30 Minutes, Strong PROBLEM 23.5B
SYNDER’S
a. Budgeted income statement:
Budgeted sales 100,000$
Cost of goods sold (60% of sales) 60,000
Gross profit (40% of sales) 40,000$
Income taxes (25%) 5,500
Budgeted net income 16,500$
b. Cash budget:
Beginning cash, May 1 30,000$
Add: Collections on March sales (10% × $90,000) 9,000
Variable selling & administrative costs
(5% × $100,000 sales) 5,000
Fixed selling & administrative costs
($10,000 – $3,000) 7,000
Debt service payments 4,000
for production.
* Ensures the cooperation of different departments within
a company to meet the expected production levels.
For example, the HR department must provide an
adequate number of employees to produce the expected
finished good.
60 Minutes, Strong PROBLEM 23.6B
HOFFMAN INDUSTRIES
a.
July August September
Supporting Schedules
Schedule 1—Estimated Cash Collections
on Receivables
Receivables outstanding at June 30 160,000$ 40,000$
July sales—75% × $340,000 255,000
24% × $340,000 81,600$
August sales—75% × $360,000 270,000
*Cost of goods sold for October, 65% ×
$220,000, or $143,000.
Schedule 3—Estimated Cash Payments
for Operating Expenses
PROBLEM 23.6B
HOFFMAN INDUSTRIES (concluded)
July August September
Schedule 4—Estimated Cash Payments
on Accounts Payable (Including
Operating Expenses)
Accounts payable balance on June 30
b. HOFFMAN INDUSTRIES
Cash Budget
For Third Quarter of Current Year
July August September
Cash balance at beginning of month 18,000$ 233,000$ 84,000$
Receipts:
Disbursements:
Purchase of equipment 25,000$
It is apparent from the three-month budget that Hoffman will not be able to pay the bank
50 Minutes, Medium PROBLEM 23.7B
EIGHT FLAGS
a. EIGHT FLAGS
Comparison of Budgeted and Actual Revenue and Expenses
For the Year Ended December 31, 20__
Flexible Over (or
Budget Actual Under) Budget
Net sales 18,000,000$ 18,000,000$ 0$
Cost of goods sold 11,700,000 11,160,000 (540,000)
Gross profit on sales 6,300,000$ 6,840,000$ 540,000$
b.
Comment on performance:
Operating income was better than budgeted by $2,360,000. This result may be attributed to
two factors: (1) a better-than-budgeted merchandise purchasing performance; (2) hugely
smaller expenditures than budgeted for selling and promotion expenses, buying expenses and
administrative expenses; (3) in addition, other expenses, such as delivery and building
45 Minutes, Medium PROBLEM 23.8B
XL INDUSTRIES
a.
X
L INDUSTRIES
Performance Report fo
r
Widget Production Dept.
For the Year Ended December 31st
Bud
g
eted Costs
A
ctual Ove
r
for 5,000 Units Costs
(
or Under
)
Per Unit Total Incurred Bud
g
e
t
Variable manufacturin
g
costs:
Direct materials 25.00$ 125,000$ 120,000$
(
5,000
)
$
Direct labo
r
50.00 250,000 210,000
(
40,000
)
Indirect labo
r
12.00 60,000 50,000
(
10,000
)
(
)
(
)
b.
r
pp
The revised performance report above shows that although actual costs exceeded the
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SOLUTIONS TO CRITICAL THINKING CASE
S
We discuss this case in class and call upon specific students to explain various amounts in
their budgeted balance sheets and cash budgets. The students’ assumptions should support
these budgeted amounts.
CASE 23.1
BUDGETING IN A NUTSHELL
30 Minutes, Medium
Amounts of cash sales and credit sales
Collections of accounts receivable
Purchases of inventory [This must exceed $10 (thousand) just to cover the cost of goods
sold.]
Payments on accounts payable
The value of this relatively unstructured problem lies in working it, not in the solution. We
find that it does much to refresh the students’ understanding of both accrual accounting and
cash flows.
Students should state clearly their assumptions concerning:
The amounts appearing in the budgeted statements will vary, depending upon the assumed
amounts. In all cases, however, the budgeted balance sheet should include cash of $50 and
owners’ equity of $195. The cash budget should reflect a net increase of $10 . (Amounts in
thousands)
Cash paid for expenses (There is no depreciation, so this may equal the amount shown in
the income statement).
CASE 23.2
a.
AN ETHICAL DILEMMA
20 Minutes, Medium
The primary purpose of a review (or an audit) by an independent CPA is to provide people
outside of the organization with an independent expert opinion on the fairness of the
presentation. If Gamm believes the receivable from Rembrant should be written off, he
should insist that it is—or make clear his reservations in his report. Beta’s budget of future
operating results has virtually nothing to do with the collectibility of this receivable.
CASE 23.3
a.
CASH BUDGETING
20 Minutes, Medium
Student answers will vary. However, suggestions will likely be based on discussions in the
chapter like: speed up collection of receivables, increase inventory turnover, manage debt
financing more astutely, for example match the length of the loan with the depreciation of
the assets, look for methods to reduce the taxes, review costs for telecommunications,
CASE 23.
4
a.
•
20 Minutes, Medium
The following features of the budgeting software are identified.
BUDGETING SHAREWARE
Prints Statement of Income and Expense—monthly and year to date with the percent of
budgeted amount, and actual through the selected month, budgeted, and variance, in an
annualized format.
CASE 23.5
a.
BUDGETING AND INTERNAL CONTROLS
30 Minutes, Medium
Exhibit 23-2 suggests that a material overstatement of sales will result in planned over-
production and higher budgeted selling and administrative expenses than would be
appropriate. Budgeted cost of goods manufactured and sold will be overstated. In addition,