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Solutions Manual, Chapter 8 51
Problem 8-25 (60 minutes)
1. Collections on sales:
April May June Quarter
Cash sales …………………. $120,000 $180,000 $100,000 $ 400,000
Sales on account:
February: $200,000 ×
80% × 20% ………….. 32,000 32,000
March: $300,000 ×
T
2. a. Merchandise purchases budget:
April May June July
Bud
g
eted cost of
g
oods sold .. $420,000 $630,000 $350,000 $280,000
A
dd desired endin
g
merchandise inventory* …… 94,500 52,500 42,000
T
b. Schedule of expected cash disbursements for merchandise purchases:
April May June Quarter
Be
g
innin
g
accounts
payable …………… $126,000 $ 126,000
A
pril purchases ……. 215,250 $215,250 430,500
A
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52 Managerial Accounting, 16th Edition
Problem 8-25 (continued)
3.
Garden Sales, Inc.
Cash Budget
For the Quarter Ended June 30
April May June Quarter
Be
g
innin
g
cash balance ….. $ 52,000 $ 40,750 $ 83,500 $ 52,000
A
dd collections from
T
Less cash disbursements:
Purchases for inventory … 341,250 509,250 463,750 1,314,250
Sellin
g
expenses …………. 79,000 120,000 62,000 261,000
A
—
—
—
—
T
Financin
g
:
Borrowin
g
s ………………… 43,000 0 0 43,000
Repayments ………………. 0 0 (43,000) (43,000)
Interest
T
4. Collecting accounts receivable sooner and reducing inventory levels
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Solutions Manual, Chapter 8 53
Problem 8-26 (45 minutes)
1. a. The reasons that Marge Atkins and Pete Granger use budgetary slack
include the following:
• These employees are hedging against the unexpected (reducing
• The use of budgetary slack allows employees to exceed expectations
and/or show consistent performance. This is particularly important
• Employees are able to blend personal and organizational goals
b. The use of budgetary slack can adversely affect Atkins and Granger
by:
• limiting the usefulness of the budget to motivate their employees to
• affecting their ability to identify trouble spots and take appropriate
• reducing their credibility in the eyes of management.
Also, the use of budgetary slack may affect management decision-
making as the budgets will show lower contribution margins (lower
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54 Managerial Accounting, 16th Edition
Problem 8-26 (continued)
2. The use of budgetary slack, particularly if it has a detrimental effect on
the company, may be unethical. In assessing the situation, the specific
Competence
Confidentiality
Integrity
• Any activity that subverts the legitimate goals of the company should
• Favorable as well as unfavorable information should be
Objectivity
• Information should be fairly and objectively communicated.
(Unofficial CMA Solution)
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Solutions Manual, Chapter 8 55
Problem 8-27 (45 minutes)
1. The expected cash collections are calculated as follows:
April May June Total
Cash sales ………………. $ 60,000 $ 66,000 $ 78,000 $204,000
March credit sales
collected ………………. 36,000 36,000
A
pril credit sales
collected: $40,000 ×
20%, 80% ……………. 8,000 32,000 40,000
T
2. The budgeted merchandise purchases are calculated as follows:
April May June Total
Cost of
g
oods sold …….. $ 60,000 $ 66,000 $ 78,000 $204,000
A
dd: desired endin
g
merchandise
T
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56 Managerial Accounting, 16th Edition
Problem 8-27 (continued)
3. The budgeted cash disbursements for merchandise purchases are
calculated as follows:
April May June Total
Cash purchases ………… $ 6,300 $ 7,200 $ 8,100 $21,600
March purchases paid … 51,300 51,300
A
pril credit purchases
T
4. The budgeted balance sheet is calculated as follows:
Deacon Company
Balance Sheet
June 30
Assets
Cash ($55,000 + $334,400 – $194,400 – $48,000) ………. $147,000
Accounts receivable ($130,000 × 40% × 80%) …………… 41,600
Liabilities and Stockholders’ Equity
Accounts payable ($81,000 – $8,100) ……………………….. $ 72,900
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Solutions Manual, Chapter 8 57
Problem 8-28 (60 minutes)
1. a. Schedule of expected cash collections:
Next Year’s Quarter
First Second Third Fourth Total
Current year
—
Fourth quarter sales:
$200,000 × 33% ……………………. $ 66,000 $ 66,000
Next year
—
First quarter sales:
$300,000 × 65% ……………………. 195,000 195,000
$300,000 × 33% ……………………. $ 99,000 99,000
Next year
—
Second quarter sales:
—
T
—
T
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58 Managerial Accounting, 16th Edition
Problem 8-28 (continued)
2. Schedule of expected cash disbursements for merchandise purchases for next year:
Quarter
First Second Third Fourth Total
Current year
—
Fourth quarter purchases:
$126,000 × 20% …………………………. $ 25,200 $ 25,200
Next year
—
First quarter purchases:
$186,000 × 80% …………………………. 148,800 148,800
$186,000 × 20% …………………………. $ 37,200 37,200
Next year
—
Second quarter purchases:
—
T
—
T
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Solutions Manual, Chapter 8 59
Problem 8-28 (continued)
3. Budgeted cash disbursements for selling and administrative expenses for next year:
Quarter
First Second Third Fourth Year
Bud
g
eted sales in dollars …………..….. $300,000 $400,000 $500,000 $200,000 $1,400,000
V
ariable sellin
g
and administrative
expense rate ……………………………. × 15% × 15% × 15% × 15% × 15%
V
ariable sellin
g
and administrative
expense …………………………………. $45,000 $ 60,000 $ 75,000 $30,000 $210,000
Fixed sellin
g
and administrative
T
g
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60 Managerial Accounting, 16th Edition
Problem 8-28 (continued)
4. Cash budget for next year:
Quarter
First Second Third Fourth Year
Be
g
innin
g
cash balance ………… $ 10,000 $ 12,000 $ 10,000 $ 10,800 $ 10,000
A
dd collections from customers . 261,000 359,000 457,000 295,000 1,372,000
T
otal cash available ………………. 271,000 371,000 467,000 305,800 1,382,000
Less cash disbursements:
Merchandise purchases ………. 174,000 234,000 293,200 161,800 863,000
Sellin
g
and administrative
expenses (above) ……………. 75,000 90,000 105,000 60,000 330,000
T
T