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Chapter 9 The Master Budget
(continued) P9-60B
Req. 9
Budgeted Manufacturing Cost per Unit
Direct materials cost per unit
$6.00
Direct labor cost per unit
0.45
Variable manufacturing overhead costs
1.10
Fixed MOH
0.70
Cost of manufacturing each unit
$8.25
Req. 10
Presidio Manufacturing
Budgeted Income Statement
For the Quarter Ended March 31
Sales
$333,600
Less: Cost of goods sold
229,350
Gross profit
104,250
Less: Operating expenses
40,150
Less: Depreciation expense
4,600
Operating income
59,500
Less: interest expense
490
Less: pincome tax expense @ 30%
17,703
Net income
$41,307
(60-75 min.) P9-61B
Req. 1
Mary Snyder, Weaver
Cash Budget
Four Months Ending December 31
Cotton
Linen
Beginning cash balance
$ 32
$ 32
Plus Cash collections:
Cotton sales (30 x $30)
900
–
Linen sales (20 x $60)
–
1,200
Cash available
$932
$ 1,232
Less Cash payments:
Sales commissions (20% x $900); (20% x $1,200)
$180
$240
Accounts payable
90
90
Cost of linen (20 × $22)
–
440
Purchase of new loom
–
1,200
Total cash payments
$270
$1,970
Ending cash balance before financing
662
(738)
Financing of cash deficiency:
Borrowing
–
$1,200
Principal payment
(240)
Interest payment (4/12 of annual payment)
–
(20)
Ending cash balance
$662
$ 202
Mary Snyder, Weaver
Budgeted Income Statement
Four Months Ending December 31
Cotton
Linen
Sales revenue (net):*
Cotton sales (30 x $30)
$900
Linen sales (20 x $60)
$1,200
Cost of goods sold:
Cotton (30 × $12)
360
Linen (20 × $22)
440
Sales commissions:
Cotton (20% x $900)
180
Linen (20% x $1,200)
240
Depreciation expense:
Old loom (4 × $10)
40
40
New loom (4 × $24)
96
Total Expenses
$580
$816
Operating income
$320
$384
Less: Interest expense
20
Net income
$320
$364
Chapter 9 The Master Budget
(continued) P9-61B
Req. 1
Mary Snyder, Weaver
Budgeted Balance Sheet
December 31
Cotton
Linen
Cotton
Linen
Current assets
Current liabilities
Cash
$662
$202
Bank loan payable
$0
$960
Inventory of cotton
0
360
Total liabilities
0
960
Total current assets
662
562
Fixed assets:
Owners' equity
Loom(s)
500
1,700
Cotton loom
882
Accumulated
depreciation:
Cotton loom and linen loom
926
Cotton loom
(280)
(280)
Linen loom
(96)
Total fixed assets
220
1,324
Total assets
$882
$1,886
Total liabilities and owners' equity
$882
$1,886
Req. 2
Based on financial considerations only, Snyder should continue making cotton placemats and should not purchase
Managerial Accounting 4e Solutions Manual
(continued) P9-61B
Chapter 9 The Master Budget
(30 min.) P9-62B
DuBois Fashions
Schedule of Cost of Goods Sold
May and June
May
June
Beginning inventory
$ 11,000
$ 17,931
Plus: Purchases
19,250
19,828
Cost of goods available for sale
30,250
37,759
Less: Ending inventory
(17,931)
(19,000)
Cost of goods sold
$ 12,319
$ 18,759
DuBois Fashions
Budgeted Income Statements
May and June
May
June
Sales revenue
$ 38,500
$ 39,655
Less: Cost of goods sold
12,319
18,759
Gross profit
26,181
20,896
Less Operating expenses:
Salaries and comm expense
$ 10,235
$ 10,362
Rent expense
2,800
2,800
Depreciation expense
700
700
Insurance expense
400
14,135
400
14,262
Operating income
12,046
6,634
Less: Income tax expense
2,409
1,327
Net income (loss)
$ 9,637
$ 5,307
(30 min.) P9-63B
Req. 1
a. Budgeted cash collections:
Cash Collections Budget
January
February
Cash sales (70%)
$45,500
$46,900
Credit sales
16,380a
19,620b
Total cash
collections
$61,880
$66,520
b. Budgeted cash payments for purchases:
Cash Payments for Direct Material Purchases Budget
January
February
December purchases
$16,450
January purchases
6,150
$14,350
February purchases
7,800
Total cash payments for direct material purchases
$22,600
$22,150
c. Budgeted cash payments for operating expenses
Cash Payments for Operating Expenses Budget
January
February
Variable cash operating expenses:
Sales commissions: Dec.
$3,900
Sales commissions: Jan.
4,875
4,875
Sales commissions: Feb.
5,025
Total variable cash operating expenses
8,775
9,900
Fixed cash operating expenses:
Sales salaries: Dec.
4,250
Sales salaries: Jan.
4,750
4,750
Sales salaries: Feb.
5,500
Rent expense
3,300
3,300
Tax expense
11,500
Total fixed cash operating expenses
23,800
13,550
Total cash payments for operating expenses
$32,575
$23,450
Chapter 9 The Master Budget
(continued) P9-63B
Req. 2
Combined Cash Budget
January
February
Cash balance, beginning
$19,000
$25,705
Add: cash collections (1a)
61,880
66,520
Total cash available
80,880
92,225
Less: cash payments
Direct material purchases (1b)
22,600
22,150
Operating expenses (1c)
32,575
23,450
Total cash payments
55,175
45,600
Ending cash balance
$25,705
$46,625
(50-60 min.) P9-64B
Req. 1
Akron Medical Supply
Budgeted Balance Sheet
April 30
ASSETS
Current assets:
Cash*
$48,425
Accounts receivable
15,225
Inventory*
41,900
Total current assets
$ 105,550
Plant assets:
Equipment
$94,800
Accumulated depreciation
(41,800)
53,000
Total assets
$158,550
LIABILITIES
Current liabilities:
Accounts payable
$18,350
Accrued expenses payable
9,100
Total liabilities
$ 27,450
OWNERS' EQUITY
Owners' equity*
131,100
Total liabilities and owners' equity
$158,550
__________
*See computations on next page.
Managerial Accounting 4e Solutions Manual
(continued) P9-64B
(Req. 1 continued)
Computations:
Cash:
Inventory:
Beginning balance……..
$ 40,500
Beginning balance ..........................
$ 29,600
Cash sales
Purchases
56,550
47,100
Collections
44,725
Cost of goods sold
Ending balance .................................
(34,800)
$ 41,900
Payments of March 31
liabilities………………
(17,000)
Cash purchases………...
(10,400)
Payments for April (credit) purchases
(18,350)
Purchase of equipment
(42,700)
Operating expenses
(4,900)
Ending balance…………
$ 48,425
Chapter 9 The Master Budget
(continued) P9-64B
Req. 4
4a.
Akron Medical Supply
Budgeted Balance Sheet
April 30
ASSETS
Current assets:
Cash*
$ 24,500
Accounts receivable
10,150
Inventory*
53,500
Total current assets
$ 88,150
Plant assets:
Equipment
$ 94,800
Accumulated depreciation
(41,800)
53,000
Total assets
$141,150
LIABILITIES
Current liabilities:
Accounts payable
$ 18,350
Accrued expenses payable
9,100
Total liabilities
$ 27,450
OWNERS' EQUITY
Owners' equity*
113,700
Total liabilities and owners' equity
$141,150
Computations:
Cash:
Inventory:
Beginning balance ................................
$ 40,500
Beginning balance….
$ 29,600
Cash sales
Purchases
37,700
47,100
Collections
39,650
Cost of goods sold
Ending balance……...
(23,200)
$ 53,500
Payments of March 31
liabilities ..........................................
(17,000)
Cash purchases .....................................
(10,400)
Payments for April
(credit) purchases
(18,350)
Purchase of equipment
(42,700)
Operating expenses
(4,900)
Ending balance ........................................
$ 24,500
Managerial Accounting 4e Solutions Manual
(continued) P9-64B
4b.
The company will not have to borrow cash in April if sales revenue is $58,000. The company’s cash balance is $7,500 higher
45.9% decline in income.
(10-20 min) P9-65B
Since gross profit is 30% of sales revenue, the cost of goods sold must be 70% of sales revenue:
Sales revenue……….
100%
Cost of goods sold...
70%
Gross profit………….
30%
State Logos
Inventory, Purchases, and Cost of Goods Sold Budget
For Months of October and November
October
November
Cost of goods sold
(70% of current month sales)
$1,568,000a
$1,665,300b
Plus: Desired ending inventory ($405,000 + 20% of next
month’s cost of goods sold)
738,060c
757,800d
Total inventory required
2,306,060
$2,423,100
Less: Beginning inventory
(718,600)e
(738,060)f
Amount of inventory to purchase
$1,587,460
$1,685,040
Chapter 9 The Master Budget
Discussion & Analysis
1. “The sales budget is the most important budget.” Do you agree or disagree? Explain
your answer.
2. List at least four reasons why a company would use budgeting.
• Planning
3. Describe the difference between an operating budget and a capital budget.
4. Describe the process for developing a budget.
5. Compare and contrast “participative budgeting” with “top-down” budgeting.
The end result of budgeting is the same no matter which approach is used. In a “top-down” approach, top
6. What is a budget committee? What is the budget committee’s role in the budgeting process?
7. What are operating budgets? List at least four operating budgets.
The operating budgets are the budgets needed to run the daily operations of a company.
• Sales
Managerial Accounting 4e Solutions Manual
8. What are financial budgets? List at least three financial budgets.
The financial budgets project the collection and payment of cash and forecast the balance sheet.
9. Managers may build slack into their budgets so that their target numbers are easier to attain. What might be
10. How does the master budget for a service company differ from a master budget for a manufacturing company?
Which (if any) operating budgets differ and how specifically do they differ? Which (if any) financial budgets
11. Give an example of a sustainable practice, if adopted, that would affect a company’s budget. How might this
sustainable practice, if adopted, impact the company’s budget in both the short-term and in the long-term?
The adoption of long-term goals will affect most, if not all of the company’ shorter-term budgets. The operating
12. Why might a company want to state environmental goals for increased sustainability in its budgets? Explain.
Copyright © 2015 Pearson Education, Inc.
9-69
A9-67
1. Describe your product. What is your cost of this product? What size (quantity) will you purchase? At what price
of $5.34 for 36 bottles of water. I plan to sell individual bottles for $2.00 each.
Month
September
October
November
# of bottles
1,400
1,170
900
2. Estimate how many hours you will spend in each of the upcoming three months doing the purchasing,
Month
September
October
November
# of hours
78
81
75
3. Prepare a sales budget for each of the upcoming three months.
Month
September
October
November
# of bottles
1,400
1,170
900
Sales price $2.00
$2,800
$2,340
$1,800
4. Prepare the direct material budgets for the upcoming three months, assuming that you need to keep 10% of the
direct materials needed for next month’s sales on hand at the end of each month (this requirement is why you
needed to estimate unit sales for four months).
Month
September
October
November
Sales in bottles
1,400
1,170
900
+Desired End. Inv.
117
900
90
-Beginning Inv.
( 0)
( 117)
( 90)*
Purchases of Inv.
1,517
1,953
900
Case price $5.34
43 cases - $229.62
54 cases - $288.36
25 cases - $133.50
* December sales 900 bottles
6. Prepare a direct labor budget (for your labor) for each of the upcoming three months.
Month
September
October
November
# of hours
78
81
75
Hourly wage $10
$780
$810
$750
7. Think about any other expenses you are likely to have (i.e., booth rental at a flea market or a vendor license).
Prepare the operating expenses budget for each of the upcoming three months.
Chapter 9 The Master Budget
Copyright © 2015 Pearson Education, Inc.
9-71
A9 – 69
Real Life Mini-Case
1. Budgeting for a movie can be challenging. Frequently, budget items change as the movie production progresses.
factors.
2. What reasons can a movie director have for misrepresenting the overall budget for a particular movie? Is
misrepresenting a movie budget unethical? Do you think that misrepresenting a movie’s total budgeted
expenditures to the public harms anyone?
A movie director may misrepresent the overall budget for a movie for a variety of reasons. The director could
3. “If a Hollywood movie’s box office number exceeds its production budget, then that movie makes a profit.”
4. Sometimes actors, directors, and producers are asked to take a lower salary up front and instead receive a
percentage of the film’s overall gross profits (from box office receipts, DVD sales, and similar revenue streams).
Why might the film company propose this arrangement? Why might the actors, directors, and producers accept
this agreement? Would this type of arrangement (lower salary up front with a percentage of the film’s gross
