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, 2016
Units
Product and Area
ROYAL FURNITURE COMPANY
Sales Budget
For the Month Ending February 28, 2016
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.) (cu. ft.) (units) Total
Required units for
Less estimated inventory,
February 1, 2016 420 580 250 660
Total units to be
purchased 13,730 88,210 10,576 38,560
1,300 × 16 units = 20,800 units
5
1,490 × 4.0 sq. yds. = 5,960 sq. yds.
6
1,490 × 26 linear ft. = 38,740 linear ft.
ROYAL FURNITURE COMPANY
Direct Materials Purchases Budget
For the Month Ending February 28, 2016
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:
King
1
1,560 650 1,040
Prince
2
1,490 596 894
ROYAL FURNITURE COMPANY
Direct Labor Cost Budget
For the Month Ending February 28, 2016
21-42
CHAPTER 21 Budgeting
Prob. 21–3B (FIN MAN); Prob 6–3B (MAN)
1.
Unit Sales Unit Selling
Volume Price Total Sales
Batting helmet 1,200 $ 40 $ 48,000
2.
Batting Football
Helmet Helmet
Expected units to be sold 1,200 6,500
For the Month Ending March 31, 2016
Units
GOLD MEDAL ATHLETIC CO.
Sales Budget
For the Month Ending March 31, 2016
GOLD MEDAL ATHLETIC CO.
Production Budget
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
Football helmet 22,680 9,720
Plus desired units of inventory,
March 31, 2016 50 65
GOLD MEDAL ATHLETIC CO.
Direct Materials Purchases Budget
For the Month Ending March 31, 2016
12
34
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:
Batting helmet 242 605
5.
Indirect factory wages $ 86,000
Depreciation of plant and equipment 12,000
Factory Overhead Cost Budget
For the Month Ending March 31, 2016
GOLD MEDAL ATHLETIC CO.
Direct Labor Cost Budget
For the Month Ending March 31, 2016
GOLD MEDAL ATHLETIC CO.
12
21-45
6.
Finished goods inventory, March 1, 2016
1
$ 19,480
Work in process inventory, March 1, 2016 $ 15,300
Cost of direct materials placed in
production $186,092
Direct labor 241,406
Factory overhead 104,300
Total manufacturing costs 531,798
Total work in process during period $547,098
1
Batting helmet (40 × $25.00)…………………………………………………
…
$ 1,000
Football helmet (240 × $77.00)………………………………………………
…
18,480
Finished goods inventory, March 1, 2016…………………………………
…
$19,480
2
Plastic (90 × $6.00)……………………………………………………………
…
$ 540
Foam lining (80 × $4.00)……………………………………………………… 320
…
…
…
…
…
GOLD MEDAL ATHLETIC COMPANY
Cost of Goods Sold Budget
For the Month Ending March 31, 2016
21-46
CHAPTER 21 Budgeting
Prob. 21–3B (FIN MAN); Prob 6–3B (MAN) (Concluded)
7.
Selling expenses:
8.
Revenue from sales $1,088,000
GOLD MEDAL ATHLETIC CO.
Budgeted Income Statement
For the Month Ending March 31, 2016
GOLD MEDAL ATHLETIC CO.
Selling and Administrative Expenses Budget
For the Month Ending March 31, 2016
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
Collection of accounts receivable
a
138,000 146,400 157,500
Total cash receipts $154,000 $164,900 $177,500
Estimated cash payments for:
Manufacturing costs
b
$ 56,200 $ 66,800 $ 88,400
MERCURY SHOES INC.
For the Three Months Ending June 30, 2016
Cash Budget
21-48
CHAPTER 21 Budgeting
Prob. 21–4B (FIN MAN); Prob 6–4B (MAN) (Concluded)
Computations:
a
Collections of accounts receivable: June July August
…
1
$120,000 × 40% = $48,000
2
$150,000 × 60% = $90,000
3
$150,000 × 40% = $60,000
b
Payments for manufacturing costs: June July August
Payment of accounts payable,
beginning of month balance
c
……………
…
$13,000 $10,800 $14,000
Payment of current month’s cost
d
…………
43,200 56,000 74,400
Total…………………………………………
…
$56,200 $66,800 $88,400
c
Accounts payable, June 1 balance = $13,000
($66,000 – $12,000) × 20% = $10,800
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
21-49
CHAPTER 21 Budgeting
Prob. 21–5B (FIN MAN); Prob 6–5B (MAN)
1.
Cost of goods sold 169,560
Gross profit $286,440
Operating expenses:
Selling expenses:
Su
pp
lies
5,060
Miscellaneous administrative ex
p
ense
9
9,520
Total administrative expenses 48,980
1
3,800 units × $120
2
3,800 units × $30
3
3,800 units × $8.40
4
(3,800 units × $4.80) + $4,000 + $1,400
5
(3,800 units × $13.50) + $12,800
MESA PUBLISHING CO.
Budgeted Income Statement
For the Year Ending December 31, 2017
21-50
CHAPTER 21 Budgeting
Prob. 21–5B (FIN MAN); Prob 6–5B (MAN) (Concluded)
2.
Current assets:
Prepaid expenses 600
Total current assets $158,560
Property, plant, and equipment:
Plant and equipment
2
$104,000
Less accumulated depreciation
3
36,000 68,000
Total assets $226,560
Current liabilities:
1
Cash balance, December 31, 2017:
Balance, January 1, 2017…………………………………………………………
…
$ 26,000
Add: Cash from operations
2
$82,000 + $22,000 = $104,000
3
$32,000 + $4,000 = $36,000
4
Retained earnings balance, December 31, 2017:
Balance, January 1, 2017………………………………………………………
…
$ 83,100
Plus net income for 2017………………………………………………………
…
114,660
$197,760
LIABILITIES
MESA PUBLISHING CO.
Budgeted Balance Sheet
December 31, 2017
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
controllers face. Often, operating managers will attempt to accelerate future
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.
Patient-days are the number of patients multiplied by the number of days in the
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
create actual deviations from budget that would be difficult to interpret. Managers
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
of the Operations Department and how much cost this work consumes. The bank
manager doesn’t have a good sense if there is waste in the department or not. The
$12,000 excess expenditure over budget raises several questions. If the department
did twice as much work as planned, then the $12,000 is a bargain. If, on the other
hand, the department did much less work than planned, then the $12,000
understates how poorly the department used resources. Again, how much work
the department actually did is unknown, so these questions cannot be answered.
provide more information for evaluating the department’s performance.
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 because there would
be no finished goods inventory for cooked pizzas. The sales (production) budget
would be used to develop a direct materials purchases budget. For example, the
pizza ingredients, packaging materials, beverages, and other materials could be
planned from the sales budget. In addition, the cost of delivery fuel (driver
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 end of 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 amount spent for the year was equal to the total amount budgeted because
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
portion of the unspent budget of a previous year. Such a system would reward
departmental thrift by allowing the department to keep a portion of the savings for
future needs. This would reduce the need for aggressive year-end spending because
a portion of the unspent amount could roll forward to the next year. This would
cause the manager to spend money when needed, not just to avoid the year-end
CHAPTER 21 Budgeting
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)
All Other Taxes, 9¢
Tobacco, Beer, &
Alcoholic Beverages,
21-56
CHAPTER 21 Budgeting
CP 21–6 (FIN MAN); CP 6–6 (MAN) (Concluded)
2.
3. Tennessee’s budget is in balance. That is, state revenues equal state
expenditures. Most states are legally required to have balanced budgets.
Where Your State Dollar Goes
(in cents)
Transportation, 7¢
Cities & Counties, 7¢