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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%
Budgeted ending inventory.................. 13,300 14,000 16,800
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
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
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
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
Problem 22-4B (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
Part 10
NABAR MANUFACTURING
Budgeted Balance Sheet
September 30, 2015
ASSETS
Cash........................................................... $ 40,000 Cash budget
Accounts receivable................................. 238,000 Note C
Raw materials inventory...........................
15,840
Note D
Problem 22-4B (Concluded)
Supporting Footnotes
Note C
Beginning receivables......................................................... $ 249,900
Note D
Beginning raw materials inventory.................................... $ 35,000
Purchases of raw materials................................................ 220,840
Note E
Beginning finished goods inventory................................. $ 241,080
Note F
Beginning equipment.......................................................... $ 720,000
Note G
Beginning accumulated depreciation............................... $ 240,000
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
Problem 22-5B (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%
TOW ROPES
Budgeted sales for next month...........................90,000 110,000 100,000
Ratio of ending inventory to future sales...........
10% 10% 10%
LIFE JACKETS
Budgeted sales for next month...........................190,000 200,000 120,000
Ratio of ending inventory to future sales........... 10% 10% 10%
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.
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.
Competition among suppliers may have caused them to become more
