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Exercise 7-13 (30 minutes)
1. Schedule of expected cash collections:
Month
July
August
September
Quarter
From accounts receivable .
$136,000
$136,000
From July sales:
45% × 210,000 ............
94,500
94,500
55% × 210,000 ............
$115,500
115,500
From August sales:
45% × 230,000 ............
103,500
103,500
55% × 230,000 ............
$126,500
126,500
From September sales:
45% × 220,000 ............
99,000
99,000
Total cash collections .......
$230,500
$219,000
$225,500
$675,000
2. a. Merchandise purchases budget:
July
August
Sept.
Total
Budgeted cost of goods sold ....
$126,000
$138,000
$132,000
$396,000
Add desired ending
merchandise inventory* ........
27,600
26,400
28,800
28,800
Total needs .............................
153,600
164,400
160,800
424,800
Less beginning merchandise
inventory ..............................
62,000
27,600
26,400
62,000
Required purchases .................
$ 91,600
$136,800
$134,400
$362,800
Exercise 7-13 (continued)
3.
Beech Corporation
Income Statement
For the Quarter Ended September 30
Sales ($210,000 + $230,000 + $220,000) ..
$660,000
Cost of goods sold (Part 2a) .....................
396,000
Gross margin ............................................
264,000
Selling and administrative expenses
($60,000 × 3 months) ...........................
180,000
Net operating income................................
84,000
Interest expense ......................................
0
Net income ..............................................
$ 84,000
4.
Beech Corporation
Balance Sheet
September 30
Assets
Cash ($90,000 + $675,000 – $339,820 – ($55,000 ×
3)) .....................................................................
$260,180
Accounts receivable ($220,000 × 55%) .....................
121,000
Inventory (Part 2a) ...................................................
28,800
Plant and equipment, net ($210,000 – ($5,000 ×3)) ...
195,000
Total assets ..............................................................
$604,980
Exercise 7-14 (30 minutes)
1.
Jessi Corporation
Sales Budget
1st
Quarter
2nd
Quarter
3rd
Quarter
4th
Quarter
Year
Budgeted unit sales .................
11,000
12,000
14,000
13,000
50,000
Selling price per unit ................
× $18.00
× $18.00
× $18.00
× $18.00
× $18.00
Total sales ..............................
$198,000
$216,000
$252,000
$234,000
$900,000
Schedule of Expected Cash Collections
Beginning accounts receivable .
$ 70,200
$ 70,200
1st Quarter sales ......................
128,700
$ 59,400
188,100
2nd Quarter sales .....................
140,400
$ 64,800
205,200
3rd Quarter sales .....................
163,800
$ 75,600
239,400
4th Quarter sales ......................
152,100
152,100
Total cash collections ...............
$198,900
$199,800
$228,600
$227,700
$855,000
Exercise 7-14 (continued)
2.
Jessi Corporation
Production Budget
1st
Quarter
2nd
Quarter
3rd
Quarter
4th
Quarter
Year
Budgeted unit sales .................
11,000
12,000
14,000
13,000
50,000
Add desired units of ending
finished goods inventory .......
1,800
2,100
1,950
1,850
1,850
Total needs .............................
12,800
14,100
15,950
14,850
51,850
Less units of beginning
finished goods inventory .......
1,650
1,800
2,100
1,950
1,650
Required production in units ....
11,150
12,300
13,850
12,900
50,200
Exercise 7-15 (20 minutes)
1.
Hruska Corporation
Direct Labor Budget
1st Quarter
2nd Quarter
3rd Quarter
4th Quarter
Year
Required production in units ........
12,000
10,000
13,000
14,000
49,000
Direct labor time per unit (hours) .
0.2
0.2
0.2
0.2
0.2
Total direct labor-hours needed....
2,400
2,000
2,600
2,800
9,800
Direct labor cost per hour ............
$12.00
$12.00
$12.00
$12.00
$12.00
Total direct labor cost ..................
$28,800
$24,000
$31,200
$33,600
$117,600
2.
Hruska Corporation
Manufacturing Overhead Budget
1st Quarter
2nd Quarter
3rd Quarter
4th Quarter
Year
Budgeted direct labor-hours .........
2,400
2,000
2,600
2,800
9,800
Variable manufacturing overhead
rate .........................................
$1.75
$1.75
$1.75
$1.75
$1.75
Variable manufacturing overhead .
$ 4,200
$ 3,500
$ 4,550
$ 4,900
$ 17,150
Fixed manufacturing overhead .....
86,000
86,000
86,000
86,000
344,000
Total manufacturing overhead .....
90,200
89,500
90,550
90,900
361,150
Less depreciation ........................
23,000
23,000
23,000
23,000
92,000
Cash disbursements for
manufacturing overhead ...........
$67,200
$66,500
$67,550
$67,900
$269,150
Exercise 7-16 (30 minutes)
1.
Zan Corporation
Direct Materials Budget
1st
Quarter
2nd
Quarter
3rd
Quarter
4th
Quarter
Year
Required production in units of
finished goods ..................................
5,000
8,000
7,000
6,000
26,000
Units of raw materials needed per unit
of finished goods ..............................
× 8
× 8
× 8
× 8
× 8
Units of raw materials needed to meet
production ........................................
40,000
64,000
56,000
48,000
208,000
Add desired units of ending raw
materials inventory ...........................
16,000
14,000
12,000
8,000
8,000
Total units of raw materials needed ......
56,000
78,000
68,000
56,000
216,000
Less units of beginning raw materials
inventory ..........................................
6,000
16,000
14,000
12,000
6,000
Units of raw materials to be
purchased ........................................
50,000
62,000
54,000
44,000
210,000
Unit cost of raw materials ....................
× $1.20
× $1.20
× $1.20
× $1.20
× $1.20
Cost of raw materials to be
purchased ........................................
$60,000
$74,400
$64,800
$52,800
$252,000
Exercise 7-16 (continued)
Schedule of Expected Cash Disbursements for Materials
Beginning accounts payable .........
$ 2,880
$ 2,880
1st Quarter purchases .................
36,000
$24,000
60,000
2nd Quarter purchases ................
44,640
$29,760
74,400
3rd Quarter purchases .................
38,880
$25,920
64,800
4th Quarter purchases .................
31,680
31,680
Total cash disbursements for
materials ..................................
$38,880
$68,640
$68,640
$57,600
$233,760
2.
Zan Corporation
Direct Labor Budget
1st Quarter
2nd Quarter
3rd Quarter
4th Quarter
Year
Required production in units ........
5,000
8,000
7,000
6,000
26,000
Direct labor-hours per unit ...........
× 0.20
× 0.20
× 0.20
× 0.20
× 0.20
Total direct labor-hours needed....
1,000
1,600
1,400
1,200
5,200
Direct labor cost per hour ............
× $11.50
× $11.50
× $11.50
× $11.50
× $11.50
Total direct labor cost ..................
$ 11,500
$ 18,400
$ 16,100
$ 13,800
$ 59,800
Problem 7-17A (45 minutes)
1. Schedule of cash receipts:
Cash sales—May ................................................
$ 60,000
Collections on account receivable:
April 30 balance ..............................................
54,000
May sales (50% × $140,000) ..........................
70,000
Total cash receipts .............................................
$184,000
Schedule of cash payments for purchases:
April 30 accounts payable balance ......................
$ 63,000
May purchases (40% × $120,000) .....................
48,000
Total cash payments ..........................................
$111,000
Problem 7-17A (continued)
2.
Minden Company
Budgeted Income Statement
For the Month of May
Sales .......................................................
$200,000
Cost of goods sold:
Beginning inventory ...............................
$ 30,000
Add purchases .......................................
120,000
Goods available for sale ..........................
150,000
Ending inventory ....................................
40,000
Cost of goods sold ....................................
110,000
Gross margin ............................................
90,000
Selling and administrative expenses
($72,000 + $2,000) ...............................
74,000
Net operating income ...............................
16,000
Interest expense ......................................
100
Net income ..............................................
$ 15,900
3.
Minden Company
Budgeted Balance Sheet
May 31
Assets
Cash .........................................................................
$ 8,900
Accounts receivable (50% × $140,000) ......................
70,000
Inventory ..................................................................
40,000
Buildings and equipment, net of depreciation
($207,000 + $6,500 – $2,000) .................................
211,500
Total assets ...............................................................
$330,400
Liabilities and Stockholders’ Equity
Accounts payable (60% × 120,000) ............................
$ 72,000
Note payable .............................................................
20,000
Common stock ..........................................................
180,000
Retained earnings ($42,500 + $15,900) ......................
58,400
Total liabilities and stockholders’ equity .......................
$330,400
Problem 7-18A (45 minutes)
1. Schedule of cash receipts:
Cash sales—May ................................................
$ 60,000
Collections on account receivable:
April 30 balance ..............................................
54,000
May sales (60% × $160,000) ..........................
96,000
Total cash receipts .............................................
$210,000
Schedule of cash payments for purchases:
April 30 accounts payable balance ......................
$ 63,000
May purchases (50% × $120,000) .....................
60,000
Total cash payments ..........................................
$123,000
Problem 7-18A (continued)
2.
Minden Company
Budgeted Income Statement
For the Month of May
Sales .......................................................
$220,000
Cost of goods sold:
Beginning inventory ...............................
$ 30,000
Add purchases .......................................
120,000
Goods available for sale ..........................
150,000
Ending inventory ....................................
40,000
Cost of goods sold ....................................
110,000
Gross margin ............................................
110,000
Selling and administrative expenses
($72,000 + $2,000) ...............................
74,000
Net operating income ...............................
36,000
Interest expense ......................................
100
Net income ..............................................
$ 35,900
3.
Minden Company
Budgeted Balance Sheet
May 31
Assets
Cash .........................................................................
$ 22,900
Accounts receivable (40% × $160,000) ......................
64,000
Inventory ..................................................................
40,000
Buildings and equipment, net of depreciation
($207,000 + $6,500 – $2,000) .................................
211,500
Total assets ...............................................................
$338,400
Liabilities and Stockholders’ Equity
Accounts payable (50% × 120,000) ............................
$ 60,000
Note payable .............................................................
20,000
Capital stock .............................................................
180,000
Retained earnings ($42,500 + $35,900) ......................
78,400
Total liabilities and stockholders’ equity .......................
$338,400
Problem 7-19A (30 minutes)
1.
December cash sales ..................................
$ 83,000
Collections on account:
October sales: $400,000 × 18% ...............
72,000
November sales: $525,000 × 60% ............
315,000
December sales: $600,000 × 20% ............
120,000
Total cash collections ...............................
$590,000
2.
Payments to suppliers:
November purchases (accounts payable) ...
$161,000
December purchases: $280,000 × 30% ....
84,000
Total cash payments ................................
$245,000
3.
Ashton Company
Cash Budget
For the Month of December
Beginning cash balance ...................................
$ 40,000
Add collections from customers ........................
590,000
Total cash available ..........................................
630,000
Less cash disbursements:
Payments to suppliers for inventory ...............
$245,000
Selling and administrative expenses* .............
380,000
New web server ............................................
76,000
Dividends paid ..............................................
9,000
Total cash disbursements .................................
710,000
Excess (deficiency) of cash available over
disbursements ..............................................
(80,000)
Financing:
Borrowings ...................................................
100,000
Repayments .................................................
0
Interest ........................................................
0
Total financing .................................................
100,000
Ending cash balance ........................................
$ 20,000
Problem 7-20A (30 minutes)
1. The budget at Springfield is an imposed “top-down” budget that fails to
consider both the need for realistic data and the human interaction
essential to an effective budgeting/control process. The President has
not given any basis for his goals, so one cannot know whether they are
2. Springfield should consider adopting a “bottom-up” budget process. This
means that the people responsible for performance under the budget
would participate in the decisions by which the budget is established. In
addition, this approach requires initial and continuing involvement of
Problem 7-20A (continued)
3. The functional areas should not necessarily be expected to cut costs
when sales volume falls below budget. The time frame of the budget
(one year) is short enough so that many costs are relatively fixed. For
costs that are fixed, there is little hope for a reduction as a consequence
Problem 7-21A (45 minutes)
1. Schedule of expected cash collections:
Month
April
May
June
Quarter
From accounts receivable .
$120,000
$ 16,000
$136,000
From April sales:
30% × $300,000 ..........
90,000
90,000
60% × $300,000 ..........
180,000
180,000
8% × $300,000 ............
$ 24,000
24,000
From May sales:
30% × $400,000 ..........
120,000
120,000
60% × $400,000 ..........
240,000
240,000
From June sales:
30% × $250,000 ..........
75,000
75,000
Total cash collections .......
$210,000
$316,000
$339,000
$865,000
Problem 7-21A (continued)
2. Cash budget:
Month
April
May
June
Quarter
Beginning cash balance
$ 24,000
$ 22,000
$ 26,000
$ 24,000
Add receipts:
Collections from
customers ...............
210,000
316,000
339,000
865,000
Total cash available ......
234,000
338,000
365,000
889,000
Less cash
disbursements:
Merchandise
purchases ...............
140,000
210,000
160,000
510,000
Payroll .......................
20,000
20,000
18,000
58,000
Lease payments .........
22,000
22,000
22,000
66,000
Advertising ................
60,000
60,000
50,000
170,000
Equipment purchases .
—
—
65,000
65,000
Total cash
disbursements ...........
242,000
312,000
315,000
869,000
Excess (deficiency) of
cash available over
disbursements ...........
(8,000)
26,000
50,000
20,000
Financing:
Borrowings ................
30,000
—
—
30,000
Repayments ..............
—
—
(30,000)
(30,000)
Interest .....................
—
—
(1,200)
(1,200)
Total financing .............
30,000
—
(31,200)
(1,200)
Ending cash balance .....
$ 22,000
$ 26,000
$ 18,800
$ 18,800
3. If the company needs a minimum cash balance of $20,000 to start each
Problem 7-22A (60 minutes)
1. Collections on sales:
April
May
June
Quarter
Cash sales .......................
$120,000
$180,000
$100,000
$ 400,000
Sales on account:
February: $200,000 ×
80% × 20% ...............
32,000
32,000
March: $300,000 ×
80% × 70%, 20% ......
168,000
48,000
216,000
April: $600,000 × 80%
× 10%, 70%, 20% .....
48,000
336,000
96,000
480,000
May: $900,000 × 80%
× 10%, 70% ..............
72,000
504,000
576,000
June: $500,000 × 80%
× 10% .......................
40,000
40,000
Total cash collections .......
$368,000
$636,000
$740,000
$1,744,000
2. a. Merchandise purchases budget:
April
May
June
July
Budgeted cost of goods sold ....
$420,000
$630,000
$350,000
$280,000
Add desired ending
merchandise inventory* ........
126,000
70,000
56,000
Total needs .............................
546,000
700,000
406,000
Less beginning merchandise
inventory ..............................
84,000
126,000
70,000
Required inventory purchases...
$462,000
$574,000
$336,000
*20% of the next month’s budgeted cost of goods sold.
b. Schedule of expected cash disbursements for merchandise purchases:
April
May
June
Quarter
Beginning accounts
payable ...............
$126,000
$ 126,000
April purchases ......
231,000
$231,000
462,000
May purchases .......
287,000
$287,000
574,000
June purchases ......
168,000
168,000
Total cash
disbursements .....
$357,000
$518,000
$455,000
$1,330,000
Problem 7-22A (continued)
3.
Garden Sales, Inc.
Cash Budget
For the Quarter Ended June 30
April
May
June
Quarter
Beginning cash balance ........
$ 52,000
$ 40,000
$ 40,000
$ 52,000
Add collections from
customers .........................
368,000
636,000
740,000
1,744,000
Total cash available ..............
420,000
676,000
780,000
1,796,000
Less cash disbursements:
Purchases for inventory .....
357,000
518,000
455,000
1,330,000
Selling expenses ...............
79,000
120,000
62,000
261,000
Administrative expenses ....
25,000
32,000
21,000
78,000
Land purchases .................
—
16,000
—
16,000
Dividends paid ..................
49,000
—
—
49,000
Total cash disbursements ...
510,000
686,000
538,000
1,734,000
Excess (deficiency) of cash
available over
disbursements ..................
(90,000)
(10,000)
242,000
62,000
Financing:
Borrowings .......................
130,000
50,000
0
180,000
Repayments ......................
0
0
(180,000)
(180,000)
Interest
($130,000 × 1% × 3 +
$50,000 × 1% × 2) ........
0
0
(4,900)
(4,900)
Total financing .....................
130,000
50,000
(184,900)
(4,900)
Ending cash balance ............
$ 40,000
$ 40,000
$ 57,100
$ 57,100
Problem 7-23A (60 minutes)
1. Collections on sales:
April
May
June
Quarter
Cash sales .......................
$120,000
$180,000
$100,000
$ 400,000
Sales on account:
February: $200,000 ×
80% × 20% ...............
32,000
32,000
March: $300,000 ×
80% × 70%, 20% ......
168,000
48,000
216,000
April: $600,000 × 80%
× 25%, 65%, 10% .....
120,000
312,000
48,000
480,000
May: $900,000 × 80%
× 25%, 65% ..............
180,000
468,000
648,000
June: $500,000 × 80%
× 25% .......................
100,000
100,000
Total cash collections .......
$440,000
$720,000
$716,000
$1,876,000
2. a. Merchandise purchases budget:
April
May
June
July
Budgeted cost of goods sold ....
$420,000
$630,000
$350,000
$280,000
Add desired ending
merchandise inventory* ........
94,500
52,500
42,000
Total needs .............................
514,500
682,500
392,000
Less beginning merchandise
inventory ..............................
84,000
94,500
52,500
Required inventory purchases...
$430,500
$588,000
$339,500
*15% of the next month’s budgeted cost of goods sold.
b. Schedule of expected cash disbursements for merchandise purchases:
April
May
June
Quarter
Beginning accounts
payable ...............
$126,000
$ 126,000
April purchases ......
215,250
$215,250
430,500
May purchases .......
294,000
$294,000
588,000
June purchases ......
169,750
169,750
Total cash
disbursements .....
$341,250
$509,250
$463,750
$1,314,250
Problem 7-23A (continued)
3.
Garden Sales, Inc.
Cash Budget
For the Quarter Ended June 30
April
May
June
Quarter
Beginning cash balance ........
$ 52,000
$ 40,750
$ 83,500
$ 52,000
Add collections from
customers .........................
440,000
720,000
716,000
1,876,000
Total cash available ..............
492,000
760,750
799,500
1,928,000
Less cash disbursements:
Purchases for inventory .....
341,250
509,250
463,750
1,314,250
Selling expenses ...............
79,000
120,000
62,000
261,000
Administrative expenses ....
25,000
32,000
21,000
78,000
Land purchases .................
—
16,000
—
16,000
Dividends paid ..................
49,000
—
—
49,000
Total cash disbursements ...
494,250
677,250
546,750
1,718,250
Excess (deficiency) of cash
available over
disbursements ..................
(2,250)
83,500
252,750
209,750
Financing:
Borrowings .......................
43,000
0
0
43,000
Repayments ......................
0
0
(43,000)
(43,000)
Interest
($43,000 × 1% × 3) .......
0
0
(1,290)
(1,290)
Total financing .....................
43,000
0
(44,290)
(1,290)
Ending cash balance ............
$ 40,750
$ 83,500
$ 208,460
$ 208,460
4. Collecting accounts receivable sooner and reducing inventory levels
