40 Minutes, Strong PROBLEM 23.4A
FORMER CORPORATION
a. Budgeted cash receipts for the quarter:
Collections on prior period receivables
210,000$
Total receipts collected during the quarter 535,000$
88,000$
Add: New payables during quarter 360,000
b. Payments of current payables budgeted for the quarter:
Add: Cash received from customers (part a)535,000
Ending cash balance (deficit) (3,000)$
c. If beginning prepayments equal the ending prepayments,
the amount expired during the period equals the
prepayments made during the period, or $20,000.
d. Cash budget:
10,000$
e. Given a minimum required cash balance of $10,000, the
company must attempt to obtain a loan of $13,000.
f.
A bank will look for evidence that Former has the ability to
service new debt. In view of the fact that the company is
Add: Collections on 65% of $500,000 sales 325,000
30 Minutes, Strong PROBLEM 23.5A
RIZZO’S
a. Budgeted income statement:
Budgeted sales 72,000$
Cost of goods sold (60% of sales) 43,200
Gross profit (40% of sales) 28,800$
Variable selling & administrative costs (5% of sales) 3,600
Fixed selling & administrative costs 12,000
b. Cash budget:
Beginning cash, May 1 25,000$
Add: Collections on March sales (10% × $65,000) 6,500
Collections on April sales (60% × $42,000) 25,200
Ending cash, May 31 23,300$
c. The company’s cash flow differs from its income
because, in accrual accounting, revenue is recognized
when it is earned, not when cash is received. Further,
Interest expense 4,500
Income taxes (35%) 3,045
Budgeted net income 5,655$
60 Minutes, Strong PROBLEM 23.6A
MARLEY WHOLESALE
a. MARLEY WHOLESALE
Cash Budget
For Third Quarter of Current Year
July August September
Cash balance at beginning of month 20,000$ 168,000$ 53,400$
Receipts:
Bank loan 194,000
Collections on receivables (Schedule 1) 120,000 280,000 345,000
Supporting Schedules
Schedule 1—Estimated Cash Collections
on Receivables
Receivables outstanding at June 30 120,000$ 40,000$
July sales—80% × $300,000 240,000
July sales—19% × $300,000 57,000$
August sales—80% × $360,000 288,000
Total cash receipts 120,000$ 280,000$ 345,000$
Schedule 2—Estimated Merchandise Purchases
Sales 300,000$ 360,000$ 270,000$
Cost of goods sold (65% of sales) 195,000$ 234,000$ 175,500$
Add: Required ending inventory* 234,000 175,500 130,000
Less: Beginning merchandise inventory 90,000 234,000 175,500
$200,000, or $130,000.
Disbursements:
Purchase of equipment 16,000$
Cash balance at end of month 168,000$ 53,400$ 162,500$
PROBLEM 23.6A
MARLEY WHOLESALE (concluded)
July August September
Schedule 3—Estimated Cash Payments
for Operating Expenses
Fixed expenses
36,000$ 36,000$ 36,000$
Variable expenses (8% of sales) 24,000 28,800 21,600
Schedule 4—Estimated Cash Payments
on Accounts Payable (Including
Operating Expenses)
Accounts payable balance on June 30
(includes accrued operating expenses)
150,000$
Merchandise purchases (Schedule 2)
339,000$ 175,500$
Expenses incurred on open account
operating expenses 150,000$ 394,600$ 235,900$
b.
Less: Depreciation expense included above 4,400 4,400 4,400
50 Minutes, Medium PROBLEM 23.7A
SNELLS
a. SNELLS
Comparison of Budgeted and Actual Revenue and Expenses
For the Year Ended December 31
Flexible Over (or
Budget Actual Under) Budget
Net sales 10,500,000$ 10,500,000$ 0$
Cost of goods sold 6,300,000 6,180,000 (120,000)
Gross profit on sales 4,200,000$ 4,320,000$ 120,000$
Operating expenses:
b.
Comment on performance:
Operating income was better than budgeted by $168,000. This result may be attributed to
Total operating expenses 2,919,000$ 2,871,000$ (48,000)$
Operating income 1,281,000$ 1,449,000$ 168,000$
45 Minutes, Medium PROBLEM 23.8A
BRAEMAR SADDLERY
a. BRAEMAR SADDLERY
Performance Report for Custom Saddle Production Dept.
For the Year Ended December 31
Budgeted Costs Actual Over
for 6,000 Units Costs (or Under)
Per Unit Total Incurred Budget
Variable manufacturing
costs:
Direct materials 30.00$ 180,000$ 171,000$ (9,000)$
Direct labor 48.00 288,000 261,500 (26,500)
Indirect labor 15.00 90,000 95,500 5,500
b.
c. Manufacturing overhead incurred:
The revised performance report above shows that although actual costs exceeded the
costs
SOLUTIONS TO PROBLEMS SET B
25 Minutes, Easy PROBLEM 23.1B
FROWREN DOMESTIC
a. Planned production of finished goods (in units):
Budgeted sales
135,000
Add: Finished goods inventory, end of quarter 25,200
Units budgeted to be available for sale 160,200
Less: Finished goods inventory, beginning of quarter 34,200
Planned production of finished goods 126,000
c. Finished goods inventory at quarter-end (average cost):
Finished goods inventory, beginning of quarter
1,346,400$
Add: Cost of finished goods manufactured (part b)3,780,000
Budgeted cost of goods available for sale 5,126,400$
d. Cost of goods sold:
Budgeted cost of goods available for sale (part c)5,126,400$
Less: Finished goods inventory, end of quarter (part c)806,400
Cost of goods sold 4,320,000$
Budgeted sales, 135,000 units × $32 (part c)4,320,000$
7,820,000$
Less: Budgeted cost of goods sold (part d)4,320,000
Multiply by: Budgeted manufacturing cost per unit 30$
Cost of finished goods manufactured 3,780,000$
20 Minutes, Medium PROBLEM 23.2B
HARLOW CORPORATION
a. Planned production of finished goods (in units):
Budgeted sales 300,000
Add: Finished goods inventory, Mar. 31 (end of quarter) 20,000
b. Cost of finished goods manufactured:
Planned production of finished goods (part a)260,000
Cost of finished goods manufactured (260,000 units × $42) 10,920,000$
c. Finished goods inventory, Mar. 31 (FIFO method):
Finished goods inventory, Mar. 31 (20,000 units × $42)* 840,000$
*Using the first-in, first-out method, the ending
inventory consists of the most recently manufactured
units.
d. Cost of goods sold:
Finished goods inventory, Jan 1. (beginning of quarter) 2,400,000$
Add: Cost of finished goods manufactured (part b)10,920,000
Less: Finished goods inventory, Mar. 31 (part c)840,000
Cost of goods sold 12,480,000$
Less: Finished goods inventory, Jan. 1 (beginning of quarter) 60,000
Planned production of finished goods 260,000
50 Minutes, Strong PROBLEM 23.3B
BARLEY, INC.
Cash balance at beginning of month 37,200$
Receipts:
Collections on receivables (Schedule A) 820,000$
Schedule A—Collections on Receivables in November
September sales: 3% × (50,000 × $10)—actual 15,000$
October sales: 25% × (70,000 × $10)—actual 175,000
November sales: 70% × (90,000 × $10)—estimated 630,000
Total collections on receivables 820,000$
Schedule B—Payments for Purchases of Merchandise
On October purchases (see below), 50% of $432,000 216,000$
On November purchases (see below), 50% of $522,000 261,000
Total payments for purchases of merchandise 477,000$
Purchases
Computation of Purchases Units ($6 Per Unit)
Inventory at end of September (2,000 + 10% of 70,000) 9,000
Add: Purchases in October (70,000 + 11,000* – 9,000) 72,000 432,000$
Less: Sales in October 70,000
Less: Sales in November (estimated) 90,000
*2,000 + 10% of 90,000 = 11,000 units
†2,000 + 10% of 60,000 = 8,000 units
BARLEY, INCORPORATED
Cash Budget
For the Month Ended November 30th
Cash balance at end of month 101,950$
40 Minutes, Strong PROBLEM 23.4B
PETER CORPORATION
a. Budgeted cash receipts for the quarter:
Collections on prior period receivables 250,000$
Collections on 70% of $700,000 sales 490,000
Total receipts collected during the quarter 740,000$
b. Payments of current payables budgeted for the quarter:
Beginning current payables 90,000$
c. If beginning prepayments equal the ending prepayments
the amount expired during the period equals the
prepayments made during the period, or $18,000.
d. Cash budget:
Beginning cash 10,000$
Cash received from customers (part a)740,000
Ending cash balance (deficit) (5,000)$
Cash available 750,000$
e. Given a minimum required cash balance of $10,000,
the company must attempt to obtain a loan of $15,000.
f. A bank will look for evidence that Peter has the ability
to service new debt. In view of the fact that the
New payables during quarter 442,000
Ending current payables ($90,000 + $15,000) 105,000
Payments on current payables 427,000$
30 Minutes, Strong PROBLEM 23.5B
SYNDER’S
a. Budgeted income statement:
Budgeted sales 100,000$
Cost of goods sold (60% of sales) 60,000
Gross profit (40% of sales) 40,000$
Variable selling & administrative costs (5% of sales) 5,000
b. Cash budget:
Beginning cash, May 1 30,000$
Add: Collections on March sales (10% × $90,000) 9,000
Collections on April sales (50% × $40,000) 20,000
Collections on May sales (40% × $100,000) 40,000
Ending cash, May 31 31,750$
c. Benefits of budgeting:
* Provides management with an early indication of
possible problems in the upcoming period, such as
insufficient amount of raw materials or labor needed
for production.
* Ensures the cooperation of different departments within
a company to meet the expected production levels.
finished good.
Fixed selling & administrative costs 10,000
Interest expense 3,000
Income taxes (25%) 5,500
Budgeted net income 16,500$
60 Minutes, Strong PROBLEM 23.6B
HOFFMAN INDUSTRIES
a.
July August September
Supporting Schedules
Schedule 1—Estimated Cash Collections
on Receivables
Receivables outstanding at June 30 160,000$ 40,000$
July sales—75% × $340,000 255,000
Schedule 2—Estimated Merchandise Purchases
Sales 340,000$ 360,000$ 300,000$
Cost of goods sold (65% of sales) 221,000$ 234,000$ 195,000$
Add: Required ending inventory* 234,000 195,000 143,000
Less: Beginning merchandise inventory 80,000 234,000 195,000
Budgeted merchandise purchases on open account
*Cost of goods sold for October, 65% ×
$220,000, or $143,000.
Schedule 3—Estimated Cash Payments
for Operating Expenses
Fixed expenses 40,000$ 40,000$ 40,000$
Variable expenses (10% of sales) 34,000 36,000 30,000
Less: Depreciation expense included above 5,000 5,000 5,000
Operating expenses incurred on open account 69,000$ 71,000$ 65,000$
PROBLEM 23.6B
HOFFMAN INDUSTRIES (concluded)
July August September
Schedule 4—Estimated Cash Payments
on Accounts Payable (Including
Operating Expenses)
Accounts payable balance on June 30
(includes accrued operating expenses) 160,000$
b.
HOFFMAN INDUSTRIES
Cash Budget
For Third Quarter of Current Year
July August September
Cash balance at beginning of month 18,000$ 233,000$ 84,000$
Receipts:
Bank loan 240,000
Collections on receivables (Schedule 1) 160,000 295,000 351,600
Total cash available 418,000$ 528,000$ 435,600$
Total disbursements 185,000$ 444,000$ 266,000$
Disbursements:
Purchase of equipment 25,000$
It is apparent from the three-month budget that Hoffman will not be able to pay the bank
50 Minutes, Medium PROBLEM 23.7B
EIGHT FLAGS
a. EIGHT FLAGS
Comparison of Budgeted and Actual Revenue and Expenses
For the Year Ended December 31
Flexible Over (or
Budget Actual Under) Budget
Net sales 18,000,000$ 18,000,000$ 0$
Cost of goods sold 11,700,000 11,160,000 (540,000)
Gross profit on sales 6,300,000$ 6,840,000$ 540,000$
Operating expenses:
Selling and promotion 1,780,000$ 800,000$ (980,000)$
Building occupancy 480,000 450,000 (30,000)
Total operating expenses 4,450,000$ 2,630,000$ (1,820,000)$
Operating income 1,850,000$ 4,210,000$ 2,360,000$
b.
Comment on performance:
45 Minutes, Medium PROBLEM 23.8B
XL INDUSTRIES
a. XL INDUSTRIES
Performance Report for Widget Production Dept.
For the Year Ended December 31st
Budgeted Costs Actual Over
for 5,000 Units Costs (or Under)
Per Unit Total Incurred Budget
Variable manufacturing
costs:
Direct materials 25.00$ 125,000$ 120,000$ (5,000)$
Direct labor 50.00 250,000 210,000 (40,000)
Total variable
manufacturing costs 97.00$ 485,000$ 423,000$ (62,000)$
Fixed manufacturing
costs:
Lease rental 8.00$ 40,000$ 40,000$ $ 0
Salaries of foremen 20.00 100,000 104,000 4,000
Depreciation
and other 14.40 72,000 75,000 3,000
Total fixed
manufacturing costs 42.40$ 212,000$ 219,000$ 7,000$
Total manufacturing costs 139.40$ 697,000$ 642,000$ (55,000)$
b.
c. Manufacturing overhead incurred:
Indirect labor 50,000$
Indirect materials, supplies, etc. 43,000
Total fixed manufacturing costs 219,000
Manufacturing overhead applied, 150% of $210,000 (direct labor) 315,000
Overapplied manufacturing overhead 3,000$
The revised performance report above shows that although actual costs exceeded the
Indirect labor 12.00 60,000 50,000 (10,000)
Indirect materials,
SOLUTIONS TO CRITICAL THINKING CASES
CASE 23.1
BUDGETING IN A NUTSHELL
30 Minutes, Medium
The value of this relatively unstructured problem lies in working it, not in the solution. We
find that it does much to refresh the students’ understanding of both accrual accounting and
cash flows.
Students should state clearly their assumptions concerning:
The amounts appearing in the budgeted statements will vary, depending upon the assumed
Payments on accounts payable
CASE 23.2
a.
b.
AN ETHICAL DILEMMA
20 Minutes, Medium
CASE 23.3
a.
CASH BUDGETING
20 Minutes, Medium
CASE 23.4
a.
•
b.
20 Minutes, Medium
The following features of the budgeting software are identified.
Because there are several features that allow comparisons among actual prior year results,
this year’s budgeted information, and actual outcomes, users of this software will be able to
BUDGETING SHAREWARE
Prints Statement of Income and Expense—monthly and year to date with the percent of
CASE 23.5
a.
b.
BUDGETING AND INTERNAL CONTROLS
30 Minutes, Medium