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Solutions Manual, Chapter 8 69
Problem 8-31 (continued)
3. Cash budget:
January February March Quarter
Be
g
innin
g
cash balance ….. $ 48,000 * $ 30,000 $ 30,800 $ 48,000
A
dd collections from
customers …………………. 304,000 * 440,000 540,000 1,284,000
T
otal cash available ……….. 352,000 * 470,000 570,800 1,332,000
Less cash disbursements:
Inventory purchases ……. 228,000 * 292,500 240,000 760,500
Sellin
g
and administrative
T
T
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70 Managerial Accounting, 16th Edition
Problem 8-31 (continued)
4. Income statement:
Hillyard Company
Income Statement
For the Quarter Ended March 31
Sales ………………………………………………… $1,300,000
Cost of
g
oods sold:
Be
g
innin
g
inventory (Given) ………………… $ 60,000
A
Sellin
g
and administrative expenses:
Salaries and wa
g
es ($27,000 × 3)…………. 81,000
A
dvertisin
g
($70,000 × 3) …………………… 210,000
Shippin
g
(5% of sales) ……………………….. 65,000
Depreciation (
g
iven) ………………………….. 42,000
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Solutions Manual, Chapter 8 71
Problem 8-31 (continued)
5. Balance sheet:
Hillyard Company
Balance Sheet
March 31
A
ssets
Current assets:
Cash (see requirement 3)…………………………………….. $ 42,900
A
ccounts receivable (80% × $300,000)…………………… 240,000
T
T
Liabilities and Stockholders’ Equit
y
Current liabilities:
A
ccounts payable (50% × $165,000) …………. $ 82,500
Stockholders’ equity:
T
* Be
g
innin
g
retained earnin
g
s …………….. $109,000
A
dd net income …………………………….. 80,600
T
g
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72 Managerial Accounting, 16th Edition
Case 8-32 (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-
b.
Influence of Uncontrollable Factors.
Actual performance relative to
budget is greatly influenced by uncontrollable factors (i.e., rush
orders, lack of prompt maintenance). Thus, the variance reports
c.
The Short-Run Perspectives.
Monthly evaluations and budget
tightening on a monthly basis results in a very short-run perspective.
d.
System Does Not Motivate.
The budgetary system appears to focus
on performance evaluation even though most of the essential factors
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
c. establish budgets for appropriate time periods that do not change
The entire company from top management down should be educated in
(Unofficial CMA Solution, adapted)
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Solutions Manual, Chapter 8 73
Case 8-33 (120 minutes)
1. a. Sales bud
g
et:
April May June Quarter
Bud
g
eted unit sales … 65,000 100,000 50,000 215,000
b. Schedule of expected cash collections:
February sales (10%) . $ 26,000 $ 26,000
March sales
(70%, 10%) ……….. 280,000 $ 40,000 320,000
T
A
pril sales
c. Merchandise purchases bud
g
et:
Bud
g
eted unit sales … 65,000 100,000 50,000 215,000
T
A
dd desired endin
g
merchandise
d. Bud
g
eted cash disbursements for merchandise purchases:
A
ccounts payable …….. $100,000 $ 100,000
A
pril purchases ……….. 158,000 $158,000 316,000
T
T
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74 Managerial Accounting, 16th Edition
Case 8-33 (continued)
2. Earrin
g
s Unlimited
Cash Bud
g
et
For the Three Months Endin
g
June 30
April May June Quarter
Be
g
innin
g
cash balance ….. $ 74,000 $ 50,000 $ 50,000 $ 74,000
A
dd collections from
T
Less cash disbursements:
Merchandise purchases … 258,000 318,000 244,000 820,000
A
Commissions (4% of
sales) …………………….. 26,000 40,000 20,000 86,000
Utilities …………………….. 7,000 7,000 7,000 21,000
T
Excess (deficiency) of cash
available over
disbursements ……………. (120,000) 40,000 280,000 100,000
Financin
g
:
Borrowin
g
s ………………… 170,000 10,000 0 180,000
T
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Solutions Manual, Chapter 8 75
Case 8-33 (continued)
3. Earrin
g
s Unlimited
Bud
g
eted Income Statement
For the Three Months Ended June 30
Sales (see requirement 1a.) …………………. $2,150,000
V
ariable expenses:
Fixed expenses:
A
dvertisin
g
($200,000 × 3) …..…………… 600,000
Rent ($18,000 × 3) …………………………. 54,000
Salaries ($106,000 × 3) ……………………. 318,000
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76 Managerial Accounting, 16th Edition
Case 8-33 (continued)
4. Earrin
g
s Unlimited
Bud
g
eted Balance Sheet
June 30
Assets
Cash (see requirement 2) ……………………………….………. $ 94,700
A
ccounts receivable (see below) ………………………………. 500,000
T
Liabilities and Stockholders’ Equity
A
ccounts payable, purchases (50% × $168,000)………….. $ 84,000
Dividends payable ……………………………………..………….. 15,000
g
T
A
ccounts receivable at June 30:
10% × May sales of $1,000,000 ……….. $100,000
T
Retained earnin
g
s at June 30:
Balance, March 31 …………………………. $580,000
A
dd net income (see requirement 3) ….. 154,700
T
–