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Problem 22-3B (50 minutes)
Part 1
HCS MFG.
Budgeted Income Statement
For Months of July, August, and September, 2015
Sales commissions (10%)...................... 126,500 139,150 153,065
Advertising ($200,000 x 1.25)................ 250,000 250,000 250,000
Store rent................................................. 24,000 24,000 24,000
Administrative salaries.......................... 40,000 40,000 40,000
Depreciation-Office equipment............. 50,000 50,000 50,000
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
Problem 22-4B (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%
Units to be produced.............................. 17,500 19,700 22,800 60,000
Problem 22-4B (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
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
Problem 22-4B (continued)
Part 6
NABAR MANUFACTURING
Selling Expense Budgets
July, August, and September 2015
July August Sept. Total
Budgeted sales.....................................$357,000 $323,000 $340,000
Sales commission percent..................x 10% x 10% x 10%
Part 7
NABAR MANUFACTURING
General and Administrative Expense Budgets
July, August, and September 2015
July August Sept. Total
Salaries.......................................................$ 9,000 $ 9,000 $ 9,000 $27,000
Problem 22-4B (Continued)
Part 8
NABAR MANUFACTURING
Cash Budgets
July, August, and September 2015
July August Sept.
Beginning cash balance......................................$ 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
Payments for raw materials (note B)...................51,400 50,760 81,280
Income taxes......................................................
Dividends............................................................
10,000
20,000
Loan interest ($24,000 x 1%)................................... 240
Long-term note interest ($300,000 x .0.9%)............
Purchase of equipment.....................................
2,700
_______
2,700
_______
2,700
100,000
Ending cash balance............................................$ 96,835 $141,180 $ 40,000
Loan balance, end of month................................$ 0 $ 0 $ 14,380
Supporting calculations July August Sept. Total
Note A: Cash receipts from customers
Cash sales........................................................ 107,100 96,900 102,000 306,000
Total cash received..........................................$357,000 $346,800 $328,100 $1,031,900
Note B: Cash payments for raw materials
Month after purchase (100%)..........................$ 51,400 $ 50,760 $ 81,280 $ 183,440
Problem 22-4B (Continued)
Part 9
NABAR MANUFACTURING
Budgeted Income Statement
For Three Months Ended September 30, 2015
Operating expenses
Sales commissions..................................................... $102,000
Sales salaries............................................................... 10,500
General administrative salaries.................................. 27,000
Long-term note interest.............................................. 8,100
Part 10
NABAR MANUFACTURING
Budgeted Balance Sheet
September 30, 2015
Finished goods inventory.........................
241,080
Note E
Total current assets................................... 534,920
Equipment...................................................$820,000 Note F
Less accumulated depreciation............... 300,000 520,000 Note G
Total current liabilities............................... 107,086
Long-term note payable............................
Common stock...........................................$600,000
300,000
Unchanged
Retained earnings...................................... 47,834 Note I
Total liabilities and equity......................... $1,054,920
Problem 22-4B (Concluded)
Supporting Footnotes
Note C
Beginning receivables....................................................... $ 249,900
Credit sales........................................................................ 714,000
Less collections................................................................. (725,900)
Ending receivables............................................................ $ 238,000
Note D
**30,000 units x $8 per unit
Note E
Beginning finished goods inventory................................ $ 241,080
Note G
Beginning accumulated depreciation.............................. $ 240,000
Depreciation expense........................................................ 60,000
Total.................................................................................... $ 300,000
Note I
NABAR MANUFACTURING
Budgeted Statement of Retained Earnings
For Three Months Ended September 30, 2015
Retained earnings, beginning......................... $60,580
Problem 22-5B (60 minutes)
Part 1
H2O SPORTS CORPORATION
Merchandise Purchases Budgets
For April, May, and June
April May June
WATER SKIS
Add budgeted sales..............................................
70,000 90,000 130,000
Required units of available merchandise...........79,000 103,000 140,000
Less actual (or budgeted) beginning inventory........
(40,000) (9,000) (13,000)
Ratio of ending inventory to future sales...........
10% 10% 10%
Budgeted ending inventory.................................. 9,000 11,000 10,000
Add budgeted sales..............................................
100,000 90,000 110,000
Required units of available merchandise...........
109,000 101,000 120,000
Less actual (or budgeted) beginning inventory........
(90,000) (9,000) (11,000)
Budgeted purchases.............................................
19,000 92,000 109,000
LIFE JACKETS
Budgeted sales for next month............................190,000 200,000 120,000
Ratio of ending inventory to future sales........... 10% 10% 10%
Budgeted purchases............................................. 29,000 191,000 192,000
Problem 22-5B (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.
For example, 40,000 units of water skis are in April’s beginning inventory;
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
strike, bad weather, or political uncertainty) that would have temporarily
interrupted the smooth delivery of products from the supplier. Thus,
