Chapter 5 – Planning and Forecasting
5-61
5-39b, continued
Ending Inventory and Cost of Goods Sold Budget
Raw Materials
Beginning balance
$5,200
Purchases of raw materials
196,384
Less: Ending raw materials inventory (20,700 lbs. $0.32)
6,624
Raw materials used
$194,960
Finished Goods
Unit costs:
Direct materials ($0.32/lb. × 6 lbs.)
$1.92
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
6.42
× Ending inventory units
5,000
Ending finished goods inventory
$32,100
Cost of Goods Sold
Beginning work in process inventory
$ 0
Direct materials used
194,960
Direct labor
252,500
Manufacturing overhead
200,500
Total manufacturing costs
647,960
Less: Ending work in process inventory
0
Cost of goods manufactured
647,960
Add: Beginning finished goods inventory
26,000
Less: Ending finished goods inventory
32,100
Cost of goods sold
$641,860
Solutions for Davis & Davis, Managerial Accounting, 2nd ed.
5-62
5-39b, continued
Cash Payments for Materials Budget
April
June
Total Cash
Payments
Accounts
Payable
A/P from March
$12,000
$ 12,000
April purchases
29,504
59,008
May purchases
$41,712
83,424
June purchases
26,976
26,976
$26,976
Total
$41,504
$68,688
$181,408
$26,976
Chapter 5 – Planning and Forecasting
5-63
5-39b, continued
Cash Budget
April
May
June
Quarter
Beginning cash balance
$40,000
$30,996
$30,720
$40,000
Collections from sales
170,000
400,000
335,000
905,000
Total cash available to spend
210,000
430,996
365,720
945,000
Less disbursements
Materials purchases
41,504
71,216
68,688
181,408
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
307,004
312,716
297,188
916,908
Cash excess (deficiency)
(97,004)
118,280
68,532
28,092
Minimum cash balance
30,000
30,000
30,000
30,000
Cash excess (needed)
(127,004)
88,280
38,532
(1,908)
Financing:
Borrowings
128,000
128,000
Repayments
(85,000)
(38,000)
(123,000)
Interest
(2,560)a
(430)a
(2,990)
Total financing
128,000
(87,560)
(38,430)
2,010
Ending cash balance
$30,996
$30,720
$30,102
$30,102
a$128,000 × 12% × 2
12 = $2,560, ($128,000 – $85,000) × 12% × 1
12 = $2,620 = $430
5-64
5-39b, continued
Income Statement for the quarter ended June 30
Sales
$1,000,000
Cost of goods sold
641,860
Gross profit
358,140
Selling and administrative expense
240,300
Operating income
117,840
Interest expense
2,990
Income before taxes
114,850
Income tax expense (30%)
34,455
Net income
$80,395
Balance Sheet as of 6/30
Cash
$30,102
A/R
75,000
Finished Goods
32,100
Raw Materials Inventory
6,624
Property, Plant & Equipment
248,000
Less: Accumulated Depreciation
(104,800)
Total Assets
$287,026
A/P
$26,976
Income Taxes Payable
34,455
Note Payable
5,000
Common Stock
52,000
Retained Earnings
168,595
Total Liabilities and Equities
$287,026
Chapter 5 – Planning and Forecasting
5-39, continued
Affected budget components
Materials purchases budget, ending inventory & COGS budget,
payments for materials budget, cash budget, pro-forma financial
statements
Net income impact
Income increases by $959 ($76,741 – $75,782); COGS and
interest expense both decrease by a small amount
Balance sheet impact
Total assets changes by very little, and only by the decrease in raw
materials inventory. $2,000 less short-term debt is borrowed in
April and in total, as cash disbursements are lower for the quarter.
Recommendation
A $959 dollar difference in expected income may not be enough to
risk trying this strategy. While the cost of the rocks is certain, the
amount of rocks needed per unit may not be as low as expected.
A slight deviation from budgeted results could leave Klandon worse
off than if the change had not been made.
Solutions for Davis & Davis, Managerial Accounting, 2nd ed.
5-66
5-39c, continued
Materials Purchases Budget
April
May
June
Quarter
Budgeted production
26,000
46,000
29,000
101,000
×
Standard pounds per unit
4
4
4
4
=
Production needs
104,000
184,000
116,000
404,000
+
Budgeted ending inventory (pounds)
14,720
9,280
7,360
7,360
=
Total pounds required
118,720
193,280
123,360
411,360
–
Beginning inventory
13,000
14,720
9,280
13,000
=
Budgeted purchases (pounds)
105,720
178,560
114,080
398,360
×
Standard price per pound
$0.50
$0.50
$0.50
$0.50
=
Budgeted purchases cost
$52,860
$89,280
$57,040
$199,180
Chapter 5 – Planning and Forecasting
5-67
5-39c, continued
Raw Materials
Beginning balance
$5,200
Purchases of raw materials
199,180
Less: Ending raw materials inventory (7,360 lbs. $0.50)
3,680
Raw materials used
$200,700
Finished Goods
Unit costs:
Direct materials ($0.40/lb. × 5 lbs.)
$2.00
Direct labor ($10/DLH × .25 DLH)
2.50
Overhead ($50,000 rhead bor (
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
200,700
Direct labor
252,500
Manufacturing overhead
200,500
Total manufacturing costs
653,700
Less: Ending work in process inventory
0
Cost of goods manufactured
653,700
Add: Beginning finished goods inventory
26,000
Less: Ending finished goods inventory
32,500
Cost of goods sold
$647,200
5-68
5-39c, continued
Cash Payments for Materials Budget
April
May
June
Total Cash
Payments
Accounts
Payable
A/P from March
$12,000
$ 12,000
April purchases
26,430
26,430
52,860
May purchases
44,640
44,640
89,280
June purchases
28,520
28,520
$28,520
Total
$38,430
$71,070
$73,160
$182,660
$28,520
Chapter 5 – Planning and Forecasting
5-69
5-39c, continued
Cash Budget
April
May
June
Quarter
Beginning cash balance
$40,000
$30,070
$30,020
$40,000
Collections from sales
170,000
400,000
335,000
905,000
Total cash available to spend
210,000
430,070
365,020
945,000
Less disbursements
Materials purchases
38,430
71,070
73,160
182,660
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
303,930
312,570
301,660
918,160
Cash excess (deficiency)
(93,930)
117,500
63,360
26,840
Minimum cash balance
30,000
30,000
30,000
30,000
Cash excess (needed)
(123,930)
87,500
33,360
(3,160)
Financing:
Borrowings
124,000
124,000
Repayments
(85,000)
(32,000)
(117,000)
Interest
(2,480)a
(390)a
(2,870)
Total financing
124,000
(87,480)
(32,390)
4,130
Ending cash balance
$30,070
$30,020
$30,970
$30,970
a$124,000 × 12% × 2
5-70
5-39c, continued
Income Statement for the quarter ended June 30
Sales
$1,000,000
Cost of goods sold
647,200
Gross profit
352,800
Selling and administrative expense
240,300
Operating income
112,500
Interest expense
2,870
Income before taxes
109,630
Income tax expense (30%)
32,889
Net income
$76,741
Balance Sheet as of 6/30
Cash
$30,970
A/R
75,000
Finished Goods
32,500
Raw Materials Inventory
3,680
Property, Plant & Equipment
248,000
Less: Accumulated Depreciation
(104,800)
Total Assets
$285,350
A/P
$28,520
Income Taxes Payable
32,889
Note Payable
7,000
Common Stock
52,000
Retained Earnings
164,941
Total Liabilities and Equities
$285,350