Problem 20-2B (continued)
(2)
A1 MANUFACTURING
Cash Budget
For July, August, and September
July
August
Sept.
Beginning cash balance* …………………….…
$12,900
$24,371
Cash receipts (from part 1) ………………….…
59,680
74,200
Total cash available ………………………………
72,580
79,440
98,571
Cash disbursements
Payments for direct materials ……………..…
12,480
9,900
10,140
Payments for direct labor…………………….…
10,400
8,250
8,450
Payments for overhead ……………………….…
18,720
14,850
15,210
Sales commissions (10% of sales) …………
6,340
8,060
4,860
Office salaries …………………………………….…
Rent ………………………………………………………
Interest on bank loan**
July ($2,600 x 1%) …………………………….…
August ($2,286 x 1%) ………………………..…
Preliminary cash balance ………………………
4,600
7,100
26
_______
$12,914
4,600
7,100
23
$26,657
4,600
7,100
_______
$48,211
Additional loan from bank………………………
Repayment of loan to bank ………………….…
314
2,286
______
Ending cash balance …………………………..
$12,600
$24,371
$48,211
Loan balance, end of month ………………..…
$ 2,286
$ 0
*July’s beginning cash balance includes a loan payable of $2,600.
** Rounded to the nearest dollar. Answers vary slightly if rounded to the nearest cent.
Problem 20-3B (50 minutes)
Part 1
HCS MFG.
Budgeted Income Statement
For Months of July, August, and September, 2015
July
August
September
Sales* …………………………………………….…..
$1,265,000
$1,391,500
$1,530,650
Cost of goods sold* ………………………..…
660,000
798,600
Gross profit ………………………………………..
605,000
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-Office equipment ……..…..
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
for the first three months are not encouraging. However, the September net
income is 83% of that for June, and 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 might 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.
Problem 20-4B (130 minutes)
Part 1
NABAR MANUFACTURING
Sales Budgets
July, August, and September 2015
Budgeted
Units
Budgeted
Unit Price
Budgeted
Total Dollars
July 2015 …………………………………………………..….
21,000
$17.00
$ 357,000
August 2015 ………………………………………………….
19,000
17.00
323,000
September 2015 ………………………………………..….
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 2015
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 20-4B (continued)
Part 3
NABAR MANUFACTURING
Raw Materials Budget
July, August, and September 2015
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 raw material purchases ...
$ 50,760
$ 81,280
$ 88,800
$220,840
Part 4
NABAR MANUFACTURING
Direct Labor Budget
July, August, and September 2015
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
July, August, and September 2015
Budgeted production (units)……….……
Budgeted variable overhead ……….……
Fixed overhead …………………………..
Problem 20-4B (continued)
Part 6
NABAR MANUFACTURING
Selling Expense Budgets
July, August, and September 2015
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 2015
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 20-4B (Continued)
Part 8
NABAR MANUFACTURING
Cash Budgets
July, August, and September 2015
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
Note B: Cash payments for raw materials
Month after purchase (100%) ………………..….
$ 51,400
$ 50,760
$ 81,280
$ 183,440
Problem 20-4B (Continued)
Part 9
NABAR MANUFACTURING
Budgeted Income Statement
For Three Months Ended September 30, 2015
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 10
NABAR MANUFACTURING
Budgeted Balance Sheet
September 30, 2015
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
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 20-4B (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
Retained earnings, beginning ……………………. $60,580
Problem 20-5B (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
Problem 20-5B (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.
For example, 40,000 units of water skis are in April’s beginning inventory;
however, April sales are budgeted at only 70,000 units. Accordingly,