Accounting Chapter 20 Budgeting Also Helps Focus The Future And

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Problem 20-8BA (Continued)

Part 4

ISLE CORPORATION

General and Administrative Expense Budgets

January

February

March

Total

Administrative salaries ……………….

$12,000

$36,000

Maintenance ……………………………….

Total gen. and admin. expenses ….

$21,375

$22,375

$22,675

$66,425

Part 5

ISLE CORPORATION

Capital Expenditures Budgets

January

February

March

Equipment purchases …………………………….

$72,000

$96,000

$ 28,800

Total capital expenditures ………………………

$72,000

$96,000

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Problem 20-8BA (Continued)

Part 6

ISLE CORPORATION

Cash Budget

January

February

March

Beginning cash balance ………………………….

$ 36,000

$182,850

$ 107,850

Add: Cash receipts from sales (given) ……….

382,500

421,500

355,500

Total cash available ………………………………..

418,500

604,350

463,350

306,000

123,000

Sales commissions ……………………………….

54,000

72,000

90,000

Sales salaries ……………………………………….

General & administrative salaries ………….

12,000

Maintenance …………………………………………

Loan interest ($15,000 x 1%) ……………………….

150

0

Taxes ……………………………………………………

0

90,000

Purchases of equipment ……………………….

72,000

96,000

28,800

Purchase of land …………………………………..

________

150,000

Total cash payments ……………………………..

220,650

496,500

504,300

Preliminary cash balance ………………………..

$197,850

$107,850

$ (40,950)

0

76,950

Wild and Shaw, Financial & Managerial Accounting 9e Solutions Manual: Chapter 20

Problem 20-8BA (Continued)

Part 7

ISLE CORPORATION

Budgeted Income Statement

For Three Months Ended March 31

Sales …………………………………………………………………..

$1,080,000

Cost of goods sold (24,000 units x $30) ………………..

720,000

Gross profit …………………………………………………………

360,000

Selling, general and administrative expenses

305,075

Income before income taxes ………………………………..

Income taxes ($54,925 x 40%) ………………………………

21,970

Part 8

ISLE CORPORATION

Budgeted Balance Sheet

March 31

ASSETS

Cash ……………………………………………….

$ 36,000

Cash budget

Accounts receivable ……………………….

445,500

Note A

Inventory ………………………………………..

67,500

Note B

Equipment ………………………………………

647,875

Note D

150,000

Accounts payable …………………………...

Note E

Loan payable ………………………………….

Cash budget

Taxes payable (due April 15) ……………

$ 595,420

Income stmt.

Common stock ……………………………….

Unchanged

Retained earnings …………………………..

751,455

1278

Problem 20-8BA (Concluded)

Supporting Footnotes

Note A

Beginning accounts receivable …………………………………….

$ 525,000

Credit sales …………………………………………………………………

1,080,000

Less cash receipts from sales (from part 6) …………………..

(1,159,500)

Ending accounts receivable …………………………………………

$ 445,500

Note B

Beginning merchandise inventory ………………………………..

$ 150,000

Purchases …………………………………………………………………..

Less cost of goods sold ……………………………………………….

Ending merchandise inventory* …………………………..……….

$ 67,500

Note C

Beginning equipment …………………………………………………..

$ 540,000

Purchased in January ………………………………………………….

72,000

Purchased in February …………………………………………………

96,000

Purchased in March …………………………………………………….

28,800

Ending equipment ……………………………………………………….

$ 736,800

Note D

Beginning accumulated depreciation …………………………...

$ 67,500

Depreciation expense…………………………………………………..

21,425

Ending accumulated depreciation …………………………………

$ 88,925

Note E

Beginning accounts payable ………………………………………..

$ 360,000

Purchases (from part 3) ……………………………………………….

Cash payments for purchases (from part 6) …………………..

Ending accounts payable …………………………………………….

Note F

Beginning retained earnings ………………………………………..

$ 246,000

Net income ………………………………………………………………….

32,955

Ending retained earnings ……………………………………………..

$ 278,955

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Serial Problem — SP 20

Serial Problem, Business Solutions (25 minutes)

Part 1

BUSINESS SOLUTIONS—Computer Furniture Segment

Budgeted Income Statement

For Three Months Ended June 30, 2022

Sales* …………………………………………………………….

$226,650

Cost of goods sold** ………………………………………

143,250

Part 2

Increase. The proposed changes result in increased budgeted net income

for the quarter ended June 30.

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Company Analysis — AA 20-1

APPLE INC. AppleCare Division

Direct Labor Budget

For the Month

Budgeted

Hours*

Direct

Labor Cost

Direct Labor

Cost

Support specialists …………………….

750,000

$20

$ 15,000,000

480,000

Comparative Analysis — AA 20-2

1.

Apple,

Current Year

Apple,

Prior Year

Google,

Current Year

Google,

Prior Year

Total

revenue ……..

$260,174,000,000

$265,595,000,000

$161,857,000,000

$136,819,000,000

2. Apple. Apple’s workforce was more effective at generating revenues in

the current year. Its revenue per employee is higher than Google’s.

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Extended Analysis — AA 20-3

1.

Samsung,

Current Year

Samsung,

Prior Year

Total revenue ………………………..

$197,690,938,000

$209,163,262,000

2. Less effective. Samsung’s workforce became less effective at

generating revenues in the current year. Revenue per employee

decreased.

Apple,

Current Year

Google,

Current Year

Total revenue ………………………..

$260,174,000,000

$161,857,000,000

Number of employees …………..

Revenue per employee ………….

Wild and Shaw, Financial & Managerial Accounting 9e Solutions Manual: Chapter 20

DISCUSSION QUESTIONS

1. A written budget helps managers plan and control a business by 1) communicating

plans to employees, 2) coordinating the activities of different parts of the organization,

and 3) providing a basis for deciding whether actual performance is acceptable

(through benchmarking). Budgeting also helps 4) focus on the future, and 5) motivate

employees.

2. Management controls operations by benchmarking against some norm. A

3. Continuous budgeting provides managers a full set of updated budgets each time a

4. Three common short-term horizons for planning and budgeting purposes are:

monthly, quarterly, and annually. A semiannual planning horizon is also popular.

5. Budgeting can be a strong positive motivating force if employees are involved or

consulted in the process. This participation promotes their commitment to reaching

6. Budgeting helps management coordinate and plan business activities by providing

specific guidance for the individual activities of various departments and employees.

7. The sales budget reflects the expected sales to be made over a period of time, stated

8. A selling expense budget is a plan of the expenses to be incurred to produce the

9. In participatory budgeting, some employees might understate sales and/or overstate

10. A cash budget shows the planned cash receipts and cash payments for each budget

period, including any loans to be received or repaid. Since the operating budgets and

11. A production budget shows the number of units to be produced each budget period.

Based on the number of units to be produced (taken from the production budget), the

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12. Managers can use the master budget to control operations by comparing actual

13. Because service companies do not manufacture goods and do not hold inventories,

14. The budgeting methodologies listed as being covered on the CMA exam include:

a. Annual business plans (master budgets)

b. Project budgeting

15. The bottle redesign will reduce the amount and total cost of glass used, thus

lowering direct materials costs on the direct materials budget. The lighter-weight

bottle likely will also reduce shipping costs on the selling expense budget. These

changes will also impact the cash budget.

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Ethics Challenge — BTN 20-1

Report on “Use It or Lose It” Budgeting

Instructor note: There is no widely accepted solution to this problem. The key is for the student to

think about the problem and work to at least modify the negative behavioral consequences of this

practice.

Any plan offered as a solution must better align upper management’s

expectations with department managers’ behavior. For example, upper

management might only cut by one-half the amount not spent according to

Communicating in Practice — BTN 20-2

MEMORANDUM

TO: ____________________

FROM: ____________________

DATE: ____________________

SUBJECT: ____________________

The content of this memorandum will vary among students. The student

must emphasize the need to know the compensation structure of the sales

staff to understand any potential bias in the information provided to the

budget process.

The memorandum should explain why a concern with bias in the information

Wild and Shaw, Financial & Managerial Accounting 9e Solutions Manual: Chapter 20

Teamwork in Action — BTN 20–3

There is no specific solution to this assignment. The instructor should watch

for proper development and identification of all reasonable costs.

Entrepreneurial Decision — BTN 20-4

1. Budgeting allows an organization to plan its activities better by allocating

2. To expand her operations, Nailah will need financing. A master budget

will help her determine how much additional financing is needed.

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