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Chapter 10 - Strategy and the Master Budget
10-46
10-47 (Continued-5)
7. Budgeted selling and administrative expenses:
Spring Manufacturing Company
Selling and Administrative Expense Budget
2013
Selling Expenses:
Advertising $60,000
Sales salaries 200,000
Travel and entertainment 60,000
Depreciation 5,000 $325,000
Administrative expenses:
Offices salaries $60,000
8. Budgeted Income Statement:
Spring Manufacturing Company
Budget Income Statement
For the Year 2013
C12 D57 Total
Sales (part 1) $1,800,000 $1,980,000 $3,780,000
Cost of goods sold (part 6) 1,125,600 1,221,300 2,346,900
Gross profit $674,400 $758,700 $1,433,100
Selling and administrative expenses (part 7) $645,000
Chapter 10 - Strategy and the Master Budget
10-47
10-47 (Continued-6)
Note to Instructor: An Excel spreadsheet solution file is embedded in this document.
You can open the spreadsheet “object” that follows by doing the following:
1. Right click anywhere in the worksheet icon below.
2. Select “Worksheet Object,” then “Open.”
3. To return to the Word document, select “File” and then “Close and return to...”
while you are in the spreadsheet mode.
Pr 10-47.xlsx
Chapter 10 - Strategy and the Master Budget
10-48
10-48 Spring Manufacturing Company—Comprehensive Profit Plan (90 Minutes, but
much less if used in conjunction with 10-47 and completed with an Excel
spreadsheet)
1. Sales Budget
2013
C12 D57 Total
2. Production Budget
Spring Manufacturing Company
Production Budget
2013
C12 D57
Budgeted Sales (in units) 12,000 18,000
Plus: Desired finished goods ending inventory 300 200
Total units needed 12,300 18,200
Chapter 10 - Strategy and the Master Budget
10-49
10-48 (Continued-1)
3. Direct Materials Purchases Budget (units and dollars)
Spring Manufacturing Company
Direct Materials Purchases Budget (units and dollars)
2013
C12 D57 Total
Raw Material (RM) 1:
Budgeted Production 11,900 18,050
Pounds per Unit × 10 × 8
RM 1 needed for production 119,000 144,400 263,400
Plus: Desired Ending Inventory (lbs.) 4,000
Total RM 1 needed (lbs.) 267,400
Raw Material (RM) 2:
Budgeted Production 11,900 18,050
Pounds per Unit × 0 × 4
RM 2 needed for production 0 72,200 72,200
Plus: Desired Ending Inventory (lbs.) 1,000
Raw Material 3:
Budgeted Production 11,900 18,050
Pounds per Unit × 2 × 1
RM 3 needed for production 23,800 18,050 41,850
Chapter 10 - Strategy and the Master Budget
10-50
10-48 (Continued-2)
4. Direct Manufacturing Labor Budget
Spring Manufacturing Company
Direct Labor Budget
2013
C12 D57 Total
Budgeted production 11,900 18,050
Direct labor hours (DLH) per unit × 2 × 3
Total direct labor hours needed 23,800 54,150 77,950
5. Factory Overhead Budget
Variable OH per DLH (fromProb. 10-47): $6.40
Spring Manufacturing Company
Factory Overhead Budget
2013
Variable Factory Overhead ($6.40/DLH × 77,950 DLHs) $498,880
Fixed Factory Overhead:
Supervision $120,000
Maintenance costs 20,000
Heat, light, and power 43,420
Total Cash Fixed Factory Overhead $183,420
Depreciation 71,330 $254,750
Chapter 10 - Strategy and the Master Budget
10-51
10-48 (Continued-3)
6. Budgeted CGS and Ending Finished Goods Inventory Budget
Spring Manufacturing Company
Ending Finished Goods Inventory and Budgeted CGS
2013
C12 D57 Total
Sales volume 12,000 18,000 30,000
Cost per unit (Schedule 1 and 2) $90.33624 $130.50436
Schedule 1: Cost per Unit—Product C12:
Inputs Cost
Cost Element Unit Input Cost Quantity Per Unit
RM-1 $2.00 10 $20.00
RM-3 $0.50 2 $1.00
Direct labor $25.00 2 $50.00
Schedule 2: Cost per Unit—Product D57:
_______ Inputs___ Cost
Cost Element Unit Input Cost Quantity Per Unit
RM-1 $2.00 8 $16.00
RM-2 $2.50 4 $10.00
RM-3 $0.50 1 $0.50
Direct labor $25.00 3 $75.00
Variable factory OH ($326,080 ÷ 50,950) $6.40 3 $19.20
10-52
10-48 (Continued-4)
7. Selling and Administrative Expense Budget
Spring Manufacturing Company
Selling and Administrative Expense Budget
2013
Selling Expenses:
Advertising $60,000
Sales salaries 200,000
Travel and entertainment 60,000
Depreciation 5,000 $325,000
Administrative expenses:
Offices salaries $60,000
Executive salaries 250,000
8. Budgeted Income Statement
Spring Manufacturing Company
Budget Income Statement
For the Year 2013
C12 D57 Total
Sales (part 1) $1,920,000 $3,240,000 $5,160,000
Cost of goods sold (part 6) 1,084,035 2,349,079 3,433,114
Gross profit $835,965 $890,921 $1,726,886
Selling and administrative expenses (part 7) $645,000
Pre-tax income $1,081,886
Chapter 10 - Strategy and the Master Budget
10-53
10-48 (Continued-5)
Answers:
1. The projected increase in after-tax operating income =
$649,132 – $472,860 = $176,272
2. While the changes are projected to increase after-tax operating income, the
company should examine the decision more closely. Although the company
increases its after-tax operating income by 37% ($176,272 ÷ $472,860), it requires a
doubling of units of D57 to achieve this. In fact, a 100% increase in units sold of D57
Further, the price increase in C12 has no effect on the units sold. This may be an
indication that C12 may have a higher potential than the firm perceived.
Note to Instructor: An Excel spreadsheet solution file is embedded in this document.
You can open the spreadsheet “object” that follows by doing the following:
1. Right click anywhere in the worksheet area below.
2. Select “Worksheet Object,” then “Open.”
3. To return to the Word document, select “File” and then “Close and
return to...” while you are in the spreadsheet mode.
(Use information in Prob. 10-47 for Spring Manufacturing Company, amen
Problem 10-48: Comprehensize Profit Plan
Background
Chapter 10 - Strategy and the Master Budget
10-54
10-49 Comprehensive Profit Plan with Kaizen (90 minutes, but much less if assigned
in conjunction with 10-47 and completed with an Excel spreadsheet)
1. Sales Budget
Spring Manufacturing Company
Sales Budget
2013
C12 D57 Total
Sales (in units) 12,000 9,000 21,000
2. Production Budget
Spring Manufacturing Company
Production Budget
2013
C12 D57
Budgeted Sales (in units) 12,000 9,000
Plus: Desired finished goods ending inventory 300 200
Total units needed
12,300 9,200
Chapter 10 - Strategy and the Master Budget
10-55
10-49 (Continued-1)
3. Direct Materials Purchases Budget (units and dollars)
Spring Manufacturing Company
Direct Materials Purchases Budget (units and dollars)
2013
C12 D57 Total
Raw Material (RM) 1:
Budgeted Production 11,900 9,050
Pounds per Unit × 9 × 7
RM 1 needed for production 107,100 63,350 170,450
Plus: Desired Ending Inventory (lbs.) 4,000
Total RM 1 needed (lbs.) 174,450
Raw Material (RM) 2:
Budgeted Production 11,900 9,050
Pounds per Unit × 0 × 3.6
RM 2 needed for production 0 32,580 32,580
Plus: Desired Ending Inventory (lbs.) 1,000
Total RM 2 needed (lbs.) 33,580
Raw Material 3:
Budgeted Production 11,900 9,050
Pounds per Unit × 1.8 × 0.8
RM 3 needed for production 21,420 7,240 28,660
Plus: Desired Ending Inventory (lbs.) 1,500
Total RM 3 needed (lbs.) 30,160
10-56
10-49 (Continued-2)
4. Direct Manufacturing Labor Budget
2013
C12 D57 Total
5. Factory Overhead Budget
Spring Manufacturing Company
Factory Overhead Budget
2013
Original Variable OH Budget:
Indirect materials $10,000
Miscellaneous supplies and tools 5,000
Indirect labor 40,000
Payroll taxes and fringe benefits 250,000
Reduction Rate for Variable OH Costs 10.00%
Original Fixed OH, Excluding Depreciation:
Supervision $120,000
Maintenance costs 20,000
Heat, light, and power 43,420
Total Cash Fixed Factory Overhead $183,420
Chapter 10 - Strategy and the Master Budget
10-57
10-49 (Continued-3)
Budgeted Variable OH:
($326,080 × (1 − 0.10)) = $293,472
Budgeted Fixed OH:
Cash Charges = ($183,420 × (1 − 0.05)) = $174,249
6. Budgeted CGS and Ending Finished Goods Inventory Budget
Spring Manufacturing Company
Ending Finished Goods Inventory and Budgeted CGS
2013
C12 D57 Total
Sales volume 12,000 9,000 21,000
Cost per unit (Schedule 1 and 2) $86.39170 $113.38893
Cost of goods sold $1,036,700 $1,020,500 $2,057,200
Finished goods ending inventory 300 200
Schedule 1: Cost per Unit—Product C12:
Inputs __ Cost
Cost Element Unit Input Cos Quantity Per Unit
RM-1 $2.00 9 $18.00
RM-3 $0.50 1.8 $0.90
Direct labor $30.00 1.5 $45.00
Variable factory OH ($293,472 ÷ 35,950) $8.16334 1.5 $12.24501
Chapter 10 - Strategy and the Master Budget
10-58
10-49 (Continued-4)
Schedule 2: Cost per Unit—Product D57:
Inputs Cost
Cost Element Unit Input Cost Quantity Per Unit
RM-1 $2.00 7 $14.00
RM-2 $2.50 3.6 $9.00
RM-3 $0.50 0.8 $0.40
Direct labor $30.00 2 $60.00
Variable factory OH ($293,472 ÷ 35,950) $8.16334 2 $16.32668
7. Selling and Administrative Expense Budget
Spring Manufacturing Company
Selling and Administrative Expense Budget
2013
Selling Expenses:
Advertising $60,000
Sales salaries 200,000
Travel and entertainment 60,000
Depreciation 5,000 $325,000
Administrative expenses:
Offices salaries $60,000
10-49 (Continued-5)
8. Budgeted Income Statement
Spring Manufacturing Company
Budget Income Statement
For the Year 2013
C12 D57 Total
Sales (part 1) $1,800,000 $1,980,000 $3,780,000
Cost of goods sold (part 6) 1,036,700 1,020,500 2,057,200
Gross profit $763,300 $959,500 $1,722,800
Selling and administrative expenses (part 7) $645,000
Answers:
1. The budgeted after-tax operating income with Kaizen is $646,680.
manufacturing elements reduce wear and tear of equipment and other facilities and
lessens the need for additional capital investments/replacements.
Note to Instructor: An Excel spreadsheet solution file is embedded in this document.
You can open this spreadsheet “object” that follows by doing the following:
1. Right click anywhere in the worksheet area below.
2. Select “Worksheet Object,” then “Open.”
3. To return to the Word document, select “File” and then “Close and return to...”
Chapter 10 - Strategy and the Master Budget
10-60
10-50 Budgeting for a Merchandising Firm (40-50 minutes)
1. Budgeted cash collections—December:
From November’s sales = net A/R, November 30th = $ 76,000
From December’s sales = $220,000 × 60% × 99% = 130,680
2. Net accounts receivable—December 31st:
Budgeted sales in December (given) $220,000
Allowance for doubtful accounts $220,000 × 2% = 4,400
Net A/R from sales in December $215,600
3. Budgeted pre-tax operating income—December:
Total sales $220,000
Gross margin ratio × 25%
Gross margin $ 55,000
Operating expenses:
Monthly cash operating expenses $22,600
4. Budgeted Inventory—December 31st:
5. Budgeted Purchases—December:
Inventory, December 1st (given) = $132,000
Inventory, December 31st (part 4 above) = $120,000
6. Budgeted Accounts Payable—December 31st:
Accounts Payable, December 1st (given) $162,000
Plus: Budgeted Purchases, December (part 5 above) $153,000
