Chapter 5 – Planning and Forecasting
5-41
b. Negative behaviors may be mitigated if Kate will:
clearly communicate her reasons for changing the standards to
the employees.
c. Tightening the standards may result in positive behaviors by:
motivating employees to meet the challenge in attaining the
tighter standards.
d. The employees who will be affected by the new standards should be
involved in setting those standards. These are the employees who
Solutions for Davis & Davis, Managerial Accounting, 2nd ed.
5-42
Case 5-38
a. Sales Budget
April
May
June
Quarter
Budgeted units sold
20,000
50,000
30,000
100,000
Budgeted sales price
× $ 10
× $ 10
× $ 10
× $ 10
Budgeted sales revenue
$200,000
$500,000
$300,000
$1,000,000
Selling and Administrative Expense Budget
April
May
June
Quarter
Depreciationa
$10,000
$10,000
$10,800
$30,800
35,000
50,000
40,000
125,000
Advertising
1,000
1,000
1,000
3,000
Management salaries
10,000
10,000
10,000
30,000
500
500
500
1,500
Bad debtsc
10,000
25,000
15,000
50,000
Total budgeted expenses
$66,500
$96,500
$77,300
$240,300
Less non-cash expenses
Depreciation
$10,000
$10,000
$10,800
$30,800
Bad debts
10,000
25,000
15,000
50,000
$46,500
$61,500
$51,500
$159,500
Chapter 5 – Planning and Forecasting
5-43
5-38, continued
Production Budget
April
May
June
Quarter
July
Budgeted unit sales
20,000
50,000
30,000
100,000
25,000
+
Budgeted ending inventorya
10,000
6,000
5,000
5,000
3,000
=
Total units required
30,000
56,000
35,000
105,000
28,000
–
Beginning inventory
4,000
10,000
6,000
4,000
5,000
=
Budgeted production
26,000
46,000
29,000
101,000
23,000
5-44
5-38, continued
Materials Purchases Budget
April
May
June
Quarter
July
Budgeted production
26,000
46,000
29,000
101,000
23,000
×
Standard pounds per unit
5
5
5
5
5
=
Production needs
130,000
230,000
145,000
505,000
115,000
+
Budgeted ending inventory (pounds)a
23,000
14,500
11,500
11,500
=
Total pounds required
153,000
244,500
156,500
516,500
–
Beginning inventory
13,000
23,000
14,500
13,000
=
Budgeted purchases (pounds)
140,000
221,500
142,000
503,500
×
Standard price per pound
$0.40
$0.40
$0.40
$0.40
=
Budgeted purchases cost
$56,000
$88,600
$56,800
$201,400
Chapter 5 – Planning and Forecasting
5-45
5-38, continued
Direct Labor Budget
April
May
June
Quarter
Budgeted production
26,000
46,000
29,000
101,000
×
Standard DLH per unit
0.25
0.25
0.25
0.25
=
Total direct labor hours required
6,500
11,500
7,250
25,250
×
Standard wage rate
$10
$10
$10
$10
=
Budgeted direct labor cost
$65,000
$115,000
$72,500
$252,500
Manufacturing Overhead Budget
April
May
June
Quarter
Budgeted production
26,000
46,000
29,000
101,000
×
Variable overhead per unit
0.50
0.50
0.50
0.50
=
Total variable overhead
13,000
23,000
14,500
50,500
+
Fixed overhead
50,000
50,000
50,000
150,000
Total budgeted manufacturing overhead
63,000
73,000
64,500
200,500
Less: Non-cash items
Depreciation
8,000
8,000
8,000
24,000
=
Total cash costs
$55,000
$65,000
$56,500
$176,500
5-46
5-38, continued
Raw Materials
Beginning balance
$5,200
Purchases of raw materials (from materials purchases budget)
201,400
Less: Ending raw materials inventory (11,500 lbs. $0.40)
4,600
Raw materials used
$202,000
Finished Goods
Unit costs:
Direct materials ($0.40/lb. × 5 lbs.)
$2.00
Direct labor ($10/DLH × .25 DLH)
2.50
Overhead ($50,000 × 12 months
400,000 bags + $0.50/bag)
2.00
Total standard unit cost
6.50
× Ending inventory units
5,000
Ending finished goods inventory
$32,500
Cost of Goods Sold
Beginning work in process inventory
$ 0
Direct materials used
202,000
Direct labor
252,500
Manufacturing overhead
200,500
Total manufacturing costs
655,000
Less: Ending work in process inventory
0
Cost of goods manufactured
655,000
Add: Beginning finished goods inventory
26,000
Less: Ending finished goods inventory
32,500
Cost of goods sold
$648,500
Chapter 5 – Planning and Forecasting
5-47
5-38, continued
Cash Receipts Budget
April
May
June
Total Cash
Receipts
Bad Debts
Accounts
Receivable
March salesa
$120,000 × 25%
$30,000
$30,000
April sales
$200,000 × 70%
140,000
140,000
$200,000 × 25%
$50,000
50,000
$200,000 × 5%
$10,000
May sales
$500,000 × 70%
350,000
350,000
$500,000 × 25%
$125,000
125,000
$500,000 × 5%
25,000
June sales
$300,000 × 70%
210,000
210,000
$300,000 × 5%
15,000
$300,000 × 25%
$75,000
Totals
$170,000
$400,000
$335,000
$905,000
$50,000
$75,000
Solutions for Davis & Davis, Managerial Accounting, 2nd ed.
5-48
5-38, continued
Cash Payments for Materials Budget
April
May
June
Total Cash
Payments
Accounts
Payable
A/P from March
$12,000
$ 12,000
April purchases
$56,000 × 50%
28,000
28,000
$56,000 × 50%
$28,000
28,000
May purchases
$88,600 × 50%
44,300
44,300
$88,600 × 50%
$44,300
44,300
June purchases
$56,800 × 50%
28,400
28,400
$56,800 × 50%
$28,400
Total
$40,000
$72,300
$72,700
$185,000
$28,400
Chapter 5 – Planning and Forecasting
5-49
5-38, continued
Cash Budget
April
May
June
Quarter
Beginning cash balance
$40,000
$30,500
$30,180
$40,000
Collections from sales
170,000
400,000
335,000
905,000
Total cash available to spend
210,000
430,500
365,180
945,000
Less disbursements
Materials purchases
40,000
72,300
72,700
185,000
Direct labor
65,000
115,000
72,500
252,500
Manufacturing overhead
55,000
65,000
56,500
176,500
Selling & administrative expenses
46,500
61,500
51,500
159,500
Income taxes
50,000
50,000
Equipment purchase
48,000
48,000
Dividends
49,000
49,000
Total cash disbursements
305,500
313,800
301,200
920,500
Cash excess (deficiency)
(95,500)
116,700
63,980
24,500
Minimum cash balance
30,000
30,000
30,000
30,000
Cash excess (needed)
(125,500)
86,700
33,980
(5,500)
Financing:
Borrowings
126,000
126,000
Repaymentsb
(84,000)
(33,000)
(117,000)
Interesta
(2,520)
(420)
(2,940)
Total financing
126,000
(86,520)
(33,420)
6,060
Ending cash balance
$30,500
$30,180
$30,560
$30,560
aMay interest = $126,000 × 12% × 2
12 = $2,520
June interest = ($126,000 – $84,000) × 12% × 1
12 = $420
bMay repayment = $86,700 – $2,520 = $84,180, rounded down to $84,000
June repayment = $33,980 – $420 = $33,560, rounded down to $33,000
5-50
5-38, continued
b.
Income Statement for the quarter ended June 30
Sales (see sales budget)
$1,000,000
Cost of goods sold (see ending inventory and cost of goods sold budget)
648,500
Gross profit
351,500
Selling and administrative expense (see selling and administrative expense budget)
240,300
Operating income
111,200
Interest expense (see cash budget)
2,940
Income before taxes
108,260
Income tax expense (30%)
32,478
Net income
$75,782
c.
Balance Sheet as of 6/30
Cash (see cash budget)
$30,560
A/R (see cash receipts budget)
75,000
Finished Goods (see ending inventory and cost of goods sold budget)
32,500
Raw Materials Inventory (see ending inventory and cost of goods sold budget)
4,600
Property, Plant & Equipmenta
248,000
Less: Accumulated Depreciationb
(104,800)
Total Assets
$285,860
A/P(see cash payments for purchases budget)
$28,400
Income Taxes Payable (see budgeted income statement)
32,478
Note Payablec
9,000
Common Stock
52,000
Retained Earningsd
163,982
Total Liabilities and Equities
$285,860