13–59. (continued)
13–60. (30 min.) Prepare Budgeted Financial Statements—Comparing
Alterntives: HomeSuites.
a. Under the “High Price” strategy, the number of nights will be:
788,400 [= (15 + 3) × 365 nights × 200 rooms × 60%].
The estimated budget is:
13–60. (continued)
a. Under the “High Occupancy” strategy, the number of nights will be:
1,051,200 [= (15 + 3) × 365 nights × 200 rooms × 80%].
The estimated budget is:
13–60. (continued)
c. Based on the budget, the High Price Strategy is expected to earn more profit than
the High Occupancy strategy ($20,778,800 versus $19,990,400). However, neither
strategy appears as profitable as the current one with an estimated profit of
$22,092,800.
13–61. (40 min.) Comprehensive Budget Plan: Brighton, Inc.
a. (1)
Brighton, Inc.
Schedule Computing Production
Budget (Units)
For April, May, and June
April
May
June
Budgeted sales—Units ………………………………..
600,000
450,000
600,000
Inventory required at end of montha ………………
90,000
120,000
120,000
Total to be accounted for ……………………………..
690,000
570,000
720,000
Less inventory on hand at beginning of month ..
120,000
90,000
120,000
(2)
Schedule Computing Raw Materials Inventory
Purchase Budget (Pounds)
For April and May
April
May
Budgeted production—Pounds (1/4 lb. per Unit)a …..
142,500
120,000
Inventory required at end of monthb ……………………..
48,000
60,000
Total to be accounted for …………………………………….
190,500
a April: 570,000 × .25 = 142,500
May: 480,000 × .25 = 120,000
b April: 480,000 × .4 × .25 = 48,000
May: 600,000 × .4 × .25 = 60,000
c 102,000 = 57,000 + 187,500 – 142,500
13–61. (continued)
b.
Brighton, Inc.
Projected Income Statement
For the Month of May
Sales revenue (450,000 Units at $4) …………………………………
$1,800,000
Less: Cash discounts on Sales …………………………………………
$ 18,000
Estimated bad debts (1/2 percent of gross sales) ………………
9,000
27,000
Net Sales ………………………………………………………………………
$1,773,000
Cost of Sales:
Variable cost per unit (=
$1,100,000
× 450,000 Units)
$990,000
500,000
Fixed Cost ………………………………………………………………
Gross profit on sales ……………………………………………………
Expenses:
Selling (10 percent of gross sales) …………………………….
Administrative ($165,000 per month) ………………………….
Interest expense (.01 × $500,000) ……………………………..
13–62. (60 min.) Comprehensive Budget Plan: Panther Corporation
Panther Corporation
Budgeted Income Statement
(in thousands)
Actual
For the Year Ended
December 31,
(Year 1)
Budgeted
For the Year Ended
December 31,
(Year 2)
Revenue:
Sales revenue ………………
$1,800,000
$2,400,000
Other income ……………….
60,000
36,000
Total Revenue …………..
$1,860,000
$2,436,000
Expenses:
Cost of goods manufactured &
sold:
Materials ……………………..
Direct labor …………………..
540,000
872,000
Variable overhead …………
324,000
520,000
(Depreciation and other)
Beginning inventory ………….
192,000
192,000
$1,632,000
$2,487,000
Ending inventory ………………
192,000
$1,440,000
459,000a
$2,028,000
Marketing:
Salaries ……………………….
$ 54,000
$ 64,000
Commissions ……………….
60,000
80,000
Promotions and advertising
126,000
240,000
180,000
324,000
Administrative:
Salaries ……………………….
$ 56,000
$ 64,000
Travel ………………………….
Office costs ………………….
110,000
Total expenses ……………..
$1,809,600
13–62. (continued)
Panther Corporation
Budgeted Balance Sheet
(in thousands)
Budgeted
December 31,
Year 2
Current Assets
Cash ………………………………………………………
$ 4,800
Accounts receivable …………………………………
320,000
Inventory …………………………………………………
459,000a
Income tax receivable ……………………………….
10,400b
Total current assets ………………………………
$794,200
Plant and equipment ……………………………………
520,000
Less: Accumulated depreciation …………………
164,000
356,000
Total assets ………………………………………….
Current liabilities
Accounts payable …………………………………….
Accrued payable ………………………………………
Notes payable ………………………………………….
200,000
Total current liabilities …………………………...
$473,000
Common stock …………………………………………
280,000
Retained earnings ……………………………………
13–62. (continued)
a Inventory
Units:
Beginning inventory $192,000
$1,440,000
=
40,000
units
300,000
Added to inventory 450,000 – 400,000 …………..
=
50,000
units
Ending inventory …………………………………………
90,000
units
Cost:
Manufacturing costs …………………………..
$2,295,000
Units manufactured …………………………...
450,000
Cost per unit ($2,295,000 450,000) …..
$5.10
Ending units ………………………………………
x 90,000
Cost of ending inventory ……………………..
$459,000
b Income tax:
Sales & other income ……………………………..
Cost of goods sold …………………………………
Selling expense …………………………………….
General & administrative expense ……………
Total cost…………………………………………..
Tax loss ……………………………………………….
Tax rate ……………………………………………….
c Ending retained earnings = Expected beginning balance plus net income – Dividends
= $432,800 – 15,600 – $20,000.
13–63. (40 min.) Budgeted Financial Statements in a Retail Firm: Del Fuego Surf
Shop
a.
Budgeted Income Statement
For the Year
Zuma
Coronado
Total
Revenue (a) ………………
$168,000
$156,000
$324,000
Cost of sales (b) …………
120,000
96,000
216,000
Gross margin …………….
$48,000
$60,000
$108,000
Less other costs: ………..
Depreciation ……………
(= $40,000 ÷ 5 years)
8,000
SG&A (fixed) …………..
(given)
36,000
SG&A (variable) ………
32,400
Interest expense ……..
Operating income ……….
$29,600
Income tax (@40%) ……
13–63. (continued)
b.
Budgeted Balance Sheet
December 31
Cash (a) …………………………………….
$23,160
Accounts Receivable (b) ………………
21,600
Inventory (c) ……………………………….
Current assets …………………………
$53,760
Equipment (d) …………………………….
40,000
Less accumulated depreciation (e) ..
32,000
Liabilities and Net Worth
Accounts Payable (f) …………………..
$18,000
Long-term Debt (g) ……………………..
25,000
Total liabilities ………………………….
$43,000
Contributed capital (h) …………………
25,000
Retained Earnings (i) …………………..
17,760
Total net worth …………………………
42,760
Total liabilities and net worth …..
$85,760
(b) [= ($324,000 ÷ 6) × 40%]
(c) [= ($216,000 ÷ 12) × 50%]
(d) Given
(e) (= $40,000 ÷ 5 years)
(g) Amount borrowed (given)
(h) Amount contributed by owner (given)
(i) Budgeted income from the budgeted income statement.
13–64. (20 min.) Cash Budgets and Sensitivity Analysis in a Retail Firm: Del
Fuego Surf Shop
NOTE: This problem assumes that Problem 13-63 has been completed. The
cash flow statement is presented using the direct method and relies on the
completion of the budgeted income statement in Problem 13-63,
requirement (a).
a.
Cash Budget
For the Year
Cash balance beginning of the year
$0
Receipts
Cash sales (a) ……………………………………
$194,400
Collection on Accounts Receivables (b) …
Proceeds from loan …………………………….
25,000
Contribution from owner ………………………
Total receipts …………………………………..
Less disbursements
Payments to vendors (c) …………………….
$207,000
Payments for fixed SG&A …………………….
36,000
Payments for variable SG&A ………………..
32,400
Payment of interest …………………………….
2,000
Payment of taxes ……………………………….
11,840
Purchase of equipment ……………………….
40,000
329,240
Net cash flow …………………………………..
$23,160
Receivable balance ($21,600):
b. No, Jeremy will not achieve his objective.
His goal is to have cash equal to 150 percent of the closing Accounts Payable
balance. From Problem 13-63, that means that Jeremy would need $27,000 (=
1.50 × $18,000). Jeremy’s balance is only $23,160.
13–64. (continued)
c. 32.9 percent.
For Jeremy to achieve his cash balance goal, the ending Accounts Receivable
balance would have to be $3,840 less than is currently budgeted. This is the
difference between his goal and the currently forecasted cash balance (=
$27,000 – $23,160). From the assumptions in Problem 13-63, the ending
Solutions to Integrative Cases
13–65. (40 min.) Prepare Cash Budget for Service Organization: Cortez Beach
Yacht Club.
The income statement is on a cash basis, hence we start with a budgeted income
statement.
a. Cortez Beach Yacht Club
Budgeted Statement of Income (Cash Basis)
For the Year 10
Cash revenue
Annual membership fees
$804,430
$1,418,163
Cash costs
Manager’s salary and benefits ($72,000 × 1.15) ………………………………
$ 82,800
Regular employees’ wages and benefits ($380,000 × 1.15) ……………….
437,000
Lesson and class employee wages and benefits (given) …………………….
604,650
Supplies ($32,000 × 1.25) …………………………………………………………….
40,000
Utilities (heat and light) ($44,000 × 1.25) …………………………………………
55,000
Mortgage interest ($720,000 × .06)a ………………………………………………..
43,200
Miscellaneous ($4,000 × 1.25) ………………………………………………………
5,000
Total cash expenses ………………………………………………………………….
$1,267,650
Cash income …………………………………………………………………………………..
$ 150,513
Additional Cash Flows
Cash payments:
Mortgage payment ………………………………………………………………………..
Accounts payable balance at 10/31/Year 9 ………………………………………
Accounts payable on equipment at 10/31/Year 9 ………………………………
30,000
Planned new equipment purchase ………………………………………………….
Total cash payments ………………………………………………………………….
Cash inflows from income statement ………………………………………………….
150,513
Beginning cash balance (including petty cash) …………………………………….
13–65. (continued)
b. Operating problems that Cortez Beach Yacht Club could experience in Year 10
include:
• The lessons and classes contribution to cash decreased because the projected
wage increase for lesson and class employees is not made up by the increased
volume of lessons and classes.
• Operating costs are increasing faster than revenues from membership fees.
13–66. (40 min.) The Role of Budgets and People in the Budgeting Process:
Fargo Industries.
a. The budget sales estimates are probably lower than the expected sales because
of the high volatility of the demand for snowmobiles coupled with the loss of
bonuses for missing sales estimates.
b. Sources of information that top management can use to monitor business unit
budget estimates include industry and trade association sales projections and
performance data, prior years’ reporting by plants and business units,
performances of similar business units and plants within the company, and
d. The cost of getting more involved in the budgeting process means more time and
additional staff will be required. Less autonomy at the business unit and plant
level could decrease motivation. The benefits are more accurate budgets, more
realistic budgets and improved coordination and control of the budget process. A