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Fundamental Accounting Principles, 21st Edition
1334
Problem 22-7B (continued)
Part 6
NABAR MANUFACTURING
Selling Expense Budgets
July, August, and September 2013
July
August
Sept.
Total
Budgeted sales ................................
$357,000
$323,000
$340,000
Sales commission percent ..................
x 10%
x 10%
x 10%
Sales commissions expense ...............
35,700
32,300
34,000
$102,000
Sales salaries........................................
3,500
3,500
3,500
10,500
Total selling expenses .........................
$ 39,200
$ 35,800
$ 37,500
$112,500
Part 7
NABAR MANUFACTURING
General and Administrative Expense Budgets
July, August, and September 2013
July
August
Sept.
Total
Salaries .......................................................
$ 9,000
$ 9,000
$ 9,000
$27,000
Interest on long-term note ........................
2,700
2,700
2,700
8,100
Total expenses ...........................................
$11,700
$11,700
$11,700
$35,100
Problem 22-7B (Continued)
Part 8
NABAR MANUFACTURING
Cash Budgets
July, August, and September 2013
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
Payments for raw materials (note B) ..................
51,400
50,760
81,280
Payments for direct labor ................................
Payments for variable overhead ......................
Sales commissions ...........................................
140,000
23,625
35,700
157,600
26,595
32,300
182,400
30,780
34,000
Sales salaries .....................................................
3,500
3,500
3,500
General & administrative salaries ....................
9,000
9,000
9,000
Income taxes ......................................................
Dividends ...........................................................
10,000
20,000
Loan interest ($24,000 x 1%) ................................
240
Long-term note interest ($300,000 x .0.9%) ............
Purchase of equipment .....................................
2,700
_______
2,700
_______
2,700
100,000
Total cash disbursements ................................
276,165
302,455
443,660
Preliminary cash balance ................................
120,835
141,180
25,620
Additional loan .....................................................
Repayment of loan to bank ................................
(24,000)
_______
14,380
________
Ending cash balance ...........................................
$ 96,835
$141,180
$ 40,000
Loan balance, end of month ...............................
$ 0
$ 0
$ 14,380
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
Credit sales (70%) ............................................
249,900
226,100
238,000
714,000
Cash collections
Month after sale (100%) ................................
$249,900
$249,900
$226,100
$ 725,900
Cash sales.........................................................
107,100
96,900
102,000
306,000
Total cash received ..........................................
$357,000
$346,800
$328,100
$1,031,900
Fundamental Accounting Principles, 21st Edition
1336
Problem 22-7B (Continued)
Part 9
NABAR MANUFACTURING
Budgeted Income Statement
For Three Months Ended September 30, 2013
Sales ................................................................................
$1,020,000
Cost of goods sold (60,000 units @ $14.35) ................
861,000
Gross profit ....................................................................
159,000
Operating expenses
Sales commissions .....................................................
$102,000
Sales salaries ...............................................................
10,500
General administrative salaries ................................
27,000
Long-term note interest ..............................................
8,100
Interest expense ..........................................................
240
147,840
Income before taxes ......................................................
11,160
Income taxes (35%) .......................................................
3,906
Net income ......................................................................
$ 7,254
Part — Budgeted Retained Earnings & Budgeted Balance Sheet
NABAR MANUFACTURING
Budgeted Balance Sheet
September 30, 2013
ASSETS
Cash ............................................................
$ 40,000
Cash budget
Accounts receivable ................................
238,000
Note C
Raw materials inventory ...........................
Finished goods inventory .........................
15,840
241,080
Note D
Note E
Total current assets ................................
534,920
Equipment ..................................................
$820,000
Note F
Less accumulated depreciation ...............
300,000
520,000
Note G
Total assets ................................................
$1,054,920
LIABILITIES AND EQUITY
Accounts payable ......................................
$ 88,800
Note H
Bank loan payable .....................................
14,380
Cash budget
Taxes payable ............................................
3,906
Income stmt.
Total current liabilities ..............................
107,086
Long-term note payable ............................
Common stock ...........................................
$600,000
300,000
Unchanged
Retained earnings ......................................
47,834
Note I
Total stockholders’ equity ........................
647,834
Total liabilities and equity .........................
$1,054,920
Problem 22-7B (Concluded)
Supporting Footnotes
Note C
Beginning receivables ......................................................
$ 249,900
Credit sales ........................................................................
714,000
Less collections ................................................................
(725,900)
Ending receivables ............................................................
$ 238,000
Note D
Beginning raw materials inventory ................................
$ 35,000
Purchases of raw materials ..............................................
220,840
Less materials used in production** ................................
(240,000)
Ending inventory raw materials inventory* .....................
$ 15,840
*Also equals 1,980 units @ $8 = $15,840
**30,000 units x $8 per unit
Note E
Beginning finished goods inventory ................................
$ 241,080
Cost of goods completed during the period ...................
861,000
Less cost of goods sold during the period .....................
(861,000)
Ending inventory raw materials inventory* .....................
$ 241,080
*Also equals 16,800 units @ $14.35 = $241,080
Note F
Beginning equipment ........................................................
$ 720,000
Purchased in September ..................................................
100,000
Total ...................................................................................
$ 820,000
Note G
Beginning accumulated depreciation ..............................
$ 240,000
Depreciation expense .......................................................
60,000
Total ...................................................................................
$ 300,000
Note H
Beginning accounts payable ............................................
$ 51,400
Purchases of raw materials ..............................................
220,840
Payments for raw materials ..............................................
(183,440)
Ending accounts payable .................................................
$ 88,800
Note I
NABAR MANUFACTURING
Budgeted Statement of Retained Earnings
For Three Months Ended September 30, 2013
Retained earnings, Beginning ......................... $60,580
Add: Net income ......................................... 7,254
Fundamental Accounting Principles, 21st Edition
1338
Serial Problem — SP 22
Serial Problem, Success Systems (50 minutes)
Part 1
SUCCESS SYSTEMS
Budgeted Income Statements
For Months of April, May, and June
April
May
June
Sales* .........................................................
$69,600
$75,550
$81,500
Cost of goods sold**................................
54,000
57,750
61,500
Gross profit ...............................................
15,600
17,800
20,000
Expenses
Sales commissions (10%) ......................
6,960
7,555
8,150
Advertising ($3,000 x 1.10) ....................
3,300
3,300
3,300
Other fixed expenses .............................
6,000
6,000
6,000
Total expenses ..........................................
16,260
16,855
17,450
Net income .................................................
$ (660)
$ 945
$ 2,550
*Results from per month volume increases for the next 3 months
Desks
Units
Sales (@ $1,150)
Variable Cost of Sales (@ $750)
April ................................
48
$55,200
$36,000
May ................................
52
59,800
39,000
June ................................
56
64,400
42,000
Chairs
Units
Sales (@ $450)
Variable Cost of Sales (@ $250)
April ................................
32
$14,400
$8,000
May ................................
35
15,750
8,750
June ................................
38
17,100
9,500
Total Desk & Chairs
Sales
Variable Cost of Sales
April ................................
$69,600 = $55,200 + $14,400
$44,000 = $36,000 + $8,000
May ................................
$75,550 = $59,800 + $15,750
$47,750 = $39,000 + $8,750
June ................................
$81,500 = $64,400 + $17,100
$51,500 = $42,000 + $9,500
**Total Cost of Sales
Variable
Fixed
Total Cost of Sales
April ................................
$44,000
$10,000
$54,000
May ................................................................
47,750
10,000
57,750
June
51,500
10,000
61,500
Serial Problem, Success Systems (Concluded)
Part 2
The plan for increasing sales volume by reducing the price and increasing
advertising would cause the company to generate a loss in the first month
of the next quarter. This result is not encouraging. However, the company
Reporting in Action — BTN 22-1
1. Polaris’s statement of cash flows would report cash paid for
2. a. Cash paid for acquisitions of property and equipment and reported
b. Given the assumption—that Polaris’s annual cash payments for
Fundamental Accounting Principles, 21st Edition
1340
Comparative Analysis — BTN 22-2
1. Computation of inventory reduction under new distribution system
Amount of ending inventory required at the 30% rule
[$1,000,000 x (1- 0.20) x 0.30] .................................................. $240,000
2. An analysis such as in part 1 along with an explanation can make clear
to management the cost of funds necessary to support ending
inventory levels. Unless this type of information and analysis are
prepared, it is unlikely management will dedicate valuable time and
Ethics Challenge — BTN 22-3
Report on “Use It or Lose It” Budgeting
Instructor note: There is no widely accepted solution to this problem. The key is for the student to
think about the problem and work to at least modify the negative behavioral consequences of this
practice.
Any plan offered as a solution must better align upper management’s
expectations with department managers’ behavior. For example, upper
Fundamental Accounting Principles, 21st Edition
1342
Communicating in Practice — BTN 22-4
MEMORANDUM
TO: ____________________
FROM: ____________________
DATE: ____________________
SUBJECT: ____________________
The content of this memorandum will vary among students. The student
must emphasize the need to know the compensation structure of the sales
staff to understand any potential bias in the information provided to the
budget process.
Taking It to the Net — BTN 22-5
1. The “e-budgets” Website lists a number of benefits such as accuracy, timeliness, ease of
sharing information, ease of updating, real-time comparison of actual performance vs.
estimates, and so on.
In the case of large, multi-divisional companies, coordination across
and within divisions is extremely important, so that plans across the
2. As a senior manager, my biggest concern would be security, particularly
when the system is easily accessible and usable. It would be important
Teamwork in Action — BTN 22-6
There is no specific solution to this assignment. The instructor should
watch for proper development and identification of all reasonable costs.
Specifically, one should review the (1) items included in the budget, (2)
Entrepreneurial Decision — BTN 22-7
1. Budgeting allows an organization to plan its activities better by
2. Sales forecasts and purchases budgets are particularly important in
businesses like Freshii that sell perishable items (food) and that try to
Fundamental Accounting Principles, 21st Edition
1344
Hitting the Road — BTN 22-8
Instructor note: This problem is designed to (1) show that external factors are important
in determining price and volume and (2) develop awareness of external factors when
preparing a sales budget.
1. & 2.
The types of external factors identified by the student for consideration in
part (1), or selected as an explanatory factor for part (2), might include the
following:
• Location, such as near a convenient or busy traffic area.
Global Decision — BTN 22-9
1. The infrastructure and administration expense budget is likely to be an
important budget in the master budgeting process at KTM. In 2011,
component of the master budget each year.
2. General office expenses
3. The initial responsibility usually rests with a vice president or an
