Exercise 8-8 (10 minutes)
Gig Harbor Boating
Budgeted Income Statement
Sales (460 units × $1,950 per unit) ………………….
$897,000
Cost of goods sold (460 units × $1,575 per unit) …
724,500
Gross margin ……………………………………………….
Selling and administrative expenses* ………………..
Net operating income …………………………………….
Interest expense…………………………………………..
Net income ………………………………………………….
Exercise 8-9 (15 minutes)
Mecca Copy
Budgeted Balance Sheet
Assets
Current assets:
Cash* …………………………………………
$12,200
Accounts receivable ……………………….
8,100
Supplies inventory …………………………
Total current assets …………………………
Plant and equipment:
Equipment …………………………………..
Accumulated depreciation ……………….
Plant and equipment, net ………………….
Total assets ……………………………………
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable ………………………….
$ 1,800
Stockholders’ equity:
Common stock ……………………………..
$ 5,000
Retained earnings# ……………………….
34,700
Total stockholders’ equity ………………….
39,700
Total liabilities and stockholders’ equity ..
$41,500
#
Retained earnings, beginning balance .
Add net income …………………………….
Deduct dividends ………………………….
4,800
Retained earnings, ending balance ……
Exercise 8-10 (45 minutes)
1. Production budget:
July
August
Septem-
ber
October
Budgeted unit sales ……………
35,000
40,000
50,000
30,000
Add desired units of ending
finished goods inventory* …
11,000
13,000
9,000
7,000
46,000
53,000
37,000
10,000
11,000
36,000
42,000
28,000
2. During July and August, the company is building inventories in
anticipation of peak sales in September. Therefore, production exceeds
sales during these months. In September and October, inventories are
being reduced in anticipation of a forthcoming decrease in sales.
Therefore, production is less than sales during these months.
Exercise 8-10 (continued)
3. Direct materials budget:
July
August
Septem-
ber
Third
Quarter
Required production in units of finished goods …..
36,000
42,000
46,000
124,000
Units of raw materials needed per unit of finished
goods …………………………………………………….
× 3 cc
× 3 cc
× 3 cc
× 3 cc
Units of raw materials needed to meet production
108,000
126,000
138,000
372,000
Add desired units of ending raw materials
inventory ………………………………………………..
63,000
69,000
42,000
*
42,000
Total units of raw materials needed …………………
171,000
195,000
180,000
414,000
Less units of beginning raw materials inventory …
54,000
63,000
69,000
54,000
Units of raw materials to be purchased …………….
132,000
111,000
360,000
Exercise 8-11 (20 minutes)
Quarter (000 omitted)
1
2
3
4
Year
Beginning cash balance ………………………….
$ 6
*
$ 5
$ 5
$ 5
$ 6
Add collections from customers ……………….
65
70
96
*
92
323
*
Total cash available ……………………………….
71
*
75
101
97
329
Less cash disbursements:
*
*
*
*
*
*
*
*
*
*
Dividends …………………………..…………….
2
*
2
*
2
*
2
*
8
Total cash disbursements ……………………….
73
85
*
90
72
320
Excess (deficiency) of cash available over
disbursements …………………………………..
(2)
*
(10)
11
*
25
9
Financing:
Borrowings ……………………………………….
*
0
(6)
*
Total financing ……………………………………..
7
15
(6)
(1)
Ending cash balance ……………………………..
$ 5
$ 5
$ 5
$ 8
$ 8
Exercise 8-12 (30 minutes)
1. Schedule of expected cash collections:
Month
July
August
Sept.
Quarter
From accounts receivable
$136,000
$136,000
From July sales:
35% × 210,000 …………
73,500
73,500
136,500
From August sales:
From September sales:
77,000
Total cash collections …….
2. a. Merchandise purchases budget:
July
August
Sept.
Total
Budgeted cost of goods sold
(60% of sales) …………………
$126,000
$138,000
$132,000
$396,000
Add desired ending
merchandise inventory* ……..
41,400
39,600
43,200
43,200
Total needs ………………………..
Less beginning merchandise
62,000
41,400
39,600
62,000
Required purchases ……………..
b. Schedule of cash disbursements for purchases:
July
August
Sept.
Total
From accounts payable ……….
$ 71,100
$ 71,100
For July purchases …………….
42,160
$ 63,240
105,400
For August purchases …………
54,480
$ 81,720
136,200
For September purchases ……
54,240
54,240
Total cash disbursements …….
$113,260
$117,720
$135,960
$366,940
Exercise 8-12 (continued)
3.
Beech Corporation
Income Statement
For the Quarter Ended September 30
Sales ($210,000 + $230,000 + $220,000) .
$660,000
Cost of goods sold (Part 2a) …………………
396,000
Gross margin……………………………………..
264,000
Selling and administrative expenses
($60,000 × 3 months) ………………………
180,000
Net operating income ………………………….
$ 84,000
4.
Beech Corporation
Balance Sheet
September 30
Accounts receivable ($220,000 × 65%) …………………
Inventory (Part 2a) ……………………………………………
Plant and equipment, net ($210,000 – ($5,000 ×3)) ..
Total assets ……………………………………………………..
Accounts payable ($135,600 × 60%) …………………….
Common stock (Given) ………………………………………
Retained earnings ($99,900 + $84,000) ………………..
Total liabilities and stockholders’ equity ………………….
Exercise 8-13 (30 minutes)
1. Schedule of expected cash collections:
Month
July
August
September
Quarter
From accounts receivable
$136,000
$136,000
From July sales:
45% × 210,000 …………
94,500
94,500
55% × 210,000 …………
$115,500
From August sales:
From September sales:
45% × 220,000 …………
99,000
Total cash collections …….
2. a. Merchandise purchases budget:
July
August
Sept.
Total
Budgeted cost of goods sold ….
$126,000
$138,000
$132,000
$396,000
merchandise inventory* ……..
Total needs ………………………..
27,600
Required purchases ……………..
$ 91,600
b. Schedule of cash disbursements for purchases:
July
August
Sept.
Total
From accounts payable ……….
$ 71,100
$ 71,100
For July purchases …………….
27,480
$ 64,120
91,600
For August purchases …………
41,040
$ 95,760
136,800
For September purchases ……
40,320
40,320
Total cash disbursements …….
$ 98,580
$105,160
$136,080
$339,820
Exercise 8-13 (continued)
3.
Beech Corporation
Income Statement
For the Quarter Ended September 30
Sales ($210,000 + $230,000 + $220,000) .
$660,000
Cost of goods sold (Part 2a) …………………
396,000
Gross margin……………………………………..
264,000
Selling and administrative expenses
($60,000 × 3 months) ………………………
180,000
Net operating income ………………………….
84,000
Interest expense ………………………………..
0
Net income ……………………………………….
$ 84,000
4.
Beech Corporation
3)) ……………………………………………………………
$260,180
Accounts receivable ($220,000 × 55%) …………………
121,000
Inventory (Part 2a) ……………………………………………
28,800
Plant and equipment, net ($210,000 – ($5,000 ×3)) ..
Total assets ……………………………………………………..
Accounts payable ($134,400 × 70%) …………………….
Common stock (Given) ………………………………………
Retained earnings ($99,900 + $84,000) ………………..
Total liabilities and stockholders’ equity ………………….
Exercise 8-14 (30 minutes)
1.
Jessi Corporation
Sales Budget
1st
Quarter
2nd
Quarter
3rd
Quarter
4th
Quarter
Year
Budgeted unit sales ……………..
11,000
12,000
14,000
13,000
50,000
Selling price per unit ……………
× $18.00
× $18.00
× $18.00
× $18.00
× $18.00
Total sales …………………………
$198,000
$216,000
$252,000
$234,000
$900,000
2.
Schedule of Expected Cash Collections
Beginning accounts receivable .
Total cash collections …………..
$198,900
$199,800
$228,600
$227,700
$855,000
Exercise 8-14 (continued)
3.
Jessi Corporation
Production Budget
1st
Quarter
2nd
Quarter
3rd
Quarter
4th
Quarter
Year
Budgeted unit sales ……………..
11,000
12,000
14,000
13,000
50,000
Total needs ………………………..
Required production in units ….
11,150
12,300
13,850
12,900
50,200
Add desired units of ending
Exercise 8-15 (30 minutes)
1.
Hruska Corporation
Direct Labor Budget
1st Quarter
2nd Quarter
3rd Quarter
4th Quarter
Year
Required production in units ………
12,000
10,000
13,000
14,000
49,000
Direct labor time per unit (hours) ..
0.2
Total direct labor-hours needed ….
2,400
2,000
2,600
2,800
9,800
2 and 3.
Hruska Corporation
Manufacturing Overhead Budget
1st Quarter
2nd Quarter
3rd Quarter
4th Quarter
Year
Budgeted direct labor-hours ……….
2,400
2,000
2,600
2,800
9,800
Variable manufacturing overhead
rate ……………………………………
$1.75
$1.75
$1.75
$1.75
$1.75
Variable manufacturing overhead ..
$ 4,200
$ 3,500
$ 4,550
$ 4,900
$ 17,150
Fixed manufacturing overhead ……
86,000
86,000
86,000
86,000
344,000
Total manufacturing overhead ……
90,200
89,500
90,550
90,900
manufacturing overhead …………
Exercise 8-16 (30 minutes)
1 and 2.
Zan Corporation
Direct Materials Budget
1st
Quarter
2nd
Quarter
3rd
Quarter
4th
Quarter
Year
Required production in units of
finished goods …………………………..
5,000
8,000
7,000
6,000
26,000
Units of raw materials needed per unit
of finished goods ……………………….
× 8
× 8
× 8
× 8
× 8
Units of raw materials needed to meet
production ……………………………….
40,000
64,000
56,000
48,000
208,000
Add desired units of ending raw
Total units of raw materials needed …
Units of raw materials to be
purchased ………………………………..
× $1.20
Cost of raw materials to be
$52,800
* End of 1st quarter: 64,000 grams × 25% = 16,000 grams.
Exercise 8-16 (continued)
3.
Zan Corporation
Schedule of Expected Cash Disbursements for Materials
1st Quarter
2nd Quarter
3rd Quarter
4th Quarter
Year
Beginning accounts payable .
$ 2,880
$ 2,880
1st Quarter purchases ………
36,000
$24,000
60,000
4th Quarter purchases ………
31,680
$38,880
$68,640
$68,640
$57,600
4.
Zan Corporation
Direct Labor Budget
1st Quarter
2nd Quarter
3rd Quarter
4th Quarter
Year
Required production in units ………
5,000
8,000
7,000
6,000
26,000
Direct labor-hours per unit …………
× 0.20
× 0.20
× 0.20
× 0.20
× 0.20
Total direct labor-hours needed ….
1,000
1,600
1,400
1,200
5,200
Exercise 8-17 (60 minutes)
1a. The budgeted cash collections are computed as follows:
Cash sales ($240,000 × 35%) ……………………………..
$ 84,000
September credit sales collected in October ……………
90,000
October credit sales collected in October ($240,000 ×
65% × 40%) ………………………………………………
62,400
Total cash collections …………………………………………
$236,400
1b. The budgeted merchandise purchases are computed as follows:
Budgeted cost of goods sold ($240,000 × 45%) ……..
Add: desired ending merchandise inventory ($250,000
Total needs ……………………………………………………..
Less: beginning merchandise inventory………………….
Required purchases …………………………………………..
1c. The budgeted cash disbursements for merchandise purchases are
computed as follows:
September credit purchases paid in October …………..
$ 73,000
October credit purchases paid in October ($109,350 ×
30%)…………………………………………………………
32,805
Total cash disbursements for merchandise purchases .
$105,805
Sales ……………………………………………………………..
Cost of goods sold ($240,000 × 45%) …………………..
Selling and administrative expenses ($78,000 +
Net operating income ………………………………………..
$ 52,000
Exercise 8-17 (continued)
1e. The budgeted balance sheet is computed as follows:
Wheeling Company
Balance Sheet
October 31
Assets
Cash ($59,000 + $236,400 – $105,805 – $78,000) ……….
$111,595
Accounts receivable ($240,000 × 65% × 60%) …………….
93,600
Inventory ($250,000 × 45% × 30%)………………………….
33,750
Buildings and equipment, (net) ($214,000 – $2,000) ……..
212,000
Total assets ………………………………………………………….
$450,945
Liabilities and Stockholders’ Equity
Accounts payable ($109,350 × 70%) …………………………
$ 76,545
Common stock ………………………………………………………
216,000
Retained earnings ($106,400 + $52,000) …………………….
Total liabilities and stockholders’ equity ………………………
$450,945
2a. The budgeted cash collections are computed as follows:
Cash sales ($240,000 × 35%) ……………………………..
$ 84,000
September credit sales collected in October ……………
90,000
October credit sales collected in October ($240,000 ×
65% × 50%) ………………………………………………
78,000
Total cash collections …………………………………………
$252,000
2b. The budgeted merchandise purchases are computed as follows:
Budgeted cost of goods sold ($240,000 × 45%) ……..
Total needs ……………………………………………………..
Less: beginning merchandise inventory………………….
Required purchases …………………………………………..
Exercise 8-17 (continued)
2c. The budgeted cash disbursements for merchandise purchases are
computed as follows:
September credit purchases paid in October …………..
$73,000
October credit purchases paid in October ($86,850 ×
20%)…………………………………………………………
17,370
Total cash disbursements for merchandise purchases .
$90,370
2d. The net operating income is computed as follows:
Sales ……………………………………………………………..
Cost of goods sold ($240,000 × 45%) …………………..
Gross margin …………………………………………………..
Selling and administrative expenses ($78,000 +
Net operating income ………………………………………..
2e. The budgeted balance sheet is computed as follows:
Wheeling Company
Balance Sheet
October 31
Assets
Cash ($59,000 + $252,000 – $90,370 – $78,000) …………
$142,630
Accounts receivable ($240,000 × 65% × 50%) …………….
Inventory ($250,000 × 45% × 10%)………………………….
Buildings and equipment, (net) ($214,000 – $2,000) ……..
212,000
Total assets ………………………………………………………….
$443,880
Liabilities and Stockholders’ Equity
Accounts payable ($86,850 × 80%) …………………………..
Common stock ………………………………………………………
Retained earnings ($106,400 + $52,000) …………………….
Exercise 8-17 (continued)
3. Students may be inclined to conclude that the financial projections in
requirement 2 indicate a decline in performance for two reasons. First,
the net operating income in the two scenarios is the same. Second, the
total assets dropped by $7,065.
The accounts receivable turnover in requirement 1 is 1.70 ($156,000 ÷
$91,800). The average collection period is 17.65 days (30 days ÷
1.70). The inventory turnover is 3.27 ($108,000 ÷ $33,075). The
average sale period is 9.17 days (30 ÷ 3.27). The operating cycle is
26.82 days (17.65 days + 9.17 days).
Exercise 8-18 (30 minutes)
1a. The company’s budgeted sales are computed as follows:
Cash collections in July (a) ………………………………….
$77,000
June sales collected in July (b) …………………………….
$50,000
July sales collected in July (a) – (b) ………………………
$27,000
July sales collected in July (a) ……………………………..
Percentage of sales collected in month of sale (b) ……
July sales (a) ÷ (b) ……………………………………………
1b. The company’s budgeted merchandise purchases are computed as
follows:
Cash paid for merchandise purchases in July (a) ……..
June purchases paid in July (b) …………………………...
July purchases paid in July (a) – (b) ……………………..
July purchases paid in July (a) …………………………….
$9,200
Percentage of purchases paid in month of purchase
(b) ………………………………………………………………
20%
July merchandise purchases (a) ÷ (b) …………………..
$46,000
1c. The company’s budgeted cost of goods sold is computed as follows:
Merchandise purchases in July …………………………….
$46,000
Beginning merchandise inventory in July ………………..
30,000
Total needs in July …………………………………………….
$76,000
Total needs in July (a) ……………………………………….
$76,000
Ending inventory in July (b) ………………………………..
Cost of goods sold in July (a) – (b) ……………………….
Exercise 8-18 (continued)
1d. The company’s budgeted net operating income is computed as follows:
Sales ………………………………………………
$90,000
Cost of goods sold ……………………………..
54,000
Gross margin ……………………………………
Net operating income …………………………
2. The budgeted balance sheet is computed as follows:
Wolfpack Company
Balance Sheet
July 31
Assets
Cash ($75,000 + $77,000 – $44,500 – $15,000) …………..
$ 92,500
Accounts receivable ($90,000 × 70%) ………………………..
Inventory ……………………………………………………………..
Buildings and equipment, (net) ($150,000 – $3,000) ……..
147,000
Total assets ………………………………………………………….
$324,500
Liabilities and Stockholders’ Equity
Accounts payable ($46,000 × 80%) …………………………..
$ 36,800
Common stock ………………………………………………………
Retained earnings ($169,700 + $18,000) …………………….