Fundamental Accounting Principles, 21st Edition
1308
Problem 22-5A (Continued)
Part 6
DIMSDALE SPORTS CO.
Cash Budgets
January, February, and March 2014
January
February
March
Beginning cash balance …………………………….….
$ 36,000
$ 30,100
$210,300
Cash receipts from customers (note A)…………….
221,250
697,000
489,500
Total cash available …………………………………..….
257,250
727,100
699,800
Cash disbursements
Payments for merchandise (note B) ……………….
80,000
302,800
147,600
Sales commissions …………………………………….
77,000
99,000
121,000
Sales salaries ………………………………………….….
5,000
5,000
5,000
General & administrative salaries …………….….
12,000
12,000
12,000
Maintenance expense ……………………………..….
2,000
2,000
2,000
Interest ($15,000 x 1%) ………………………………….….
150
Taxes payable …………………………………………….
90,000
Purchases of equipment …………………………..
36,000
96,000
28,800
Purchase of land ……………………………………..….
________
________
150,000
Total cash disbursements …………………………..
212,150
516,800
556,400
Preliminary cash balance …………………………..
45,100
210,300
143,400
Repayment of loan to bank ………………………..…
(15,000)
_______
________
Ending cash balance …………………………………….
$ 30,100
$210,300
$143,400
Loan balance, end of month ………………………….
$ 0
$ 0
$ 0
January
February
March
Total
Note A: Cash receipts from customers
$385,000
$495,000
$605,000
$1,485,000
96,250
123,750
151,250
371,250
288,750
371,250
453,750
1,113,750
$125,000
$400,000
$525,000
173,250
$222,750
396,000
_______
_______
115,500
115,500
125,000
573,250
338,250
1,036,500
96,250
123,750
151,250
371,250
$221,250
$697,000
$489,500
$1,407,750
Note B: Cash payments for merchandise
$114,000
$282,000
$324,000
$720,000
$ 80,000
$280,000
$360,000
22,800
$ 56,400
79,200
_______
_______
91,200
91,200
$ 80,000
$302,800
$147,600
$530,400
Problem 22-5A (Continued)
Part 7
DIMSDALE SPORTS CO.
Budgeted Income Statement
For Three Months Ended March 31, 2014
Sales ……………………………………………………………………..
$1,485,000
Cost of goods sold (27,000 units @ $30) ………………...
810,000
Gross profit …………………………………………………………..
675,000
Operating expenses
Sales commissions ……………………………………………..
$297,000
Sales salaries ……………………………………………………...
15,000
General administrative salaries …………………………..
36,000
Maintenance expense ………………………………………….
6,000
Depreciation expense ………………………………………….
20,300
Interest expense ………………………………………………….
150
374,450
Income before taxes ……………………………………………...
300,550
Income taxes (40%) ……………………………………………….
120,220
Net income …………………………………………………………….
$180,330
Part 8
DIMSDALE SPORTS CO.
Budgeted Balance Sheet
March 31, 2014
ASSETS
Cash ………………………………………………..….
$ 143,400
Cash budget
Accounts receivable …………………………..
602,250
Note C
Inventory ………………………………………….….
60,000
Note D
Total current assets …………………………..
805,650
Land ………………………………………………..….
150,000
Capital budget
Equipment ……………………………………….….
$700,800
Note E
Less accumulated depreciation ………..….
87,800
613,000
Note F
Total assets ……………………………………..….
$1,568,650
LIABILITIES AND EQUITY
Accounts payable …………………………….….
$ 549,600
Note G
Bank loan payable ……………………………….
0
Cash budget
Taxes payable (due 4/15/2014) ………….….
120,220
Income stmt.
Total liabilities ………………………………….….
669,820
Common stock …………………………………….
$472,500
Unchanged
Retained earnings …………………………….….
426,330
Note H
Total stockholders’ equity ………………..….
898,830
Total liabilities and equity …………………….
$1,568,650
Fundamental Accounting Principles, 21st Edition
1310
Problem 22-5A (Concluded)
Supporting Footnotes
Note C
Beginning receivables …………………………………………..….
$ 525,000
Credit sales …………………………………………………………..….
1,113,750
Less collections …………………………..……………………….….
(1,036,500)
Ending receivables ………………………………………………..….
$ 602,250
Note D
Beginning inventory ………………………………………………….
$ 150,000
Purchases …………………………………………………………….….
720,000
Less cost of goods sold ………………………………………..….
(810,000)
Ending inventory* ………………………………………………….….
$ 60,000
*Also equals 2,000 units @ $30 = $60,000
Note E
Beginning equipment …………………………………………….….
$ 540,000
Purchased in January ……………………………………………….
36,000
Purchased in February…………………………………………..….
96,000
Purchased in March ………………………………………………….
28,800
Total …………………………………………………………………….….
$ 700,800
Note F
Beginning accumulated depreciation ……………………..….
$ 67,500
Depreciation expense ……………………………………………….
20,300
Total …………………………………………………………………….….
$ 87,800
Note G
Beginning accounts payable ………………………………….….
$ 360,000
Purchases …………………………………………………………….….
720,000
Payments ……………………………………………………….…….….
(530,400)
Ending accounts payable ………………………………………….
$ 549,600
Note H
Beginning retained earnings ………………………………….….
$ 246,000
Net income …………………………..……………………………….….
180,330
Total …………………………………………………………………….….
$ 426,330
Problem 22-6A (40 minutes)
Part 1
BLACK DIAMOND COMPANY
Production Budget (in units)
Third Quarter
Budgeted ending inventory (skis) …………………………………………………
3,500
Add budgeted sales ………………………………………………………………..……
150,000
Required units of available production …………………………………………
153,500
Deduct beginning inventory (skis) …………………………………………..……
(5,000)
Units to be manufactured ……………………………………………………….
148,500
Part 2
BLACK DIAMOND COMPANY
Direct Materials Budget (in lbs, except where noted)
Third Quarter
Materials (carbon fiber) needed for production (148,500 x 2) ……..
297,000
Add budgeted ending inventory (carbon fiber) ………………………....
4,000
Total materials (carbon fiber) requirements ……………………………...
301,000
Deduct beginning inventory (carbon fiber) ………………………………..
(6,000)
Units of materials (carbon fiber) to be purchased ……………………...
295,000
Materials cost per pound ………………………………………………………....
$15
Total cost of materials purchases (295,000 x $15) ……………………..
$4,425,000
Fundamental Accounting Principles, 21st Edition
1312
Problem 22-6A (concluded)
Part 3
BLACK DIAMOND COMPANY
Direct Labor Budget
Third Quarter
Units to be produced ………………………………………………………
148,500
Labor requirements per unit (hours) …………………………..
x 0.50
Total labor hours needed …………………………………………..……
74,250
Labor rate (per hour) ………………………………………………………
x $20
Labor dollars …………………………………………………………….……
$1,485,000
Part 4
BLACK DIAMOND COMPANY
Factory Overhead Budget
Third Quarter
Total labor hours needed …………………………………………..……
74,250
Variable overhead rate per DL hour …………………………………
x $8
Budgeted variable overhead ……………………………………………
$ 594,000
Budgeted fixed overhead …………………………………………..……
1,782,000
Budgeted total overhead …………………………………………………
$2,376,000
Problem 22-7A (130 minutes)
Part 1
ZIGBY MANUFACTURING
Sales Budgets
April, May, and June 2013
Budgeted
Units
Budgeted
Unit Price
Budgeted
Total Dollars
April 2013 ………………………………………………….….
20,500
$23.85
$ 488,925
May 2013 …………………………………………………..….
19,500
23.85
465,075
June 2013 ………………………………………………….….
20,000
23.85
477,000
Total for the second quarter ………………………….
60,000
$1,431,000
Part 2
ZIGBY MANUFACTURING
Production Budget
April, May, and June 2013
April
May
June
Total
Next month’s budgeted sales …………...
19,500
20,000
20,500
Ratio of inventory to future sales ……...
x 80%
x 80%
x 80%
Budgeted ending inventory ……………...
15,600
16,000
16,400
Add budgeted sales ………………………….
20,500
19,500
20,000
Required units to be produced ………….
36,100
35,500
36,400
Deduct beginning inventory ……………..
(16,400)
(15,600)
(16,000)
Units to be produced ………………………..
19,700
19,900
20,400
60,000
Fundamental Accounting Principles, 21st Edition
1314
Problem 22-7A (continued)
Part 3
ZIGBY MANUFACTURING
Raw Materials Budget
April, May, and June 2013
April
May
June
Total
Production budget (units) ………………...
19,700
19,900
20,400
Materials requirement per unit ………….
x 0.50
x 0.50
x 0.50
Materials needed for production ……….
9,850
9,950
10,200
Add budgeted ending inventory ………..
4,975
5,100
4,000
Total materials requirements (units) ….
14,825
15,050
14,200
Deduct beginning inventory ……………..
(4,925)
(4,975)
(5,100)
Materials to be purchased ………………..
9,900
10,075
9,100
29,175
Material price per unit ……………………...
$ 20
$ 20
$ 20
$ 20
Total cost of direct material purchases …..
$198,000
$201,500
$182,000
$581,500
Part 4
ZIGBY MANUFACTURING
Direct Labor Budget
April, May, and June 2013
April
May
June
Total
Budgeted production (units) …………….
19,700
19,900
20,400
Labor requirements per unit (hours) ….
x 0.50
x 0.50
x 0.50
Total labor hours needed ………………….
9,850
9,950
10,200
30,000
Labor rate (per hour) ………………………..
$ 15
$ 15
$ 15
$ 15
Labor dollars …………………………..……….
$147,750
$149,250
$153,000
$450,000
Part 5
ZIGBY MANUFACTURING
Factory Overhead Budget
April, May, and June 2013
April
May
June
Total
9,850
9,950
10,200
x $2.70
x $2.70
x $2.70
26,595
26,865
27,540
$ 81,000
20,000
20,000
20,000
60,000
$46,595
$46,865
$47,540
$141,000
Problem 22-7A (continued)
Part 6
ZIGBY MANUFACTURING
Selling Expense Budgets
April, May, and June 2013
April
May
June
Total
$488,925
$465,075
$477,000
x 8%
x 8%
x 8%
39,114
37,206
38,160
$114,480
3,000
3,000
3,000
9,000
$ 42,114
$ 40,206
$ 41,160
$123,480
Part 7
ZIGBY MANUFACTURING
General and Administrative Expense Budgets
April, May, and June 2013
April
May
June
Total
Salaries ………………………………………..……..
$12,000
$12,000
$12,000
$36,000
Interest on long-term note …………….……..
4,500
4,500
4,500
13,500
Total expenses ……………………………..……..
$16,500
$16,500
$16,500
$49,500
*$500,000 x 0.90%
Fundamental Accounting Principles, 21st Edition
1316
Problem 22-7A (Continued)
Part 8
ZIGBY MANUFACTURING
Cash Budgets
April, May, and June 2013
April
May
June
Beginning cash balance …………………………….….
$ 40,000
$ 83,346
$124,295
Cash receipts from customers (note A)…………….
488,925
481,770
468,653
Total cash available …………………………………..….
528,925
565,116
592,948
Cash disbursements
Payments for raw materials (note B) …………..….
200,500
198,000
201,500
Payments for direct labor ………………………..…
Payments for variable overhead ………………….
Sales commissions …………………………………….
147,750
26,595
39,114
149,250
26,865
37,206
153,000
27,540
38,160
Sales salaries ………………………………………….….
3,000
3,000
3,000
General & administrative salaries …………….….
12,000
12,000
12,000
Dividends ……………………………………………….….
10,000
Loan interest ($12,000 x 1%) …………………………..
120
Long-term note interest ($500,000 x .0.9%) ……..….
Purchase of equipment ……………………………….
4,500
_______
4,500
_______
4,500
130,000
Total cash disbursements …………………………..
433,579
440,821
569,700
Preliminary cash balance …………………………..
95,346
124,295
23,248
Additional loan ………………………………………….….
Repayment of loan to bank ………………………..…
(12,000)
_______
16,752
_______
Ending cash balance …………………………………….
$ 83,346
$124,295
$ 40,000
Loan balance, end of month ………………………….
$ 0
$ 0
$ 16,752
April
May
June
Total
Note A: Cash receipts from customers
$488,925
$465,075
$477,000
$1,431,000
146,677
139,522
143,100
429,299
342,248
325,553
333,900
1,001,701
$342,248
$342,248
$325,553
$1,010,049
146,677
139,522
143,100
429,299
$488,925
$481,770
$468,653
$1,439,348
$200,500
$198,000
$201,500
$ 600,000
NOTE: Cash sales are rounded down to the nearest whole dollar. All other amounts are rounded
up to the nearest whole dollar. Student answers will vary slightly if they round differently.
Problem 22-7A (Continued)
Part 9
ZIGBY MANUFACTURING
Budgeted Income Statement
For Three Months Ended June 30, 2013
Sales ……………………………………………………………………..
$1,431,000
Cost of goods sold (60,000 units @ $19.85) …………….
1,191,000
Gross profit …………………………………………………………..
240,000
Operating expenses
Sales commissions ……………………………………………..
$114,480
Sales salaries ……………………………………………………...
9,000
General administrative salaries …………………………..
36,000
Long-term note interest ……………………………………….
13,500
Interest expense ………………………………………………….
120
173,100
Income before taxes ……………………………………………...
66,900
Income taxes (35%) ……………………………………………….
23,415
Net income …………………………………………………………….
$ 43,485
Part — Budgeted Retained Earnings & Budgeted Balance Sheet
ZIGBY MANUFACTURING
Budgeted Balance Sheet
June 30, 2013
ASSETS
Cash ………………………………………………..….
$ 40,000
Cash budget
Accounts receivable …………………………..
333,900
Note C
Raw materials inventory …………………..….
Finished goods inventory …………………….
80,000
325,540
Note D
Note E
Total current assets …………………………..
779,440
Equipment ……………………………………….….
$730,000
Note F
Less accumulated depreciation ………..….
210,000
520,000
Note G
Total assets ……………………………………..….
$1,299,440
LIABILITIES AND EQUITY
Accounts payable …………………………….….
$ 182,000
Note H
Bank loan payable ……………………………….
16,752
Cash budget
Taxes payable ………………………………….….
23,415
Income stmt.
Total current liabilities ……………………..….
222,167
Long-term note payable ……………………….
Common stock …………………………………….
$335,000
500,000
Unchanged
Retained earnings …………………………….….
242,273
Note I
Total stockholders’ equity ………………..….
577,273
Total liabilities and equity …………………….
$1,299,440
Fundamental Accounting Principles, 21st Edition
1318
Problem 22-7A (Concluded)
Supporting Footnotes
Note C
Beginning receivables …………………………………………..….
$ 342,248
Credit sales …………………………………………………………..….
1,001,701
Less collections …………………………..……………………….….
(1,010,049)
Ending receivables ………………………………………………..….
$ 333,900
Note D
Beginning raw materials inventory …………………………..
$ 98,500
Purchases of raw materials ……………………………………….
581,500
Less materials used in production** ……………………….….
(600,000)
Ending raw materials inventory* …………………………….….
$ 80,000
*Also equals 4,000 units @ $20 = $80,000
**30,000 units x $20 per unit
Note E
Beginning finished goods inventory ……………………….….
$ 325,540
Cost of goods completed during the period ……………….
1,191,000
Less cost of goods sold during the period ……………..….
(1,191,000)
Ending finished goods inventory*…………………………..
$ 325,540
*Also equals 16,400 units @ $19.85 = $325,540
Note F
Beginning equipment …………………………………………….….
$ 600,000
Purchased in June ………………………………………………..….
130,000
Total …………………………………………………………………….….
$ 730,000
Note G
Beginning accumulated depreciation ……………………..….
$ 150,000
Depreciation expense ……………………………………………….
60,000
Total …………………………………………………………………….….
$ 210,000
Note H
Beginning accounts payable ………………………………….….
$ 200,500
Purchases of raw materials ……………………………………….
581,500
Payments for raw materials ……………………………………….
(600,000)
Ending accounts payable ………………………………………….
$ 182,000
Note I
ZIGBY MANUFACTURING
Budgeted Statement of Retained Earnings
For Three Months Ended June 30, 2013
Retained earnings, Beginning ……………………. $208,788
Add: Net income ………………………………….. 43,485
PROBLEM SET B
Problem 22-1B (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
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)
Budgeted purchases …………………………………..…
39,000
94,000
127,000
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
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 ending inventory …………………………..
19,000
20,000
12,000
Add budgeted sales …………………………………….…
160,000
190,000
200,000
Required units of available merchandise ……..…
179,000
210,000
212,000
Less actual (or budgeted) beginning inventory ….…
(150,000)
(19,000)
(20,000)
Budgeted purchases …………………………………..…
29,000
191,000
192,000
Fundamental Accounting Principles, 21st Edition
1320
Problem 22-1B (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.
• Competition among suppliers may have caused them to become more
customer oriented, with the result that they will deliver products in
smaller lots more quickly.
Problem 22-2B (50 minutes)
SONY STEREO
Cash Budgets
For April, May, and June
April
May
June
Beginning balance ……………………………………
$ 3,000
$ 53,000
$ 44,000
Cash receipts
Collection on accounts receivable* …………
136,000
210,000
290,200
Receipts from bank loan …………………………
80,000
_______
_______
Total cash available ……………………………….…
219,000
263,000
334,200
Cash disbursements
Payments on accounts payable** ……………
80,000
188,000
186,000
Payroll ……………………………………………………
16,000
17,000
18,000
Rent …………………………………………………….…
6,000
6,000
6,000
Other expenses ………………………………………
64,000
8,000
7,000
Repayment on bank loan ……………………..…
80,000
Interest on bank loan* …………………………..
________
________
2,400
Total cash disbursements ………………………
166,000
219,000
299,400
Ending cash balance ……………………………..…
$ 53,000
$ 44,000
$ 34,800
* Interest at 12% on $80,000 for 90 days is $2,400.
Supporting calculations
Collections of credit sales*
March
April
May
June
March sales ($180,000)—[25%: 45%: 20%: 9%] ….……….
$ 45,000
$ 81,000
$ 36,000
$ 16,200
April sales ($220,000)—[25%: 45%: 20%] ………….……….
–
55,000
99,000
44,000
May sales ($300,000)—[25%: 45%] …………………………..
–
–
75,000
135,000
June sales ($380,000)—[25%] …………………………..
–
–
–
95,000
Total ……………………………………………………………………….
$ 45,000
$136,000
$210,000
$290,200
Payments on credit purchases**
March
April
May
June
March purchases ($100,000)—(0%: 80%: 20%) ….……………………….
$ 0
$ 80,000
$ 20,000
$ –
April purchases ($210,000)—(0%: 80%: 20%) …….…………………….
–
0
168,000
42,000
May purchases ($180,000)—(0%: 80%) ……………..……………
–
–
0
144,000
June purchases ($220,000)—(0%) …………………….…….
–
–
–
0
Total ……………………………………………………………………………………
$ 0
$ 80,000
$188,000
$186,000
Fundamental Accounting Principles, 21st Edition
1322
Problem 22-3B (70 minutes)
Part 1
Cash collections of credit sales (accounts receivable)
From sales in
Total
% Collected
March
April
January …………………………….…
$396,000
23%
$ 91,080
February ………………………………
495,000
35
173,250
…………………………..
23
$113,850
March ……………………………….…
418,000
40
167,200
………………………………..…
35
146,300
April ………………………………….…
412,500
40
_______
165,000
Total collected …………………..…
$431,530
$425,150
Part 2
Budgeted ending inventories (in units)
January
February
March
April
Next month’s budgeted sales …………….…..
22,500
19,000
18,750
21,000
Ratio of inventory to future sales ……….…..
20%
20%
20%
20%
Budgeted “base” ending inventory ………..
4,500
3,800
3,750
4,200
Plus safety stock……………………………….…..
100
100
100
100
Budgeted ending inventory ……………….…..
4,600
3,900
3,850
4,300
Part 3
CONNICK COMPANY
Merchandise Purchases Budgets
For February, March, and April
February
March
April
Budgeted ending inventory (from part 2) …………
3,900
3,850
4,300
Add budgeted sales ……………………………………
22,500
19,000
18,750
Required units of available merchandise ….…
26,400
22,850
23,050
Deduct beginning inventory …………………….…
(4,600)
(3,900)
(3,850)
Budgeted purchases (units) …………………….…
21,800
18,950
19,200
Budgeted cost per unit …………………………….…
$12
$12
$12
Budgeted cost of merchandise purchases …..…
$261,600
$227,400
$230,400