Exercise 22-19 (10 minutes)
MANNER COMPANY
Direct Labor Budget
For July, August, and September
July
August
Sept.
Budgeted production (units) ……………….…
620
680
540
Labor requirements per unit (hours) ………
x 2
x 2
x 2
Total labor hours needed …………………….…
1,240
1,360
1,080
Labor rate per hour ……………………………..…
$ 20
$ 20
$ 21
Labor dollars …………………………………………
$24,800
$27,200
$22,680
Exercise 22-20 (15 minutes)
HOSPITABLE CO.
Production Budget
For April, May, and June
April
May
June
Next month’s budgeted sales (units) ………
580
540
620
Ratio of inventory to future sales ……………
x 25%
x 25%
x 25%
Budgeted ending inventory (units) ……..…
145
135
155
Add budgeted sales for the month …………
500
580
540
Required units of available production ..…
645
715
695
Deduct beginning inventory (units) ……..…
(190)
(145)
(135)
Units to be produced …………………………..
455
570
560
Fundamental Accounting Principles, 21st Edition
1294
Exercise 22-21 (15 minutes)
HOSPITABLE CO.
Direct Materials Budget
For April, May, and June
April
May
June
Budgeted production (units)* …………………
455
570
560
Materials requirements per unit …………..…
x 5
x 5
x 5
Materials needed for production (lbs.) ……
2,275
2,850
2,800
Add budgeted ending inventory** ………..…
855
840
810
Total materials requirements (lbs.) …………
3,130
3,690
3,610
Deduct beginning inventory (lbs.) ………..…
(663)
(855)
(840)
Materials to be purchased (lbs.) …………..…
2,467
2,835
2,770
* From Exercise 22-20
** 30% of next month’s materials needed for production.
Exercise 22-22 (10 minutes)
Exercise 22-23 (5 minutes)
Potential negative outcomes from participatory budgeting include the
Exercise 22-24 (15 minutes)
RENDER CO. CPA
Activity-Based Budget
For Year Ending December 31, 2013
Budgeted
Hours
Budgeted
Price/hour
Budgeted
Cost
Data-entry …………………………………………..…
2,200
$10
$ 22,000
Auditing ……………………………………………..…
4,800
40
192,000
Tax ……………………………………………………....
4,300
50
215,000
Consulting ………………………………………….…
Total …………………………………………………..…
750
12,050
50
37,500
$466,500
Exercise 22-25 (15 minutes)
RIDA INC.
Direct Materials Budget
Second Quarter
Units to be produced …………………………..…………………….……
240,000
Materials requirement per unit …………………………………..……
x .60
Materials needed for production (units) ……………………..……
144,000
Add budgeted ending inventory (units)* …………………….……
15,750
Total materials requirements (units) …………………………..
159,750
Deduct beginning inventory (units)** …………………………..
Materials to be purchased (units) ……………………………..……
Material price per unit………………………………………………..……
Total cost of direct materials purchases …………………….……
(72,000)
87,750
x $175
$15,356,250
*(52,500 x 0.60) x 50%
**144,000 x 50%
Fundamental Accounting Principles, 21st Edition
1296
Exercise 22-26 (15 minutes)
1.
RIDA INC.
Direct Labor Budget
Second Quarter
Units to be produced …………………………..…………………….……
240,000
Labor requirements per unit (hours) …………………………..
x 4
Total labor hours needed …………………………………………..……
960,000
Labor rate (per hour) ………………………………………………………
x $9
Labor dollars …………………………………………………………….……
$8,640,000
2.
RIDA INC.
Factory Overhead Budget
Second Quarter
Total labor hours needed …………………………………………..……
960,000
Variable overhead rate per DL hour …………………………………
x $11
Budgeted variable overhead ……………………………………………
$10,560,000
Budgeted fixed overhead …………………………………………..……
450,000
Budgeted total overhead …………………………………………………
$11,010,000
Exercise 22-27 (20 minutes)
RAD CO.
Direct Materials Budget
For April, May, and June
April
May
June
Budget production (units) ………………………
442
570
544
Materials requirements per unit …………..…
x 5
x 5
x 5
Materials needed for production (lbs.) ……
2,210
2,850
2,720
Add budgeted ending inventory* ……………
855
816
810
Total materials requirements (lbs.) …………
3,065
3,666
3,530
Deduct beginning inventory (lbs.) ………..…
(663)
(855)
(816)
Materials to be purchased (lbs.) …………..…
2,402
2,811
2,714
*30% of next month’s materials needed for production. July’s materials needed for
production equals 2,700 pounds (540 units x 5).
Fundamental Accounting Principles, 21st Edition
1298
Exercise 22-28 (15 minutes)
1.
RAD CO.
Direct Labor Budget
For April, May, and June
April
May
June
Budget production (units) ………………………
442
570
544
Direct labor hours per unit …………………..…
x 0.50
x 0.50
x 0.50
Total labor hours needed …………………….…
221
285
272
Labor rate (per hour) …………………………..
x $16
x $16
x $16
Labor cost …………………………………………..…
$3,536
$4,560
$4,352
2.
RAD CO.
Factory Overhead Budget
For April, May, and June
April
May
June
Total labor hours needed …………………..…..
221
285
272
Variable factory overhead rate …………..…..
x $20
x $20
x $20
Budgeted variable overhead …………………..
$4,420
$5,700
$5,440
Budgeted fixed overhead …………………..…..
8,000
8,000
8,000
Total factory overhead ………………………..…
$12,420
$13,700
$13,440
PROBLEM SET A
Problem 22-1A (60 minutes)
Part 1
KEGGLER’S SUPPLY
Merchandise Purchases Budgets
For March, April, and May
March
April
May
FOOTWEAR
Budgeted sales for next month ………………………
25,000
32,000
35,000
Ratio of ending inventory to future sales ……..…
30%
30%
30%
Budgeted ending inventory …………………………..
7,500
9,600
10,500
Add budgeted sales …………………………………….…
15,000
25,000
32,000
Required units of available merchandise ……..…
22,500
34,600
42,500
Less actual (or budgeted) beginning inventory ….…
(20,000)
(7,500)
(9,600)
Budgeted purchases …………………………………..…
2,500
27,100
32,900
SPORTS EQUIPMENT
Budgeted sales for next month ………………………
90,000
95,000
90,000
Ratio of ending inventory to future sales ……..…
30%
30%
30%
Budgeted ending inventory …………………………..
27,000
28,500
27,000
Add budgeted sales …………………………………….…
70,000
90,000
95,000
Required units of available merchandise ……..…
97,000
118,500
122,000
Less actual (or budgeted) beginning inventory ….…
(80,000)
(27,000)
(28,500)
Budgeted purchases …………………………………..…
17,000
91,500
93,500
APPAREL
Budgeted sales for next month ………………………
38,000
37,000
25,000
Ratio of ending inventory to future sales ……..…
30%
30%
30%
Budgeted ending inventory …………………………..
11,400
11,100
7,500
Add budgeted sales …………………………………….…
40,000
38,000
37,000
Required units of available merchandise ……..…
51,400
49,100
44,500
Less actual (or budgeted) beginning inventory ….…
(50,000)
(11,400)
(11,100)
Budgeted purchases …………………………………..…
1,400
37,700
33,400
Fundamental Accounting Principles, 21st Edition
1300
Problem 22-1A (Continued)
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.
• A supplier may have recently located a new distribution facility nearby,
with the result that the merchandise can be delivered more promptly.
Problem 22-2A (50 minutes)
ONEIDA COMPANY
Cash Budget
For September, October, and November
September
October
November
Beginning balance ……………………………………
$ 5,000
$ 99,250
$ 69,500
Cash receipts
Collection on accounts receivable* …………
159,250
249,250
338,100
Receipts from bank loan …………………………
100,000
_______
_______
Total cash available ……………………………….…
264,250
348,500
407,600
Cash disbursements
Payments on accounts payable** ……………
100,000
217,000
228,000
Payroll ……………………………………………………
20,000
22,000
24,000
Rent …………………………………………………….…
10,000
10,000
10,000
Other expenses …………………………..……….…
35,000
30,000
20,000
Repayment on bank loan ……………………..…
100,000
Interest on bank loan*** ……………………….…
________
________
3,000
Total cash disbursements ………………………
165,000
279,000
385,000
Ending cash balance ……………………………..…
$ 99,250
$ 69,500
$ 22,600
*** Interest at 12% on $100,000 for 3 months is $3,000.
Supporting schedules
Collections of credit sales*
August
September
October
November
Aug. sales ($215,000)—[25%: 45%: 20%: 9%] ….…………
$ 53,750
$ 96,750
$ 43,000
$ 19,350
Sept. sales ($250,000)—[25%: 45%: 20%] ………..…………
–
62,500
112,500
50,000
Oct. sales ($375,000)—[25%: 45%] ………………….……….
–
–
93,750
168,750
Nov. sales ($400,000)—[25%] …………………………..
–
–
–
100,000
Total …………………………………………………………….…………
$ 53,750
$159,250
$249,250
$338,100
Payments on credit purchases**
August
September
October
November
Aug. purchases ($125,000)—(0%: 80%: 20%) …..………………………
$ 0
$100,000
$ 25,000
$ –
Sept. purchases ($240,000)—(0%: 80%: 20%) ….……………………….
–
0
192,000
48,000
Oct. purchases ($225,000)—(0%: 80%) …………………………..
–
–
0
180,000
Nov. purchases ($200,000)—(0%) …………………..………
–
–
–
0
Total …………………………………………………………….……………………..
$ 0
$100,000
$217,000
$228,000
Fundamental Accounting Principles, 21st Edition
1302
Problem 22-3A (70 minutes)
Part 1
Cash collections of credit sales (accounts receivable)
From sales in
Total
% Collected
June
July
April ………………………………….……
$ 720,000
28%
$201,600
May …………………………………..……
360,000
50
180,000
…………………………………..……
28
$100,800
June ………………………………….……
1,080,000
20
216,000
………………………………….……
50
540,000
July …………………………………..……
900,000
20
_______
180,000
Total collected …………………..……
$597,600
$820,800
Part 2
Budgeted ending inventories (in units)
April
May
June
July
Next month’s budgeted sales ………………...
2,000
6,000
5,000
3,800
Ratio of inventory to future sales …………...
20%
20%
20%
20%
Budgeted “base” ending inventory ………..
400
1,200
1,000
760
Plus safety stock…………………………………...
100
100
100
100
Budgeted ending inventory …………………...
500
1,300
1,100
860
Part 3
AZTEC COMPANY
Merchandise Purchases Budgets
For May, June, and July
May
June
July
Budgeted ending inventory (from part 2) …………
1,300
1,100
860
Add budgeted sales ……………………………………
2,000
6,000
5,000
Required units of available merchandise ….…
3,300
7,100
5,860
Deduct beginning inventory …………………….…
(500)
(1,300)
(1,100)
Budgeted purchases (units) …………………….…
2,800
5,800
4,760
Budgeted cost per unit …………………………….…
$110
$110
$110
Budgeted cost of merchandise purchases …..…
$308,000
$638,000
$523,600
Problem 22-3A (Continued)
Part 4
Cash payments on product purchases (for June and July)
From purchases in
Total
% Paid
June
July
May …………………………………….…..
$308,000
40%
$123,200
June ………………………………………..
638,000
60
382,800
…………………………………..…..
40
$255,200
July …………………………………….…..
523,600
60
________
314,160
Total paid ………………………………..
$506,000
$569,360
Part 5
AZTEC COMPANY
Cash Budget
June and July
June
July
Beginning cash balance ………………………………………...
$100,000
$100,000
Cash receipts from customers ……………………………....
597,600
820,800
Total available cash ……………………………………………....
697,600
920,800
Cash disbursements
Payments on purchases ……………………………………...
506,000
569,360
Selling and administrative expenses …………………....
110,000
110,000
Interest expense* ………………………………………………...
250
437
Total disbursements …………………………………………...
616,250
679,797
Preliminary cash balance ……………………………………....
81,350
241,003
Additional loan from bank ……………………………………..
18,650
0
Repayment of loan to bank …………………………………....
________
43,650
Ending cash balance ……………………………………………..
$100,000
$197,353
Ending loan balance** …………………………………………...
$ 43,650
$ 0
* Interest expense ** Loan balance
June = $25,000 x 12%/12 = $250 June = $25,000 + $18,650 = $43,650
July = $43,650 x 12%/12 = $437 (rounded) July = $43,650 – $43,650 = $0
Fundamental Accounting Principles, 21st Edition
1304
Problem 22-3A (Concluded)
Part 6
Information about the need for cash in the near future would be helpful to
the management of Aztec Company because they would be able to enter
In addition, a good cash budget is likely to be helpful to management in
negotiating the terms of the loan. In this situation, the company can tell the
Problem 22-4A (50 minutes)
Part 1
MERLINE
Budgeted Income Statement
For Months of January, February, and March, 2014
January
February
March
Sales* …………………………………………….…
$2,062,500
$2,268,750
$2,495,625
Cost of goods sold* ………………………..…
1,237,500
1,361,250
1,497,375
Gross profit ………………………………………
825,000
907,500
998,250
Expenses
Sales commissions (10%) ……………..…
206,250
226,875
249,563
Advertising ($250,000 x 1.15) ………..…
287,500
287,500
287,500
Store rent ……………………………………..…
30,000
30,000
30,000
Administrative salaries ……………………
45,000
45,000
45,000
Depreciation ……………………………………
50,000
50,000
50,000
Other expenses …………………………….…
10,000
10,000
10,000
Total expenses …………………………..…..…
628,750
649,375
672,063
Net income ……………………………………..…
$ 196,250
$ 258,125
$ 326,187
* Volume for the next three months increases by 10% per month
Sales
Cost of Goods
Units
(@ $125)
Sold (@ $75)
December ($2,250,000/$150) …………………
15,000
January …………………………..……….…………
16,500
$2,062,500
$1,237,500
February …………………………………..…………
18,150
2,268,750
1,361,250
March ……………………………………….…………
19,965
2,495,625
1,497,375
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 December. This result is not
Fundamental Accounting Principles, 21st Edition
1306
Problem 22-5A (130 minutes)
Part 1
DIMSDALE SPORTS CO.
Sales Budgets
January, February, and March 2014
Budgeted
Units
Budgeted
Unit Price
Budgeted
Total Dollars
January 2014 …………………………………………….….
7,000
$55
$ 385,000
February 2014……………………………………………….
9,000
55
495,000
March 2014 ……………………………………………….….
11,000
55
605,000
Total for the first quarter ……………………………….
27,000
$1,485,000
Part 2
DIMSDALE SPORTS CO.
Merchandise Purchases Budgets
January, February, and March 2014
January
February
March
Total
Next month’s budgeted sales …………...
9,000
11,000
10,000
Ratio of inventory to future sales ……...
x 20%
x 20%
x 20%
Budgeted ending inventory ……………...
1,800
2,200
2,000
Add budgeted sales ………………………….
7,000
9,000
11,000
Required available merchandise ……….
8,800
11,200
13,000
Deduct beginning inventory ……………..
(5,000)
(1,800)
(2,200)
Units to be purchased ……………………...
3,800
9,400
10,800
24,000
Budgeted cost per unit ……………………..
$ 30
$ 30
$ 30
$ 30
Budgeted merchandise purchases …...
$114,000
$282,000
$324,000
$720,000
Part 3
DIMSDALE SPORTS CO.
Selling Expense Budgets
January, February, and March 2014
January
February
March
Total
Budgeted sales …………………………..
$385,000
$495,000
$605,000
Sales commission percent ………….…..
x 20%
x 20%
x 20%
Sales commissions expense ……….…..
77,000
99,000
121,000
$297,000
Sales salaries……………………………..…..
5,000
5,000
5,000
15,000
Total selling expenses ………………..…..
$ 82,000
$104,000
$126,000
$312,000
Problem 22-5A (Continued)
Part 4
DIMSDALE SPORTS CO.
General and Administrative Expense Budgets
January, February, and March 2014
January
February
March
Total
Salaries ………………………………………..……..
$12,000
$12,000
$12,000
$36,000
Maintenance ………………………………………..
2,000
2,000
2,000
6,000
Depreciation* ………………………………..……..
6,000
7,000
7,300
20,300
Total expenses …………………………..………..
$20,000
$21,000
$21,300
$62,300
* Depreciation expense calculations
Annual
Amount
January
February
March
Total
Equipment owned
on 12/31/2013 ………………..
$67,500
$5,625
$5,625
$5,625
$16,875
Purchased in January ……..
4,500
375
375
375
1,125
Purchased in February …….
12,000
1,000
1,000
2,000
Purchased in March …………
3,600
______
______
300
300
Totals …………………………..…
$6,000
$7,000
$7,300
$20,300
Part 5
DIMSDALE SPORTS CO.
Capital Expenditures Budgets
January, February, and March 2014
January
February
March
Equipment purchases ……………………………..……
$36,000
$96,000
$ 28,800
Land purchase ………………………………………..……
______
______
150,000
Total ……………………………………………………….
$36,000
$96,000
$178,800