58 Managerial Accounting for Managers, 4th Edition
Problem 9-29 (continued)
4. Income statement:
Hillyard Company
Income Statement
For the Quarter Ended March 31
Sales …………………………………………………
$1,300,000
Cost of goods sold:
Beginning inventory (Given) …………………
$ 60,000
Add purchases (Part 2) ………………………..
750,000
Goods available for sale ……………………….
810,000
Ending inventory (Part 2) …………………….
30,000
780,000
*
Gross margin ……………………………………….
520,000
Selling and administrative expenses:
Salaries and wages ($27,000 × 3) ………….
81,000
Advertising ($70,000 × 3)) …………………..
210,000
Shipping (5% of sales) ………………………..
65,000
Depreciation (given) …………………………...
42,000
Other expenses (3% of sales) ……………….
39,000
437,000
Net operating income …………………………...
83,000
Interest expense (Part 4) ……………………….
2,400
Net income …………………………………………
$ 80,600
* A simpler computation would be: $1,300,000 x 60% = $780,000.
Solutions Manual, Chapter 9 59
Problem 9-29 (continued)
5. Balance sheet:
Hillyard Company
Balance Sheet
March 31
Assets
Current assets:
Cash (Part 4) ………………………………………………………
$ 42,900
Accounts receivable (80% × $300,000) …………………….
240,000
Inventory (Part 2) ………………………………………………..
30,000
Total current assets ………………………………………………..
312,900
Buildings and equipment, net
($370,000 + $86,200 – $42,000) …………………………….
414,200
Total assets …………………………………………………………..
$727,100
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable (Part 2: 50% × $165,000) ..
$ 82,500
Stockholders’ equity:
Common stock ……………………………………….
$500,000
Retained earnings* …………………………………
144,600
644,600
Total liabilities and stockholders’ equity ………….
$727,100
*
Beginning retained earnings ……………..
$109,000
Add net income ………………………………
80,600
Total…………………………………………….
189,600
Deduct cash dividends ……………………..
45,000
Ending retained earnings ………………….
$144,600
60 Managerial Accounting for Managers, 4th Edition
Case 9-30 (45 minutes)
1. The budgetary control system has several important shortcomings that
reduce its effectiveness and may cause it to interfere with good
performance. Some of the shortcomings are explained below.
a.
Lack of Coordinated Goals.
Emory had been led to believe high-
decisions that further the goals.
b.
Influence of Uncontrollable Factors.
Actual performance relative to
does not encourage coordination among departments.
c.
The Short-Run Perspectives.
Monthly evaluations and budget
usage).
d.
System Does Not Motivate.
The budgetary system appears to focus
system—employee motivation.
2. The improvements in the budgetary control system should correct the
deficiencies described above. The system should:
b. develop an accounting reporting system that better matches
controllable factors with supervisor responsibility and authority.
performance.
sound budgetary procedures.
(Unofficial CMA Solution, adapted)
Solutions Manual, Chapter 9 61
Case 9-31 (120 minutes)
1.
a.
Sales budget:
April
May
June
Quarter
Budgeted unit sales ……
65,000
100,000
50,000
215,000
Selling price per unit ….
× $10
× $10
× $10
× $10
Total sales ……………….
$650,000
$1,000,000
$500,000
$2,150,000
b.
Schedule of expected cash collections:
February sales (10%) …
$ 26,000
$ 26,000
March sales
(70%, 10%) …………..
280,000
$ 40,000
320,000
April sales
(20%, 70%, 10%) …..
130,000
455,000
$ 65,000
650,000
May sales
(20%, 70%) …………..
200,000
700,000
900,000
June sales (20%) ………
100,000
100,000
Total cash collections ….
$436,000
$695,000
$865,000
$1,996,000
c.
Merchandise purchases budget:
Budgeted unit sales ……
65,000
100,000
50,000
215,000
Add desired ending
merchandise
inventory ………………
40,000
20,000
12,000
12,000
Total needs ………………
105,000
120,000
62,000
227,000
Less beginning
merchandise
inventory ………………
26,000
40,000
20,000
26,000
Required purchases ……
79,000
80,000
42,000
201,000
Cost of purchases at
$4 per unit …………….
$316,000
$320,000
$168,000
$ 804,000
d.
Budgeted cash disbursements for merchandise purchases:
Accounts payable ……….
$100,000
$ 100,000
April purchases ………….
158,000
$158,000
316,000
May purchases …………..
160,000
$160,000
320,000
June purchases ………….
84,000
84,000
Total cash payments ……
$258,000
$318,000
$244,000
$ 820,000
62 Managerial Accounting for Managers, 4th Edition
Case 9-31 (continued)
2.
Earrings Unlimited
Cash Budget
For the Three Months Ending June 30
April
May
June
Quarter
Beginning cash balance …..
$ 74,000
$ 50,000
$ 50,000
$ 74,000
Add collections from
customers ………………….
436,000
695,000
865,000
1,996,000
Total cash available ………..
510,000
745,000
915,000
2,070,000
Less cash disbursements:
Merchandise purchases …
258,000
318,000
244,000
820,000
Advertising ………………..
200,000
200,000
200,000
600,000
Rent …………………………
18,000
18,000
18,000
54,000
Salaries …………………….
106,000
106,000
106,000
318,000
Commissions (4% of
sales) ……………………..
26,000
40,000
20,000
86,000
Utilities ……………………..
7,000
7,000
7,000
21,000
Equipment purchases …..
0
16,000
40,000
56,000
Dividends paid ……………
15,000
0
0
15,000
Total cash disbursements ..
630,000
705,000
635,000
1,970,000
Excess (deficiency) of cash
available over
disbursements ……………
(120,000)
40,000
280,000
100,000
Financing:
Borrowings ………………..
170,000
10,000
0
180,000
Repayments ……………….
0
0
(180,000)
(180,000)
Interest
($170,000 × 1% × 3 +
$10,000 × 1% × 2) …..
0
0
(5,300)
(5,300)
Total financing ………………
170,000
10,000
(185,300)
(5,300)
Ending cash balance ………
$ 50,000
$ 50,000
$ 94,700
$ 94,700
Solutions Manual, Chapter 9 63
Case 9-31 (continued)
3.
Earrings Unlimited
Budgeted Income Statement
For the Three Months Ended June 30
Sales (Part 1 a.) …………………………………
$2,150,000
Variable expenses:
Cost of goods sold @ $4 per unit …………
$860,000
Commissions @ 4% of sales ……………….
86,000
946,000
Contribution margin …………………………….
1,204,000
Fixed expenses:
Advertising ($200,000 × 3) ………………..
600,000
Rent ($18,000 × 3) …………………………..
54,000
Salaries ($106,000 × 3) …………………….
318,000
Utilities ($7,000 × 3) …………………………
21,000
Insurance ($3,000 × 3) ……………………..
9,000
Depreciation ($14,000 × 3) ………………..
42,000
1,044,000
Net operating income ………………………….
160,000
Interest expense (Part 2) ……………………..
5,300
Net income ……………………………………….
$ 154,700
64 Managerial Accounting for Managers, 4th Edition
Case 9-31 (continued)
4.
Earrings Unlimited
Budgeted Balance Sheet
June 30
Assets
Cash ……………………………………………………………………
$ 94,700
Accounts receivable (see below) ………………………………..
500,000
Inventory (12,000 units @ $4 per unit) ……………………….
48,000
Prepaid insurance ($21,000 – $9,000) ………………………..
12,000
Property and equipment, net
($950,000 + $56,000 – $42,000) …………………………….
964,000
Total assets …………………………………………………………..
$1,618,700
Liabilities and Stockholders’ Equity
Accounts payable, purchases (50% × $168,000) …………..
$ 84,000
Dividends payable ………………………………………………….
15,000
Common stock ………………………………………………………
800,000
Retained earnings (see below) …………………………..……..
719,700
Total liabilities and stockholders’ equity ……………………….
$1,618,700
Accounts receivable at June 30:
10% × May sales of $1,000,000 …………
$100,000
80% × June sales of $500,000 …………..
400,000
Total …………………………………………….
$500,000
Retained earnings at June 30:
Balance, March 31 …………………………..
$580,000
Add net income (part 3) …………………..
154,700
Total …………………………………………….
734,700
Less dividends declared ……………………
15,000
Balance, June 30 …………………………….
$719,700