252 Chapter 8
accessible website, in whole or in part.
Proof:
Sales ($104.83 400,000)
$ 41,932,000
CGS ($68.84 400,000)
(27,536,000)
Gross margin
$ 14,396,000
Variable S&A ($41,932,000 0.08)
(3,354,560)
Fixed S&A ($2,600,000 1.075 0.20)
(559,000)
Income before taxes
$ 10,482,440
($41,932,000 0.25 = $10,483,000 off due to rounding)
60. a. Blanco Co.
Budgeted Income Statement
For Month Ended November 30, 2014
Sales
$ 330,000,000
Cost of Goods Sold (70% of sales)
231,000,000
Gross Profit (30% of sales)
$ 99,000,000
Other Expenses
Cash expense
$46,500,000
Depreciation
15,000,000
Uncollectible accounts
6,600,000
(68,100,000)
Net Income before Taxes
$ 30,900,000
b. Beginning Cash balance
$ 28,000,000
Collections from prior months’ sales
57,000,000
Collections from current sales (0.70 $330,000,000)
231,000,000
Payments on account
(165,000,000)
Monthly cash expenditures
(46,500,000)
Ending Cash balance
$ 104,500,000
Beginning Accounts Receivable balance
$ 60,000,000
Sales
330,000,000
Collections from October sales
(57,000,000)
Collections from November sales
(231,000,000)
Ending Accounts Receivable balance
$ 102,000,000
Allowance for Uncollectibles = $3,000,000 + (0.02 $330,000,000) =
$9,600,000
Beginning Inventory balance
$ 52,500,000
Purchases (0.70 $360,000,000)
252,000,000
Cost of Goods Sold
(231,000,000)
Ending Inventory balance
$ 73,500,000
Accounts Payable = 0.70 $360,000,000 = $252,000,000
Chapter 8 253
Blanco Co.
Budgeted Balance Sheet
November 30, 2014
Assets
Cash
$104,500,000
Accounts Receivable (net of Allowance)
92,400,000
Inventory
73,500,000
Property, Plant & Equipment (net of Acc. Depr.)
97,500,000
Total Assets
$367,900,000
Liabilities & Stockholders’ Equity
Accounts Payable
$252,000,000
Common Stock
120,000,000
Retained Earnings (deficit)
(4,100,000)
Total Liabilities & Stockholders’ Equity
$367,900,000
considerably above book values. If so, the assets could be sold to increase
income, reduce the RE deficit, and increase cash. However, Blanco must be
careful to avoid selling assets that are critical to its ability to remain a going
concern—unless similar assets are available at reasonable rates to lease.
61. a.
Sales Budget:
Mixers ($90 60,000)
$ 5,400,000
Breadmakers ($140 40,000)
5,600,000
Total budgeted sales
$11,000,000
b.
Production Budget:
Mixers
Breadmakers
Budgeted sales
60,000
40,000
Ending inventory
20,000
5,000
Beginning inventory
(15,000)
(4,000)
Budgeted production
65,000
41,000
c.
Purchasing Budget:
Motors
Beaters
Fuses
Mixer production
65,000
130,000
130,000
Breadmaker production
41,000
164,000
123,000
Ending inventory
3,600
24,000
7,500
Beginning inventory
(2,000)
(21,000)
(6,000)
Units to be purchased
107,600
297,000
254,500
Times price per unit
$18
$1.75
$2.40
Budgeted purchases
$1,936,800
$519,750
$610,800
254 Chapter 8
d.
Direct Labor Budget:
Mixers ($8 2 65,000)
$1,040,000
Breadmakers ($10 3 41,000)
1,230,000
Budgeted labor cost
$2,270,000
e. Mixer = $18.00 + (2 $1.75) + (2 $2.40) + (2 $8.00) + (2 $7.50)
Breadmaker = $18.00 + (4 $1.75) + (3 $2.40) + (3 $10.00) +
(CPA adapted)
62.
Sales Budget:
January
February
March
April
8,000
10,000
15,000
12,000
$12
$12
$12
$12
$96,000
$120,000
$180,000
$144,000
Accounts Receivable collections (70%, 20%, 10%):
January
February
March
Total
November
$ 7,000
$ 7,000
December
13,000
$ 6,500
19,500
January
67,200
19,200
$ 9,600
96,000
February
0
84,000
24,000
108,000
March
0
0
126,000
126,000
Total
$87,200
$109,700
$159,600
$356,500
Accts. Rec. ending balance = $26,500 + $396,000 – $356,500 = $66,000
Production Budget:
January
February
March
Total
April
Sales
8,000
10,000
15,000
33,000
12,000
Ending inv.
500
750
600
600
550
Beginning Inv.
(400)
(500)
(750)
(400)
(600)
Production
8,100
10,250
14,850
33,200
11,950
Purchases Budget:
January
February
March
Total
April
Production
8,100
10,250
14,850
33,200
11,950
Gallons
1.2
1.2
1.2
1.2
1.2
Prod. needs
9,720
12,300
17,820
39,840
14,340
Ending inv.
615
891
717
717
Beginning Inv.
(1,000)
(615)
(891)
(1,000)
Purchases
9,335
12,576
17,646
39,557
Per gallon
$0.80
$0.80
$0.80
$0.80
Cost
$ 7,468
$10,061
$14,117
$31,646
Chapter 8 255
Payment of Accounts Payable (60%, 40%):
January
February
March
Total
December
$2,148
$ 2,148
January
4,481
$2,987
7,468
February
6,037
$ 4,024
10,061
March
8,470
8,470
Total
$6,629
$9,024
$12,494
$28,147
Direct Labor Budget:
January
February
March
Total
Production
8,100
10,250
14,850
33,200
DLH per unit
0.5
0.5
0.5
0.5
Total DLHs
4,050
5,125
7,425
16,600
DL rate
$6
$6
$6
$6
DL cost
$24,300
$30,750
$44,550
$99,600
Variable OH Budget:
January
February
March
Total
Production
8,100
10,250
14,850
33,200
MH per unit
5
5
5
5
Total MHs
40,500
51,250
74,250
166,000
VOH rate
$0.06
$0.06
$0.06
$0.06
VOH cost
$ 2,430
$ 3,075
$ 4,455
$ 9,960
Fixed OH Budget
January
February
March
Total
Comments
Salaries
$ 6,500
$ 6,500
$ 6,500
$19,500
(cash)
Utilities
1,000
1,000
1,000
3,000
(cash)
Insurance
200
200
200
600
(decr. in ppd. ins.)
Depr.
2,300
2,300
2,550
7,150
(incr. in acc. depr.)
FOH cost
$10,000
$10,000
$10,250
$30,250
Other Payments, Collections, and Cost Adjustments:
January
February
March
Total
Comments
Dividends
$10,000
$10,000
(cash)
Equipment
$ 7,200
7,200
(cash; incr. in
equip.; will
cause $250 incr.
in depr. exp. and
acc. depr.)
Int. expense*
250
$ 217
467
(cash)
Int. received**
16
16
(cash)
S&A costs
32,800
32,800
32,800
98,400
(cash)
*January: $25,000 Note Payable 0.12 1/12 = $250
February: $25,000 N/P – $3,300 repayment = $21,700 0.12 1/12 = $217
**March: $4,700 Invt. 0.04 1/12 = $16 (rounded)
256 Chapter 8
Kalogridis Corp.
Cash Budget
For the First Quarter of 2014
January
February
March
Total
Beg. balance
$ 5,080
$ 5,071
$ 5,005
$ 5,080
Collections
87,200
109,700
159,600
356,500
Cash available
$ 92,280
$ 114,771
$164,605
$361,580
Disbursements:
Purchases
$ 6,629
$ 9,024
$ 12,494
$ 28,147
DL
24,300
30,750
44,550
99,600
VOH
2,430
3,075
4,455
9,960
FOH
7,500
7,500
7,500
22,500
S&A
32,800
32,800
32,800
98,400
Equip.
7,200
7,200
Total
$ 73,659
$ 83,149
$108,999
$265,807
Cash excess
$ 18,621
$ 31,622
$ 55,606
$ 95,773
Min. bal.
(5,000)
(5,000)
(5,000)
(5,000)
Cash avail.
$ 13,621
$ 26,622
$ 50,606
$ 90,773
Financing:
Repay
$ (3,300)
$ (21,700)
$ (25,000)
Investment
(4,700)
$ (50,600)
(55,300)
Pay div.
(10,000)
(10,000)
Receive (pay)
interest
(250)
(217)
16
(451)
Total
$(13,550)
$(26,617)
$ (50,584)
$ (90,751)
Ending balance
$ 5,071
$ 5,005
$ 5,022
$ 5,022
Kalogridis Corp.
Budgeted Schedule of Cost of Goods Manufactured
For the First Quarter of 2014
Beginning work in process
$ 0
Raw material used:
Beginning raw material
$ 800
Purchases
31,646
Available for use
$32,446
Ending inventory (717 $0.80)
(574)
Cost of raw material used
$31,872
Direct labor
99,600
Variable factory overhead
9,960
Fixed factory overhead
30,250
171,682
Total mfg. costs in process
$171,682
Ending work in process
0
Cost of goods manufactured
$171,682
Chapter 8 257
Kalogridis Corp.
Budgeted Income Statement
For the First Quarter of 2014
Sales
$ 396,000
Cost of Goods Sold
Beginning inventory—FG
$ 2,104
Cost of goods manufactured
171,682
Cost of goods avail. for sale
$173,786
Ending inv.—FG (600 $5.26)
(3,156)
(170,630)
Gross margin
$ 225,370
Selling & administrative expenses
(98,400)
Operating income
$ 126,970
Other income and expenses
Interest expense
$ (467)
Interest revenue
16
(451)
Income before taxes
$ 126,519
Income tax (35%)
(44,282)
Net income
$ 82,237
Kalogridis Corp.
Budgeted Balance Sheet
March 31, 2014
Assets:
Cash
$ 5,022
Accounts receivable
66,000
Raw material inventory
574
Finished goods inventory
3,156
Prepaid insurance
600
Investments
55,300
Building and machinery
$309,000
Accumulated depreciation*
(27,150)
281,850
Total Assets
$412,502
Liabilities and Stockholders’ Equity
Liabilities:
Accounts payable
$ 5,647
Income tax payable
44,282
Note payable—equipment
1,800
$ 51,729
Stockholders’ Equity:
Common stock
$100,000
Paid-in capital
50,000
Retained earnings**
210,773
360,773
Total Liabilities & Stockholders’ Equity
$412,502
258 Chapter 8
63. a. X = gross billings to meet required return objective
X – $425,000 – 0.20X = $700,000 + $240,780
0.80X = $1,365,780
X = $1,707,225
Budget:
Gross billings
$1,707,225
Variable expenses
Overhead
$256,084
Client service
85,361
(341,445)
Contribution margin
$1,365,780
Fixed costs
Salaries
$300,000
Overhead
125,000
(425,000)
Net operating earnings
$ 940,780
b. A number of actions are possible depending largely on the operating cli-
mate of the firm. Many of the actions that could be taken can fit within one
of the three groupings that follow:
1. Increase the staffing level. A larger staff is a reasonable alternative only
2. Reduce the budgeted billings level and try to maintain the budgeted lev-
3. Try to selectively cut down the size of the business by dropping those
ous classes of clients (large, small, industry group, tax service, audit,
etc.).
64. a. Attala Co.
Revised Operating Budget
Fourth Quarter 2014
Revenues:
Consulting fees:
Management consulting
$468,000
EDP consulting
478,125
Total consulting revenue
$ 946,125
Other revenue
10,000
Total revenue
$ 956,125
Chapter 8 259
accessible website, in whole or in part.
Expenses:
Consulting salary expense
$510,650
Travel and related expense
57,875
General and admin. expense
93,000
Depreciation expense
40,000
Corporate allocation
75,000
Total expenses
(776,525)
Operating income
$ 179,600
Supporting computations:
Schedule of Projected Revenues for Fourth Quarter 2014
Mgmt. Consulting
EDP Consulting
Third Quarter
Revenues
$315,000
$421,875
Divided by billing rate
÷ $90
÷ $75
Billable hours
3,500
5,625
Divided by # of consultants
÷ 10
÷ 15
Hours per consultant
350
375
Fourth Quarter
Planned increase
+ 50
+ 50
Billable hrs. per consultant
400
425
# of consultants
13
15
Billable hrs.
5,200
6,375
Billing rate
$90
$75
Projected revenue
$468,000
$478,125
Allocated Corporate Expenses
Mgmt. Consulting
EDP Consulting
Compensation:
Existing consultants:
Annual salary
($50,000 92%)
$ 50,000
$ 46,000
Quarterly salary
$ 12,500
$ 11,500
Planned increase (10%)
1,250
1,150
Total
$ 13,750
$ 12,650
# of consultants
10
15
Total
$137,500
$189,750
New consultants (3) at old
salary (3 $12,500)
37,500
0
Total
$175,000
$189,750
Benefits (40%)
70,000
75,900
Total
$245,000
$265,650
260 Chapter 8
Travel expense:
Management consultants (400 hrs. 13)
5,200
EDP consultants (425 hrs. 15)
6,375
Total hours
11,575
Rate per hour*
$5
Total travel expense
$57,875
*Third quarter travel expense divided by hours = rate per hour ($45,625 ÷ 9,125 = $5).
General and administrative ($100,000 93%)
$93,000
Corporate allocation ($50,000 150%)
$75,000
goals and objectives or new products being offered or old products being
discontinued.
c. Although JI’s management can allocate costs using an “ability–to–bear” ba-
penses.
(CPA adapted)
65. Each student will have a different answer. But two important costs that are of-
merchandise and kidnapping is an ongoing possibility. An excellent discussion
(December 11, 2003), p. A14.