….…..……
2,700
_______
2,700
_______
2,700
100,000
Total cash disbursements………..….….…….…..…. 276,165 302,455 443,660
Preliminary cash balance………………….….….…...120,835 141,180 25,620
Additional loan…………….…….…….….…..….…….…
14,380
Supporting calculations July August Sept. Total
Note A: Cash receipts from customers
Total sales…………………….………..…...……..……$357,000 $323,000 $340,000 $1,020,000
Cash sales (30%)………………..……..…………..… 107,100 96,900 102,000 306,000
Credit sales (70%)……………………………..……… 249,900 226,100 238,000 714,000
Cash collections
Financial and Managerial Accounting, 6th Edition
Problem 20-4B (Continued)
Part 9
NABAR MANUFACTURING
Budgeted Income Statement
For Three Months Ended September 30, 2015
Sales……………..…………………….……………..…………..……. $1,020,000
Cost of goods sold (60,000 units @ $14.35)….….….…. 861,000
Gross profit………………………………………………….……….. 159,000
Operating expenses
Sales commissions……………..…….….….….….….……... $102,000
Sales salaries………………….…………………….…….….….. 10,500
Part 10
NABAR MANUFACTURING
Budgeted Balance Sheet
September 30, 2015
ASSETS
Cash………………………….….…….….…..……... $ 40,000 Cash budget
Accounts receivable…………….…….….……. 238,000 Note C
Note D
Total assets………………………..……………….. $1,054,920
LIABILITIES AND EQUITY
Accounts payable…………….….…….….….... $ 88,800 Note H
Bank loan payable……………….………………. 14,380 Cash budget
Taxes payable……………………………………... 3,906 Income stmt.
Total current liabilities……………..….….…... 107,086
Problem 20-4B (Concluded)
Supporting Footnotes
Note C
Beginning receivables………………………………………….…… $ 249,900
Credit sales………………………………………….………………….. 714,000
Less collections……………………………………………………….. (725,900 )
Ending receivables……………………………………….………….. $ 238,000
Note D
Note E
Beginning finished goods inventory………..………....….....$ 241,080
Cost of goods completed during the period……………..... 861,000
Less cost of goods sold during the period…………………. (861,000 )
Ending inventory raw materials inventory*…....…...........$ 241,080
*Also equals 16,800 units @ $14.35 = $241,080
Note H
Beginning accounts payable……………….....…..…......…....$ 51,400
Purchases of raw materials……………...…....…......…......… 220,840
Payments for raw materials……….……..……....…......…...... (183,440 )
Ending accounts payable…………………………………………..$ 88,800
Note I
NABAR MANUFACTURING
Budgeted Statement of Retained Earnings
For Three Months Ended September 30, 2015
Retained earnings, beginning….….…….….…... $60,580
Add: Net income…………….….….….…….…... 7,254
Financial and Managerial Accounting, 6th Edition
Problem 20-5B (60 minutes)
Part 1
H2O SPORTS CORPORATION
Merchandise Purchases Budgets
For April, May, and June
April May June
WATER SKIS
Budgeted sales for next month……………………….90,000 130,000 100,000
Ratio of ending inventory to future sales........... 10% 10% 10%
Budgeted ending inventory…………….………….….. 9,000 13,000 10,000
TOW ROPES
Budgeted sales for next month……………………….90,000 110,000 100,000
Ratio of ending inventory to future sales...........
10% 10% 10%
Budgeted ending inventory…………….………….….. 9,000 11,000 10,000
LIFE JACKETS
Budgeted sales for next month……………………….190,000 200,000 120,000
Ratio of ending inventory to future sales........... 10% 10% 10%
Budgeted ending inventory…………….………….…..19,000 20,000 12,000
Add budgeted sales……………………………..….…….160,000 190,000 200,000
Problem 20-5B (Concluded)
Part 2. Analysis Component
The factor that causes the first month’s purchases to be so much smaller is
the excess inventory that accumulated just prior to the budgeting period.
This overstocking factor could exist for a number of reasons, including:
Management may have simply lost sight of inventory levels, thereby
allowing them to reach inappropriately high levels.
There may have been some potentially disruptive factor (such as a
The company’s suppliers may have only recently become more
dependable than they were in the past.
A supplier may have recently located a new distribution facility nearby,
Financial and Managerial Accounting, 6th Edition