Solutions Manual, Chapter 9 1
Chapter 9
Master Budgeting
Solutions to Questions
1. Budgets communicate management’s
2. Budgets force managers to think about
effectively.
4. The budgeting process can uncover
same direction.
6. Budgets define goals and objectives that
can serve as benchmarks for evaluating
which a manager is held responsible for those
of all of management’s plans and goals for the
cash budget.
9-5 The level of sales impacts virtually every
9-6 No. Planning and control are different,
although related, concepts. Planning involves
9-7 Creating a “budgeting assumptions” tab
simplifies the process of determining how
estimates prepared by front-line managers are
2 Managerial Accounting for Managers, 4th Edition
often more accurate and reliable than estimates
9-9 The direct labor budget and other
Solutions Manual, Chapter 9 3
The Foundational 15
1. The budgeted sales for July are computed as follows:
Unit sales (a) ………………………..
10,000
Selling price per unit (b) ………….
$70
Total sales (a) × (b) ……………….
$700,000
2. The expected cash collections for July are computed as follows:
July
June sales:
$588,000 × 60% ……………….
$352,800
July sales:
$700,000 × 40% ……………….
280,000
Total cash collections …………….
$632,800
3. The accounts receivable balance at the end of July is:
July sales (a) ………………………..
$700,000
Percent uncollected (b) ……………
60%
Accounts receivable (a) × (b) ……
$420,000
4. The required production for July is computed as follows:
Budgeted sales in units ………………
Add desired ending inventory* …….
Total needs ……………………………..
Less beginning inventory** …………
Required production ………………….
*August sales of 12,000 units × 20% = 2,400 units.
**July sales of 10,000 units × 20% = 2,000 units.
4 Managerial Accounting for Managers, 4th Edition
The Foundational 15 (continued)
5. The raw material purchases for July are computed as follows:
July
Required production in units of finished goods ……………..
10,400
Units of raw materials needed per unit of finished goods ..
5
Units of raw materials needed to meet production …………
52,000
Add desired units of ending raw materials inventory* …….
6,100
Total units of raw materials needed …………………………...
58,100
Less units of beginning raw materials inventory** …………
5,200
Units of raw materials to be purchased ……………………….
52,900
6. The cost of raw material purchases for July is computed as follows:
Units of raw materials to be purchased (a)………
52,900
Unit cost of raw materials (b) ……………………….
$2.00
Cost of raw materials to be purchased (a) × (b) .
$105,800
7. The estimated cash disbursements for materials purchases in July is
computed as follows:
July
June purchases:
$88,880 × 70% ………………….
$62,216
July purchases:
$105,800 × 30% ………………..
31,740
Total cash disbursements ………..
$93,956
8. The accounts payable balance at the end of July is:
July purchases (a) ………………….
$105,800
Percent unpaid (b) …………………
70%
Accounts payable (a) × (b) ………
$74,060
Solutions Manual, Chapter 9 5
The Foundational 15 (continued)
9. The estimated raw materials inventory balance at the end of July is
computed as follows:
Ending raw materials inventory (pounds) (a) ……
6,100
Cost per pound (b) …………………………………….
$2.00
Raw material inventory balance (a) × (b) ……….
$12,200
10. The estimated direct labor cost for July is computed as follows:
July
Required production in units …………..
10,400
Direct labor hours per unit ……………..
× 2.0
Total direct labor-hours needed (a)…..
20,800
Direct labor cost per hour (b) ………….
$15
Total direct labor cost (a) × (b) ……….
$312,000
11. The estimated unit product cost is computed as follows:
Quantity
Cost
Total
Direct materials …………………..
5 pounds
$2 per pound
$10.00
Direct labor ………………………..
2 hours
$15 per hour
30.00
Manufacturing overhead ……….
2 hours
$10 per hour
20.00
Unit product cost ………………...
$60.00
12. The estimated finished goods inventory balance at the end of July is
computed as follows:
Ending finished goods inventory in units (a) …….
2,400
Unit product cost (b) ………………………………….
$60.00
Ending finished goods inventory (a) × (b) ……….
$144,000
6 Managerial Accounting for Managers, 4th Edition
The Foundational 15 (continued)
13. The estimated cost of goods sold for July is computed as follows:
Unit sales (a) ……………………………………………
10,000
Unit product cost (b) ………………………………….
$60.00
Estimated cost of goods sold (a) × (b) …………..
$600,000
The estimated gross margin for July is computed as follows:
Total sales (a) …………………………………………..
$700,000
Cost of goods sold (b) ………………………………..
600,000
Estimated gross margin (a) – (b) …………………..
$100,000
14. The estimated selling and administrative expense for July is computed
as follows:
July
Budgeted unit sales ……………………………..
10,000
Variable selling and administrative …………..
expense per unit …………………………..…..
× $1.80
Total variable expense ………………………….
$18,000
Fixed selling and administrative expenses …
60,000
Total selling and administrative expenses …
$78,000
15. The estimated net operating income for July is computed as follows:
Gross margin (a) ……………………………………….
$100,000
Selling and administrative expenses (b) ………….
78,000
Net operating income (a) – (b) ……………………..
$ 22,000
Solutions Manual, Chapter 9 7
Exercise 9-1 (20 minutes)
1.
April
May
June
Total
February sales:
$230,000 × 10% …….
$ 23,000
$ 23,000
March sales: $260,000
× 70%, 10% ………….
182,000
$ 26,000
208,000
April sales: $300,000 ×
20%, 70%, 10% …….
60,000
210,000
$ 30,000
300,000
May sales: $500,000 ×
20%, 70% …………….
100,000
350,000
450,000
June sales: $200,000 ×
20% …………………….
40,000
40,000
Total cash collections ….
$265,000
$336,000
$420,000
$1,021,000
greatest.
2. Accounts receivable at June 30:
From May sales: $500,000 × 10% ……………………
$ 50,000
From June sales: $200,000 × (70% + 10%) ………
160,000
Total accounts receivable at June 30 …………………
$210,000
8 Managerial Accounting for Managers, 4th Edition
Exercise 9-2 (10 minutes)
April
May
June
Quarter
Budgeted unit sales ……………..
50,000
75,000
90,000
215,000
Add desired units of ending
finished goods inventory* ……
7,500
9,000
8,000
8,000
Total needs ………………………..
57,500
84,000
98,000
223,000
Less units of beginning finished
goods inventory ………………..
5,000
7,500
9,000
5,000
Required production in units …..
52,500
76,500
89,000
218,000
Solutions Manual, Chapter 9 9
Exercise 9-3 (15 minutes)
Quarter—Year 2
First
Second
Third
Fourth
Year
Required production in units of finished
goods …………………………..………………….
60,000
90,000
150,000
100,000
400,000
Units of raw materials needed per unit of
finished goods …………………………………..
× 3
× 3
× 3
× 3
× 3
Units of raw materials needed to meet
production ………………………………………..
180,000
270,000
450,000
300,000
1,200,000
Add desired units of ending raw materials
inventory ………………………………………….
54,000
90,000
60,000
42,000
42,000
Total units of raw materials needed ………….
234,000
360,000
510,000
342,000
1,242,000
Less units of beginning raw materials
inventory ………………………………………….
36,000
54,000
90,000
60,000
36,000
Units of raw materials to be purchased ……..
198,000
306,000
420,000
282,000
1,206,000
Unit cost of raw materials ……………………….
× $1.50
× $1.50
× $1.50
× $1.50
× $1.50
Cost of raw materials to purchased …………..
$297,000
$459,000
$630,000
$423,000
$1,809,000
10 Managerial Accounting for Managers, 4th Edition
Exercise 9-4 (20 minutes)
1. Assuming that the direct labor workforce is adjusted each quarter, the direct labor budget is:
1st
Quarter
2nd
Quarter
3rd
Quarter
4th
Quarter
Year
Required production in units ……………………….
8,000
6,500
7,000
7,500
29,000
Direct labor time per unit (hours) …………………
× 0.35
× 0.35
× 0.35
× 0.35
× 0.35
Total direct labor-hours needed……………………
2,800
2,275
2,450
2,625
10,150
Direct labor cost per hour …………………………..
× $12.00
× $12.00
× $12.00
× $12.00
× $12.00
Total direct labor cost ………………………………..
$ 33,600
$ 27,300
$ 29,400
$ 31,500
$121,800
2. Assuming that the direct labor workforce is not adjusted each quarter and that overtime wages are
paid, the direct labor budget is:
1st
Quarter
2nd
Quarter
3rd
Quarter
4th
Quarter
Year
Required production in units ………………………
8,000
6,500
7,000
7,500
Direct labor time per unit (hours) ………………..
× 0.35
× 0.35
× 0.35
× 0.35
Total direct labor-hours needed ………………….
2,800
2,275
2,450
2,625
Regular hours paid …………………………………..
2,600
2,600
2,600
2,600
Overtime hours paid …………………………………
200
0
0
25
Wages for regular hours (@ $12.00 per hour) ..
$31,200
$31,200
$31,200
$31,200
$124,800
Overtime wages (@ 1.5 × $12.00 per hour) ….
3,600
0
0
450
4,050
Total direct labor cost ……………………………….
$34,800
$31,200
$31,200
$31,650
$128,850