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Problem 22-3B (Continued)
Part 4
Cash payments on product purchases (for March and April)
From purchases in
Total
% Paid
March
April
February .......................................
$261,600
70%
$183,120
March ...........................................
227,400
30
68,220
............................................
70
$159,180
April ..............................................
230,400
30
_______
69,120
Total paid .....................................
$251,340
$228,300
Part 5
CONNICK COMPANY
Cash Budget
March and April
March
April
Beginning cash balance ..........................................................
$ 50,000
$ 58,070
Cash receipts from customers ...............................................
431,530
425,150
Total available cash ................................................................
481,530
483,220
Cash disbursements
Payments on purchases .......................................................
251,340
228,300
Selling and administrative expenses ................................
160,000
160,000
Interest expense* ................................................................
120
0
Total disbursements .............................................................
411,460
388,300
Preliminary cash balance ........................................................
$ 70,070
$ 94,920
Additional loan ................................................................
Repayment of loan ................................................................
(12,000)
________
Ending cash balance ...............................................................
$ 58,070
$ 94,920
Ending loan balance ................................................................
$ 0
$ 0
*Interest expense: March = $12,000 x 12% /12 = $120
Part 6
Analysis Component: Information about the supply of cash in the near future
would be helpful to the management of Connick Company. A good cash
Fundamental Accounting Principles, 21st Edition
1324
Problem 22-4B (50 minutes)
Part 1
COMP-MEDIA
Budgeted Income Statement
For Months of July, August, and September, 2013
July
August
September
Sales* .........................................................
$1,265,000
$1,391,500
$1,530,650
Cost of goods sold* ................................
660,000
726,000
798,600
Gross profit ...............................................
605,000
665,500
732,050
Expenses
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 ............................................
50,000
50,000
50,000
Other ........................................................
12,000
12,000
12,000
Total expenses ..........................................
502,500
515,150
529,065
Net income .................................................
$ 102,500
$ 150,350
$ 202,985
* Volume for the next three months increases by 10% per month
Sales
Cost of Goods
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
three months of the next quarter than was earned in June. The expected results
Problem 22-5B (130 minutes)
Part 1
ISLE CORPORATION
Sales Budgets
January, February, and March 2014
Budgeted
Units
Budgeted
Unit Price
Budgeted
Total Dollars
January 2014 .......................................................
6,000
$45
$ 270,000
February 2014......................................................
8,000
45
360,000
March 2014 ..........................................................
10,000
45
450,000
Total for the first quarter ....................................
24,000
$1,080,000
Part 2
ISLE CORPORATION
Merchandise Purchases Budgets
January, February, and March 2014
January
February
March
Total
Next month’s budgeted sales ...............
8,000
10,000
9,000
Ratio of inventory to future sales .........
x 25%
x 25%
x 25%
Budgeted ending inventory ..................
2,000
2,500
2,250
Add budgeted sales ...............................
6,000
8,000
10,000
Required available merchandise ..........
8,000
10,500
12,250
Deduct beginning inventory .................
(5,000)
(2,000)
(2,500)
Units to be purchased ...........................
3,000
8,500
9,750
21,250
Budgeted cost per unit ..........................
$ 30
$ 30
$ 30
$ 30
Budgeted merchandise purchases ......
$90,000
$255,000
$292,500
$637,500
Part 3
ISLE CORPORATION
Selling Expense Budgets
January, February, and March 2014
January
February
March
Total
Budgeted sales ................................
$270,000
$360,000
$450,000
Sales commission percent ..................
x 20%
x 20%
x 20%
Sales commissions expense ...............
54,000
72,000
90,000
$216,000
Sales salaries........................................
7,500
7,500
7,500
22,500
Total selling expenses .........................
$ 61,500
$ 79,500
$ 97,500
$238,500
Fundamental Accounting Principles, 21st Edition
1326
Problem 22-5B (Continued)
Part 4
ISLE CORPORATION
General and Administrative Expense Budgets
January, February, and March 2014
January
February
March
Total
Salaries .......................................................
$12,000
$12,000
$12,000
$36,000
Maintenance ...............................................
3,000
3,000
3,000
9,000
Depreciation* ..............................................
6,375
7,375
7,675
21,425
Total expenses ...........................................
$21,375
$22,375
$22,675
$66,425
* 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 ........
9,000
750
750
750
2,250
Purchased in February .......
12,000
1,000
1,000
2,000
Purchased in March ............
3,600
______
______
300
300
Total .....................................
$6,375
$7,375
$7,675
$21,425
Part 5
ISLE CORPORATION
Capital Expenditures Budgets
January, February, and March 2014
January
February
March
Equipment purchases .........................................
$72,000
$96,000
$ 28,800
Land purchase .....................................................
_______
_______
150,000
Total ................................................................
$72,000
$96,000
$178,800
Problem 22-5B (Continued)
Part 6
ISLE CORPORATION
Cash Budgets
January, February, and March 2014
January
February
March
Beginning cash balance ......................................
$ 36,000
$182,850
$ 107,850
Cash receipts from customers (note A)................
382,500
421,500
355,500
Total cash available .............................................
418,500
604,350
463,350
Cash disbursements
Payments for merchandise (note B) ...................
72,000
306,000
123,000
Sales commissions ...........................................
54,000
72,000
90,000
Sales salaries .....................................................
7,500
7,500
7,500
General & administrative salaries ....................
12,000
12,000
12,000
Maintenance expense .......................................
3,000
3,000
3,000
Interest ($15,000 x 1%) ............................................
150
Taxes payable ....................................................
90,000
Purchases of equipment ................................
72,000
96,000
28,800
Purchase of land ................................................
________
________
150,000
Total cash disbursements ................................
220,650
496,500
504,300
Preliminary cash balance ................................
$197,850
$107,850
$ (40,950)
Repayment of loan to bank ................................
(15,000)
Additional loan from bank ................................
________
________
76,950
Ending cash balance ...........................................
$182,850
$107,850
$ 36,000
Loan balance, end of month ...............................
$ 0
$ 0
$ 76,950
Supporting calculations
January
February
March
Total
Note A: Cash receipts from customers
Total sales .........................................................
$270,000
$360,000
$450,000
$1,080,000
Cash sales (25%) ..............................................
$ 67,500
$ 90,000
$112,500
$ 270,000
Credit sales (75%) ............................................
$202,500
$270,000
$337,500
$ 810,000
Cash collections
Receivables at 12/31/2013 (60%; 40%) ...........
$315,000
$210,000
$ 525,000
January credit sales (60%; 40%) ....................
121,500
$ 81,000
202,500
February credit sales (60%; 40%) ...................
_______
_______
162,000
162,000
Total from credit customers ............................
$315,000
331,500
243,000
889,500
Cash sales.........................................................
67,500
90,000
112,500
270,000
Total cash received ..........................................
$382,500
$421,500
$355,500
$1,159,500
Note B: Cash payments for merchandise
Credit purchases ..............................................
$90,000
$255,000
$292,500
$637,500
Accounts payable at 12/31/2013 (20%; 80%) .
$72,000
$288,000
$360,000
January purchases (20%; 80%) ......................
18,000
$72,000
90,000
February purchases (20%) ..............................
_______
_______
51,000
51,000
Total paid on purchases ..................................
$72,000
$306,000
$123,000
$501,000
Fundamental Accounting Principles, 21st Edition
1328
Problem 22-5B (Continued)
Part 7
ISLE CORPORATION
Budgeted Income Statement
For Three Months Ended March 31, 2014
Sales ................................................................................
$1,080,000
Cost of goods sold (24,000 units @ $30) .....................
720,000
Gross profit ....................................................................
360,000
Operating expenses
Sales commissions .....................................................
$216,000
Sales salaries ...............................................................
22,500
General administrative salaries ................................
36,000
Maintenance expense .................................................
9,000
Depreciation expense .................................................
21,425
Interest expense ..........................................................
150
305,075
Income before taxes ......................................................
54,925
Income taxes (40%) .......................................................
21,970
Net income ......................................................................
$ 32,955
Part 8
ISLE CORPORATION
Budgeted Balance Sheet
March 31, 2014
ASSETS
Cash ............................................................
$ 36,000
Cash budget
Accounts receivable ................................
445,500
Note C
Inventory .....................................................
67,500
Note D
Total current assets ................................
549,000
Equipment ..................................................
$736,800
Note E
Less accumulated depreciation ...............
88,925
647,875
Note F
Land ............................................................
150,000
Capital budget
Total assets ................................................
$1,346,875
LIABILITIES AND EQUITY
Accounts payable ......................................
$ 496,500
Note G
Bank loan payable .....................................
76,950
Cash budget
Taxes payable (due 4/15/2014) .................
21,970
Income stmt.
Total liabilities ............................................
595,420
Common stock ...........................................
$472,500
Unchanged
Retained earnings ......................................
278,955
Note H
Total stockholders’ equity ........................
751,455
Total liabilities and equity .........................
$1,346,875
Problem 22-5B (Concluded)
Supporting Footnotes
Note C
Beginning receivables ................................................................
$ 525,000
Credit sales ...................................................................................
810,000
Less collections ...........................................................................
(889,500)
Ending receivables .......................................................................
$ 445,500
Note D
Beginning inventory ................................................................
$ 150,000
Purchases .....................................................................................
637,500
Less cost of goods sold ..............................................................
(720,000)
Ending inventory* .........................................................................
$ 67,500
*Also equals 2,250 units @ $30 = $67,500
Note E
Beginning equipment ................................................................
$ 540,000
Purchased in January ................................................................
72,000
Purchased in February................................................................
96,000
Purchased in March ................................................................
28,800
Total ..............................................................................................
$ 736,800
Note F
Beginning accumulated depreciation .........................................
$ 67,500
Depreciation expense ................................................................
21,425
Total ..............................................................................................
$ 88,925
Note G
Beginning accounts payable .......................................................
$ 360,000
Purchases .....................................................................................
637,500
Payments ......................................................................................
(501,000)
Ending accounts payable ............................................................
$ 496,500
Note H
Beginning retained earnings .......................................................
$ 246,000
Net income ....................................................................................
32,955
Total ..............................................................................................
$ 278,955
Fundamental Accounting Principles, 21st Edition
1330
Problem 22-6B (30 minutes)
Part 1
NSA COMPANY
Production Budget (in units)
Second Quarter
Budgeted ending inventory (bats) ........................................................
6,000
Add budgeted sales ................................................................................
250,000
Required units of available production ................................................
256,000
Deduct beginning inventory (bats) .......................................................
(8,000)
Units to be manufactured ................................................................
248,000
Part 2
NSA COMPANY
Direct Materials Budget (in lbs, except where noted)
Second Quarter
Materials (aluminum) needed for production (248,000 x 3) ............
744,000
Add budgeted ending inventory (aluminum) ................................
12,000
Total materials (aluminum) requirements ........................................
756,000
Deduct beginning inventory (aluminum) ..........................................
(15,000)
Units of materials (aluminum) to be purchased ..............................
741,000
Materials cost per pound ................................................................
$4
Total cost of materials purchases (741,000 x $4) ............................
$2,964,000
Problem 22-6B (concluded)
Part 3
NSA COMPANY
Direct Labor Budget
Second Quarter
Units to be produced ...............................................................
248,000
Labor requirements per unit (hours) ................................
x 0.50
Total labor hours needed ........................................................
124,000
Labor rate (per hour) ...............................................................
x $18
Labor dollars ............................................................................
$2,232,000
Part 4
NSA COMPANY
Factory Overhead Budget
Second Quarter
Total labor hours needed ........................................................
124,000
Variable overhead rate per direct labor hour ........................
x $12
Budgeted variable overhead ...................................................
$1,488,000
Budgeted fixed overhead ........................................................
1,776,000
Budgeted total overhead .........................................................
$3,264,000
Fundamental Accounting Principles, 21st Edition
1332
Problem 22-7B (130 minutes)
Part 1
NABAR MANUFACTURING
Sales Budgets
July, August, and September 2013
Budgeted
Units
Budgeted
Unit Price
Budgeted
Total Dollars
July 2013 ...............................................................
21,000
$17.00
$ 357,000
August 2013 ..........................................................
19,000
17.00
323,000
September 2013 ...................................................
20,000
17.00
340,000
Total for the first quarter .....................................
60,000
$1,020,000
Part 2
NABAR MANUFACTURING
Production Budget
July, August, and September 2013
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
Add budgeted sales ...............................
21,000
19,000
20,000
Required units to be produced .............
34,300
33,000
36,800
Deduct beginning inventory .................
(16,800)
(13,300)
(14,000)
Units to be produced .............................
17,500
19,700
22,800
60,000
Problem 22-7B (continued)
Part 3
NABAR MANUFACTURING
Raw Materials Budget
July, August, and September 2013
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
Add budgeted ending inventory ...........
1,970
2,280
1,980
Total materials requirements (units) ....
10,720
12,130
13,380
Deduct beginning inventory .................
(4,375)
(1,970)
(2,280)
Materials to be purchased ....................
6,345
10,160
11,100
27,605
Material price per unit ...........................
$ 8
$ 8
$ 8
$ 8
Total cost of direct material purchases .....
$ 50,760
$ 81,280
$ 88,800
$220,840
Part 4
NABAR MANUFACTURING
Direct Labor Budget
July, August, and September 2013
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
Total labor hours needed ......................
8,750
9,850
11,400
30,000
Labor rate (per hour) .............................
$ 16
$ 16
$ 16
$ 16
Labor dollars ..........................................
$140,000
$157,600
$182,400
$480,000
Part 5
NABAR MANUFACTURING
Factory Overhead Budget
July, August, and September 2013
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
Budgeted variable overhead ...............
23,625
26,595
30,780
$ 81,000
Fixed overhead ................................
20,000
20,000
20,000
60,000
Budgeted total overhead .....................
$ 43,625
$ 46,595
$ 50,780
$141,000
*$2.70 per direct labor hour x 0.50 direct labor hours per unit
