Exercise 20–30 (continued)
CASTOR, INC.
Cash Receipts Budget
For April, May, and June
April
May
June
Sales …………………………………………………..…
$32,000
$40,000
$24,000
Less ending accts. receivable (50%) ………
16,000
20,000
12,000
Cash receipts from
Cash sales (50% of sales) …………………..…
16,000
20,000
12,000
Collections of prior month’s receivables ……
12,000
16,000
20,000
Total cash receipts …………………………….…
$28,000
$36,000
$32,000
Exercise 20–31 (30 minutes)
(1)
KELSEY
Cash Receipts Budget
For July, August, and September
July
August
Sept.
Sales …………………………………………………..…
$64,000
$80,000
$48,000
Less ending accts. receivable (80%) ………
51,200
64,000
38,400
Cash receipts from
Cash sales (20% of sales) …………………..…
12,800
16,000
9,600
Collections of prior month’s receivables ……
45,000
51,200
64,000
Total cash receipts …………………………….…
$57,800
$67,200
$73,600
Exercise 20–31 (continued)
(2)
July
August
Sept.
Beginning cash balance* …………………….…
$15,000
$15,000
$25,504
Cash receipts (from part 1) ………………….…
57,800
67,200
73,600
Total cash available ………………………………
72,800
82,200
99,104
Cash disbursements
Payments for merchandise ………………….…
40,400
33,600
34,400
Sales commissions (10% of sales) …………
6,400
8,000
4,800
Office salaries …………………………………….…
Rent ………………………………………………………
Interest on bank loan**
July (5,000 x 1%) …………………………………
August ($4,550 x 1%) ………………………..…
Preliminary cash balance ………………………
4,000
6,500
50
_______
$15,450
4,000
6,500
46
$30,054
4,000
6,500
_______
$49,404
Additional loan from bank………………………
Repayment of loan to bank ………………….…
450
4,550
______
Ending cash balance …………………………..
$15,000
$25,504
$49,404
Loan balance, end of month ………………..…
$ 4,550
$ 0
$ 0
*July’s beginning cash balance includes a loan payable of $5,000.
** Rounded to the nearest dollar. Answers vary slightly if rounded to the nearest cent.
Exercise 20–32 (15 minutes)
ZETROV COMPANY
Budgeted Balance Sheet
As of March 31
ASSETS
Cash ………………………………………………………………….….
$ 50,000
Accounts receivable ($140,000 x 70%) …………………….….
98,000
Merchandise inventory (600 units x $35) ………………..….
21,000
Total current assets ……………………………………………….
169,000
Equipment …………………………………………………………….
$84,000
Less accumulated depreciation (note 1) ………………….
47,000
37,000
Total assets ……………………………………………………….
$206,000
LIABILITIES AND EQUITY
Liabilities
Accounts payable ……………………………………………….
$89,000
Income taxes payable ………………………………………….
26,000
Bank loan payable ……………………………………………….
10,000
125,000
Stockholders’ equity
Common stock …………………………………………………….
25,000
Retained earnings (note 2) …………………………..……….
56,000
81,000
Total liabilities and equity …………………………………..….
$206,000
Supporting calculations
(1) Accumulated depreciation
Beginning ……………………………………………………….
$46,000
Depreciation expense …………………..………
1,000
Ending…………………………..…………….…………….
$47,000
(2) Retained earnings
Beginning ……………………………………………………….
$ 8,000
Net income…………………………………..…………………..
48,000
Ending…………………………..…………….…………….
$56,000
Exercise 20–33 (15 minutes)
FORTUNE, INC.
Budgeted Income Statement
For Quarter Ended March 31
Sales (note 1) …………………………………………………………...
$3,750,000
Cost of goods sold (note 2) ……………………………………...
2,100,000
Gross profit …………………………………………………………...
1,650,000
Operating expenses
Commissions expense (8% of sales) ………………………..
$300,000
Rent expense ($14,000 x 3) ……………………………………...
42,000
Advertising expense (15% of sales) ………………………....
562,500
Office salaries expense ($75,000 x 3) ……………………....
225,000
Depreciation expense ($40,000 x 3) ………………………....
120,000
Interest expense ($250,000 x 15% x 3/12) …………………....
Total operating expenses ……………………………………..
9,375
1,258,875
Income before income taxes…………………………………...
391,125
Income tax expense (note 3) ……………………………………..
117,338
Net income …………………………..………………………………...
$ 273,787
Supporting calculations
(1) Sales
Unit sales (45,000 + 55,000 + 50,000) ………....
150,000
Unit price ………………………………………………...
$25
Sales dollars …………………………………………....
$3,750,000
(2) Cost of goods sold
Unit sales (45,000 + 55,000 + 50,000) ………....
150,000
Unit cost…………………………………………………..
$14
Cost of goods sold dollars ………………………..
$2,100,000
(3) Income tax expense
Pre-tax income ………………………………………...
$ 391,125
Tax rate …………………………………………………...
30%
Income tax expense ………………………………....
$ 117,338*
* Rounded to the nearest dollar.
Exercise 20-34 (15 minutes)
RENDER CO. CPA
Activity-Based Budget
For Year Ending December 31, 2015
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
Problem 20-1A (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
Problem 20-1A (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 20-2A (30 minutes)
(1)
BUILT-TIGHT
Cash Receipts Budget
For July, August, and September
July
August
Sept.
Sales …………………………………………………..…
$64,000
$80,000
$48,000
Less ending accts. receivable (80%) ………
51,200
64,000
38,400
Cash receipts from
Cash sales (20% of sales) …………………..…
12,800
16,000
9,600
Collections of prior month’s receivables ……
45,000
51,200
64,000
Total cash receipts …………………………….…
$57,800
$67,200
$73,600
Problem 20-2A (continued)
(2)
July
August
Sept.
Beginning cash balance* …………………….…
$15,000
$15,000
$25,504
Cash receipts (from part 1) ………………….…
57,800
67,200
73,600
Total cash available ………………………………
72,800
82,200
99,104
Cash disbursements
Payments for direct materials ……………..…
16,160
13,440
13,760
Payments for direct labor…………………….…
4,040
3,360
3,440
Payments for overhead ……………………….…
20,200
16,800
17,200
Sales commissions (10% of sales) …………
6,400
8,000
4,800
Office salaries …………………………………….…
Rent ………………………………………………………
Interest on bank loan**
July (5,000 x 1%) …………………………………
August ($4,550 x 1%) ………………………..…
Preliminary cash balance ………………………
4,000
6,500
50
_______
$15,450
4,000
6,500
46
$30,054
4,000
6,500
_______
$49,404
Additional loan from bank………………………
Repayment of loan to bank ………………….…
450
4,550
______
Ending cash balance …………………………..
$15,000
$25,504
$49,404
Loan balance, end of month ………………..…
$ 4,550
$ 0
$ 0
*July’s beginning cash balance includes a loan payable of $5,000.
** Rounded to the nearest dollar. Answers vary slightly if rounded to the nearest cent.
Problem 20-3A (50 minutes)
Part 1
MERLINE MANUFACTURING
Budgeted Income Statement
For Months of January, February, and March, 2016
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-Office equipment ……..…
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
encouraging. However, the rate of increase in earnings over the three months is
substantial. If the growth rate for sales can be maintained without increasing
commissions or other expenses, a large payoff would be earned by making the
changes and riding out the short-run period of relatively lower profits. This is a
common problem for management when introducing a new strategy, product, or
service to the market.