CHAPTER 21 Budgeting
Prob. 21–2B (FIN MAN); Prob. 6–2B (MAN)
1.
Unit Sales Unit Selling
Volume Price Total Sales
King:
Northern Domestic 610 $780 $ 475,800
2.
King Prince
Expected units to be sold 1,310 1,480
For the Month Ending February 28, 2014
Units
Product and Area
ROYAL FURNITURE COMPANY
Sales Budget
For the Month Ending February 28, 2014
ROYAL FURNITURE COMPANY
Production Budget
21-40
CHAPTER 21 Budgeting
Prob. 21–2B (FIN MAN); Prob. 6–2B (MAN) (Continued)
3.
Fabric Wood Filler Springs
(sq. yds.) (linear ft.) (cubic ft.) (units) Total
Required units for
production:
Less estimated inventory,
February 1, 2014 420 580 250 660
Total units to be
purchased 13,730 88,210 10,576 38,560
ROYAL FURNITURE COMPANY
Direct Materials Purchases Budget
For the Month Ending February 28, 2014
Direct Materials
21-41
CHAPTER 21 Budgeting
Prob. 21–2B (FIN MAN); Prob. 6–2B (MAN) (Concluded)
4.
Framing Cutting Upholstery
Department Department Department Total
Hours required for production:
King11,560 650 1,040
ROYAL FURNITURE COMPANY
Direct Labor Cost Budget
For the Month Ending February 28, 2014
21-42
CHAPTER 21 Budgeting
Prob. 21–3B (FIN MAN); Prob. 6–3B (MAN)
1.
Unit Sales Unit Selling
Volume Price Total Sales
2.
Batting Football
Helmet Helmet
Expected units to be sold 1,200 6,500
GOLD MEDAL ATHLETIC CO.
Sales Budget
For the Month Ending March 31, 2014
GOLD MEDAL ATHLETIC CO.
Production Budget
For the Month Ending March 31, 2014
Units
21-43
CHAPTER 21 Budgeting
Prob. 21–3B (FIN MAN); Prob. 6–3B (MAN) (Continued)
3.
Plastic Foam Lining Total
Units required for production:
Batting helmet 1,452 605
Plus desired units of inventory,
March 31, 2014 50 65
Total 24,182 10,390
Less estimated units of inventory,
GOLD MEDAL ATHLETIC CO.
Direct Materials Purchases Budget
For the Month Ending March 31, 2014
12
21-44
CHAPTER 21 Budgeting
Prob. 21–3B (FIN MAN); Prob. 6–3B (MAN) (Continued)
4.
Molding Assembly
Department Department Total
Hours required for production:
11,210 × 0.20 hr. = 242 hrs.
5.
Indirect factory wages $ 86,000
Factory Overhead Cost Budget
For the Month Ending March 31, 2014
GOLD MEDAL ATHLETIC CO.
Direct Labor Cost Budget
For the Month Ending March 31, 2014
GOLD MEDAL ATHLETIC CO.
21-45
CHAPTER 21 Budgeting
Prob. 21–3B (FIN MAN); Prob. 6–3B (MAN) (Continued)
6.
Finished goods inventory, March 1, 20141$ 19,480
Work in process inventory, March 1, 2014 $ 15,300
Direct materials:
Cost of direct materials placed in
production $186,092
Direct labor 241,406
Factory overhead 104,300
1
Batting helmet (40 × $25.00)……………………………………………………
…
$ 1,000
Football helmet (240 × $77.00)…………………………………………………
…
18,480
…
…
GOLD MEDAL ATHLETIC COMPANY
Cost of Goods Sold Budget
For the Month Ending March 31, 2014
21-46
CHAPTER 21 Budgeting
Prob. 21–3B (FIN MAN); Prob. 6–3B (MAN) (Concluded)
7.
Selling expenses:
Sales salaries expense $184,300
Advertising expense 87,200
8.
Revenue from sales $1,088,000
GOLD MEDAL ATHLETIC CO.
Budgeted Income Statement
For the Month Ending March 31, 2014
GOLD MEDAL ATHLETIC CO.
Selling and Administrative Expenses Budget
For the Month Ending March 31, 2014
21-47
CHAPTER 21 Budgeting
Prob. 21–4B (FIN MAN); Prob. 6–4B (MAN)
1.
June July August
Estimated cash receipts from:
Cash sales $ 16,000 $ 18,500 $ 20,000
(Continued)
MERCURY SHOES INC.
For the Three Months Ending June 30, 2014
Cash Budget
21-48
CHAPTER 21 Budgeting
Prob. 21–4B (FIN MAN); Prob. 6–4B (MAN) (Concluded)
Computations:
aCollections of accounts receivable: June July August
April sales…………………………………………
…
$ 48,000
1$120,000 × 40% = $48,000
2$150,000 × 60% = $90,000
bPayments for manufacturing costs: June July August
Payment of accounts payable,
cAccounts payable, June 1 balance = $13,000
2. The budget indicates that the minimum cash balance will not be maintained in
August. This is due to the capital expenditures requiring significant cash outflows
1
21-49
…
CHAPTER 21 Budgeting
Prob. 21–5B (FIN MAN); Prob. 6–5B (MAN)
1.
Sales1$456,000
Cost of goods sold:
Operating expenses:
Selling expenses:
Sales salaries and commissions5$64,100
13,800 units × $120
23,800 units × $30
MESA PUBLISHING CO.
Budgeted Income Statement
For the Year Ending December 31, 2015
21-50
CHAPTER 21 Budgeting
Prob. 21–5B (FIN MAN); Prob. 6–5B (MAN) (Concluded)
2.
Current assets:
Total current assets $158,560
Current liabilities:
Common stock $ 30,000
1Cash balance, December 31, 2015:
Balance, January 1, 2015………………………………………………………
…
$ 26,000
Add: Cash from operations
2$82,000 + $22,000 = $104,000
LIABILITIES
STOCKHOLDERS’ EQUITY
MESA PUBLISHING CO.
Budgeted Balance Sheet
December 31, 2015
ASSETS
21-51
CHAPTER 21 Budgeting
CP 21–1 (FIN MAN); CP 6–1 (MAN)
Cam should reject Megan’s request to charge the convention-related costs against
July’s budget. This is just one example of many attempts to slide expenses into
different budget periods than when actually incurred. This is a common issue that
CP 21–2 (FIN MAN); CP 6–2 (MAN)
a. The hospital’s new budget method is clearly an example of a flexible budget.
The budget changes with changes in underlying activity, such as patient-days.
b. The advantage of a flexible budget is to accurately plan variable costs of the
hospital with changes in the underlying activity base. Using a static budget would
CASES & PROJECTS
21-52
CHAPTER 21 Budgeting
CP 21–3 (FIN MAN); CP 6–3 (MAN)
a. The budget information indicates that the actual expenditures by the Operations
Department exceeded what was planned by $12,000. The bank manager may ask
b. The bank manager does not know if the actual resources consumed by the
Operations Department are the right amount of resources for doing the right
things. In other words, this budget doesn’t say anything about the actual work
CHAPTER 21 Budgeting
CP 21–4 (FIN MAN); CP 6–4 (MAN)
Domino’s could use a master budget to plan operations consistent with the sales
forecast. The sales forecast could be used to develop the production budget for
pizzas. The sales and production budgets would be identical, since there would
be no finished goods inventory for cooked pizzas. The sales (production) budget
21-54
CHAPTER 21 Budgeting
CP 21–5 (FIN MAN); CP 6–5 (MAN)
a. The amount of actual expenditures was less than budget for the first 10 months of
the budget year. As the budget year-end neared, the manager spent the remaining
excess budget and, as a result, went over the budget for May and June. The
b. The budget system encourages this type of wasteful behavior. The budget could
be redesigned in a number of ways. The budget could be designed to flex with
underlying activity and adjusted monthly. Thus, the manager would always have
budgeted resources for changes in underlying activity. For example, if the number
of prisoners in the jail increased, then the budget would increase proportionately.
A manager with the flexible budget would be less likely to “reserve” the budget
during the year, since an activity change would be automatically reflected in the
21-55
CP 21–6 (FIN MAN); CP 6–6 (MAN)
Most states have home pages and budget information available online. The budget
1. Where Your Tax Dollar Comes From
(in cents)
Insurance & Banking, 5¢
All Other Taxes, 9¢
Tobacco, Beer, &
Alcoholic Beverages, 3¢
21-56
CHAPTER 21 Budgeting
CP 21–6 (FIN MAN); CP 6–6 (MAN) (Concluded)
2.
Where Your State Dollar Goes
(in cents)
Transportation, 7¢
Cities & Counties, 7¢
21-57