Chapter 8 233
31. a. Balance at October 1
$ 632,500
Remainder of September billings
(480,000)
Remainder of August billings
$ 152,500
% of August billings uncollected at end of September
÷ 0.25
August billings
$ 610,000
b. Remainder of September billings
$ 480,000
% uncollected at end of September
÷ 0.80
September billings
$ 600,000
% estimated uncollectible
0.03
Total September billings expected to be uncollectible
$ 18,000
c. Oct. collections of Aug. billings ($610,000 22%)
$ 134,200
Oct. collections of Sept. billings ($600,000 55%)
330,000
Oct. collections of Oct. billings ($750,000 20%)
150,000
Total October collections
$ 614,200
32. a.
January
February
March
Total
Units produced
20,000
50,000
70,000
140,000
Pounds per unit
2
2
2
2
Pounds needed
40,000
100,000
140,000
280,000
EI in pounds
25,000
35,000
35,000
35,000
Total required
65,000
135,000
175,000
315,000
BI
(0)
(25,000)
(35,000)
(0)
Pounds to purchase
65,000
110,000
140,000
315,000
Cost per pound
$7
$7
$7
$7
Total cost of RM
$455,000
$770,000
$980,000
$2,205,000
b.
January
February
March
Total
Jan. (40% less disc.; 60%)
$163,800
$273,000
$ 436,800
Feb. purchases
277,200
$462,000
739,200
Mar. purchases
352,800
352,800
Total payments
$163,800
$550,200
$814,800
$1,528,800
determination of Cost of Goods Manufactured.
234 Chapter 8
accessible website, in whole or in part.
33.
Beginning cash balance
$ 23,000
Income after taxes
$336,000
Depreciation (no cash involved)
56,200
Accrued income tax expense (no cash involved)
82,000
Increase in A/R (sold more than collected)
(8,000)
Decrease in A/P (paid for more than purchased)
(7,000)
Estimated bad debts (no cash involved)
4,100
Dividends declared (no effect on income or cash)
0
Dividends paid
(47,000)
Projected increase in cash
416,300
Ending cash balance
$439,300
34. a.
CGS ($2,700,000 0.60)
$1,620,000
Less decrease in inventory (sold more than bought)
(43,750)
Plus decrease in A/P (paid for more than bought)
35,000
Cash payments for inventory
$1,611,250
b.
Cash payments for inventory
$1,611,250
Wages expense
325,500
Less increase in W/P (expensed more than paid)
(42,000)
Other cash expenses
245,000
Total cash disbursements
$2,139,750
35.
July
August
Sept.
Total
Beginning cash balance
$ 7,400
$ 7,200
$ 7,200
$ 7,400
Cash receipts
16,400
20,200
33,800
70,400
Total cash available
$23,800
$27,400
$41,000
$ 77,800
Cash disbursements:
Payments on account
$ 2,600
$ 7,800
$11,400
$ 21,800
Wage expenses
10,000
12,200
12,400
34,600
Overhead costs
8,000
9,200
8,800
26,000
Total disbursements
$20,600
$29,200
$32,600
$ 82,400
Cash excess (inadequacy)
$ 3,200
$ (1,800)
$ 8,400
$ (4,600)
Minimum cash balance
(7,000)
(7,000)
(7,000)
(7,000)
Cash available (needed)
$ (3,800)
$ (8,800)
$ 1,400
$(11,600)
Financing:
Borrowings (repayments)
$ 4,000
$ 9,000
$ (1,000)
$ 12,000
Sell (acquire) investments
0
0
0
0
Receive (pay) interest
0
0
(20)
(20)
Ending cash balance
$ 7,200
$ 7,200
$ 7,380
$ 7,380
36. a. CGS = $2,000,000 + (0.65 $8,000,000) = $7,200,000
b.
CGS ($800,000 0.75)
$600,000
Increase in Inventory
20,000
Decrease in Accounts Payable
45,000
Total cash payment for inventories
$665,000
Chapter 8 235
c. y = $250,000 + $17.50X
y = $250,000 + ($17.50 7,500)
d.
Beginning cash balance
$ 15,000
Cash collections
470,500
Total cash available
$ 485,500
Disbursements:
Payoff of note payable
$ 52,500
Interest on note payable
4,700
Purchase of computer system
17,900
Operating costs and inventory purchases
193,500
Direct labor wages
110,000
Overhead costs
106,400
Selling and administrative costs
94,800
(579,800)
Cash deficiency
$ (94,300)
Borrowings needed
100,000
Ending cash balance
$ 5,700
37. New sales in units = 100,000 1.25 = 125,000
New DM cost per unit = [($400,000 ÷ 100,000) 1.10] = $4.40
New DL cost per unit = [($200,000 ÷ 100,000) 1.10] = $2.20
Desired NI = 10% of Sales
Sales – ($7.70 125,000) – $24,000 – (0.08 Sales) – $120,000 = (0.10 Sales)
Sales – $962,500 – $24,000 – (0.08 Sales) – $120,000 = (0.10 Sales)
Sales (125,000 $10.80)
$1,350,000
Cost of goods sold
Direct material
$550,000
Direct labor
275,000
Overhead
137,500
(962,500)
Gross profit
$ 387,500
Expenses
Selling* ($24,000 + $108,000)
$132,000
Administrative
120,000
(252,000)
Net income before taxes
$ 135,500
* Variable selling expenses = (0.08 $1,350,000) = $108,000
Proof: $135,500 ÷ $1,350,000 = 10.04% (off due to rounding)
236 Chapter 8
38. Revenue:
Hardware ($4,800,000 1.1 1.05)
$5,544,000
Software (2,000,000 1.08)
2,160,000
Maintenance (1,200,000 1.05)
1,260,000
Total Revenue
$ 8,964,000
Costs and Expenses:
Hardware ($3,360,000 1.04 1.05)
$3,669,120
Software ($1,200,000 1.04 1.08)
1,347,840
Marketing ($600,000 1.05)
630,000
Maintenance ($640,000 + $120,000)
760,000
Administration
1,120,000
Total Expenses
(7,526,960)
Budgeted Operating Income
$ 1,437,040
(CIA adapted)
39. a. Beginning balance of A/R
$ 750,000
July credit sales
900,000
Cash collections in July
(660,000)
Write-offs of A/R in July
(27,000)
Ending balance of A/R
$ 963,000
b. Cash collections, $660,000
c. Credit sales, $900,000, and the provision for uncollectible accounts,
$20,000.
(CPA adapted)
40. Sluyter Corp.
Budgeted Income Statement
For the Month Ended May 31, 2014
Sales
$ 400,000
Cost of goods sold ($400,000 ÷ 1.60)
(250,000)
Gross margin
$ 150,000
Selling and administrative expenses
$55,000
Depreciation expense
8,000
Bad debts expense ($400,000 0.03)
12,000
(75,000)
Net income
$ 75,000
(CPA adapted)
41. a.
Sales (240,000 $25)
$ 6,000,000
Variable costs (0.65 $6,000,000)
(3,900,000)
Fixed costs
(1,400,000)
Net income
$ 700,000
b. Current variable cost per unit = 0.65 $25 = $16.25
Chapter 8 237
c.
Sales (240,000 $25)
$ 6,000,000
Variable costs (240,000 $13)
(3,120,000)
Fixed costs ($1,400,000 + $700,000)
(2,100,000)
Net income
$ 780,000
42. Each student will have a different answer. However, the following items
would be representative of their answers; these items were included in J.
ment Forum (July 2010), pp. 5, 9–11.
a. Human resources: Headcounts, salaries, benefits, turnover, recruiting, reten-
networking, and copiers
c. Marketing/business development: Advertising, branding, public relations,
marketing campaigns, events (including webinars, seminars, etc.), bench-
nies like FirstResearch)
d. Accounts receivable: Restructured fee schedules, delinquent accounts, bad
debts (and related in-house or external collection costs)
43. The spend-it-or-lose-it attitude is induced by the incentives in the budget and
evaluation cycle. It is more likely that a manager will be called to task for over-
would be revealed. Naturally, the manager would be fearful of revealing the
budgetary slack because a consequence would be that a smaller budget would
be awarded in ensuing years.
encourage the spend-it-or-lose-it attitude.
44. Continuous budgeting means that a budget that covers the coming 12 months of
operations is constantly maintained. As one month expires, another month is
238 Chapter 8
accessible website, in whole or in part.
disadvantage of the continuous budget is the time dedicated to planning activi-
ties. Continuous budgeting is more time intensive because planning activities
are always under way.
45. Each student will have a different answer. No solution is provided.
Chapter 8 239
PROBLEMS
46. Production Budget—2014
Jan.–June
July–Dec.
Total
Sales budget
1,160,000
1,440,000
2,600,000
Ending inventory
72,000
120,000
120,000
Beginning inventory
(50,000)
(72,000)
(50,000)
Production
1,182,000
1,488,000
2,670,000
Material A Purchases Budget—2014
Jan.–June
July–Dec.
Total
Production
1,182,000
1,488,000
2,670,000
Number of pounds
3
3
3
Production budget
3,546,000
4,464,000
8,010,000
Ending inventory
270,000
284,000
284,000
Beginning Inventory
(240,000)
(270,000)
(240,000)
Purchases
3,576,000
4,478,000
8,054,000
Times cost per pound
$2.50
$2.50
$2.50
Total cost
$8,940,000
$11,195,000
$20,135,000
Material B Purchases Budget—2014
Jan.–June
July–Dec.
Total
Production
1,182,000
1,488,000
2,670,000
Number of gallons
0.75
0.75
0.75
Production budget
886,500
1,116,000
2,002,500
Ending inventory
70,000
76,000
76,000
Beginning Inventory
(90,000)
(70,000)
(90,000)
Purchases
866,500
1,122,000
1,988,500
Times cost per gallon
$1.80
$1.80
$1.80
Total cost
$1,559,700
$2,019,600
$3,579,300
47. a. Production
January
February
March
Total
Sales
72,000
64,000
60,000
196,000
Ending inventory
16,000
15,000
14,000
14,000
Beginning inventory
(18,000)
(16,000)
(15,000)
(18,000)
Production
70,000
63,000
59,000
192,000
Purchases—Material M
January
February
March
Total
Production
70,000
63,000
59,000
192,000
Pounds needed
4
4
4
4
Needed for production
280,000
252,000
236,000
768,000
Ending inventory
12,000
11,250
10,500
10,500
Beginning inventory
(13,500)
(12,000)
(11,250)
(13,500)
Purchases in pounds
278,500
251,250
235,250
765,000
240 Chapter 8
Purchases—Material N
January
February
March
Total
Production
70,000
63,000
59,000
192,000
Pounds needed
2.5
2.5
2.5
2.5
Needed for production
175,000
157,500
147,500
480,000
Ending inventory
8,000
7,500
7,000
7,000
Beginning inventory
(9,000)
(8,000)
(7,500)
(9,000)
Purchases in pounds
174,000
157,000
147,000
478,000
Purchases—Material O
January
February
March
Total
Production
70,000
63,000
59,000
192,000
Pounds needed
2
2
2
2
Needed for production
140,000
126,000
118,000
384,000
Ending inventory
9,400
8,200
8,500
8,500
Beginning inventory
(7,300)
(9,400)
(8,200)
(7,300)
Purchases in pounds
142,100
124,800
118,300
385,200
acquired.
c. The vendor of the new technology, an in-house engineering department,
and knowledgeable production managers should be able to offer valuable
of the new technology.
48. a.
Sales
600,000
Ending inventory (750,000 0.05)
37,500
Beginning inventory
(24,600)
Production Budget
612,900
cans
b.
Purchases—Tea
Production budget [(612,900 14.5) ÷ 16]
555,440.625
Ending inventory [(37,500 14.5) ÷ 16]
33,984.375
Beginning inventory
(750.000)
Purchases (pounds)
588,675.000
c.
Purchases—Sugar Substitute
Production budget [(612,900 1.5) ÷ 16]
57,459.375
Ending inventory [(37,500 1.5) ÷ 16]
3,515.625
Beginning inventory
(200.000)
Purchases (pounds)
60,775.000
d. ($3.50 588,675) + ($0.40 60,775) = $2,060,362.50 + $24,310 =
$2,084,672.50
Chapter 8 241
e. $2,084,672.50 0.40 0.98 = $817,191.62 cash paid for purchases
49.
Production Budget
#587Q
#253X
Sales
80,000
30,000
Ending inventory
640
900
Beginning inventory
(800)
(1,200)
Production
79,840
29,700
Purchases—Steel
Total
Production
79,840
29,700
Times pounds
3
5
Needed for production
239,520
148,500
388,020
Ending inventory
1,400
Beginning inventory
(2,000)
Purchases (pounds)
387,420
Purchases—Wood
Production
79,840
29,700
Times board feet
0.5
0.2
Needed for production
39,920
5,940
45,860
Ending inventory
600
Beginning inventory
(800)
Purchases (board feet)
45,660
Direct Labor
Production
79,840
29,700
Times required hours
2
3
Needed for production
159,680
89,100
248,780
Times wage rate
$10.50
$10.50
$10.50
Cost of direct labor
$1,676,640
$935,550
$2,612,190
Overhead
Production
79,840
29,700
Times machine hours
0.5
0.7
Needed for production
39,920
20,790
60,710
Times overhead rate
$15
$15
$15
Cost of overhead
$598,800
$311,850
$910,650
50. a.
January
February
March
Total
Sales
6,400
5,200
7,400
19,000
Ending inventory (20%)
1,040
1,480
1,600
1,600
Beginning inventory
(1,220)
(1,040)
(1,480)
(1,220)
Production
6,220
5,640
7,520
19,380
242 Chapter 8
b. (Scrap iron)
January
February
March
Total
Production
6,220
5,640
7,520
19,380
Pounds per unit
2
2
2
2
Pounds needed
12,440
11,280
15,040
38,760
End. inventory1
2,820
3,760
4,000
4,000
Beg. inventory
(1,580)
(2,820)
(3,760)
(1,580)
Purchases (lbs.)
13,680
12,220
15,280
41,180
Cost per pound
$3
$3
$3
$3
Purchases
$41,040
$36,660
$45,840
$123,540
January = 0.25 11,280 = 2,820
February = 0.25 15,040 = 3,760
March = 0.25 (8,000 + 1,600 – 1,600) = 0.25 8,000 = 2,000 2 lbs. = 4,000
(Bases)
January
February
March
Total
Production
6,220
5,640
7,520
19,380
End. inventory2
1,410
1,880
2,000
2,000
Beg. inventory
(1,200)
(1,410)
(1,880)
(1,200)
Purchases (bases)
6,430
6,110
7,640
20,180
Cost per base
$2.50
$2.50
$2.50
$2.50
Purchases
$16,075
$15,275
$19,100
$ 50,450
Total purchases
$57,115
$51,935
$64,940
$173,990
January = 0.25 5,640 = 1,410
February = 0.25 7,520 = 1,880
March = 0.25 (8,000 + 1,600 – 1,600) = 0.25 8,000 = 2,000
c. MONTH OF PAYMENT
January
February
March
Total
Total purchases
$ 57,115
$ 51,935
$ 64,940
$ 173,990
% in month
0.75
0.75
0.75
0.75
$ 42,836.25
$ 38,951.25
$ 48,705
$ 130,492.50
Less discount
0.99
0.99
0.99
0.99
Cash pymt.
$ 42,407.89
$ 38,561.74
$ 48,217.95
$ 129,187.58
Total purchase
$ 57,115.00
$ 51,935.00
$ 64,940.00
$ 173,990.00
Pre-disc. amt.
(42,836.25)
(38,951.25)
(48,705.00)
(130,492.50)
Remainder
$ 14,278.75
$ 12,983.75
$ 16,235.00
$ 43,497.50
January
February
March
Total
Mo. of purchase
December
$ 5,800.00
$ 5,800.00
January
42,407.89
$14,278.75
56,686.64
February
38,561.74
$12,983.75
51,545.49
March
48,217.95
48,217.95
Total
$48,207.89
$52,840.49
$61,201.70
$162,250.08