Problem 8-28 (continued)
3. Budgeted cash disbursements for selling and administrative expenses for next year:
Quarter
First
Second
Third
Fourth
Year
Budgeted sales in dollars ……………….
$300,000
$400,000
$500,000
$200,000
$1,400,000
Variable selling and administrative
expense rate …………………………….
× 15%
× 15%
× 15%
× 15%
× 15%
Variable selling and administrative
expense …………………………………..
$45,000
$ 60,000
$ 75,000
$30,000
$210,000
expenses …………………………………
Total selling and administrative
expenses …………………………………
110,000
125,000
Less depreciation …………………………
administrative expenses ………………
Problem 8-28 (continued)
4. Cash budget for next year:
Quarter
First
Second
Third
Fourth
Year
Beginning cash balance …………
$ 10,000
$ 12,000
$ 10,000
$ 10,800
$ 10,000
Add collections from customers .
261,000
359,000
457,000
295,000
1,372,000
Total cash available ……………….
271,000
371,000
467,000
305,800
1,382,000
Less cash disbursements:
Merchandise purchases ……….
174,000
234,000
293,200
161,800
863,000
Selling and administrative
expenses (above) …………….
75,000
90,000
105,000
60,000
330,000
Dividends …………………………
10,000
10,000
10,000
10,000
40,000
Land ……………………………….
75,000
––
123,000
12,000
74,000
Financing:
Borrowings ……………………….
48,000
48,000
Repayments ……………………..
0
Interest
($48,000 × 2.5% × 3) ……..
0
0
(3,600)
Total financing ……………………..
0
48,000
(3,600)
Ending cash balance ……………..
$ 10,000
$ 10,800
Problem 8-29 (120 minutes)
1. Schedule of expected cash collections:
April
May
June
Quarter
Cash sales ………………..
$36,000
*
$43,200
$54,000
$133,200
*
24,000
Total collections ………….
$56,000
*
$82,800
$206,000
2. Merchandise purchases budget:
April
May
June
Quarter
Budgeted cost of goods
sold1 ……………………….
$45,000
*
$ 54,000
*
$67,500
$166,500
Add desired ending
merchandise
*
*
28,800
Total needs …………………
*
Less beginning
*
36,000
Required purchases ………
$52,200
*
$ 64,800
$42,300
$159,300
Schedule of expected cash disbursements—merchandise purchases
April
May
June
Quarter
March purchases ………….
$21,750
*
$ 21,750
*
April purchases ……………
26,100
*
$26,100
*
52,200
*
May purchases …………….
32,400
$32,400
64,800
June purchases ……………
21,150
21,150
Total disbursements ……..
$47,850
*
$58,500
Problem 8-29 (continued)
3. Cash budget:
April
May
June
Quarter
Beginning cash balance .
$ 8,000
*
$ 4,350
$ 4,590
$ 8,000
Add collections from
customers ………………
56,000
*
67,200
82,800
206,000
Total cash available …….
64,000
*
71,550
87,390
214,000
Less cash
disbursements:
For inventory …………..
47,850
*
159,900
For expenses …………..
13,300
*
For equipment …………
*
0
0
Total cash
disbursements …………
62,650
*
73,960
72,250
208,860
Excess (deficiency) of
cash available over
disbursements …………
1,350
*
(2,410)
15,140
5,140
Financing:
Borrowings ……………..
3,000
7,000
0
10,000
Repayments ……………
(10,000)
0
0
(230)
(230)
Total financing …………..
3,000
7,000
(230)
Ending cash balance ……
$ 4,590
$ 4,910
Problem 8-29 (continued)
4.
Shilow Company
Income Statement
For the Quarter Ended June 30
Sales ($60,000 + $72,000 + $90,000) …….
$222,000
Cost of goods sold:
Beginning inventory (Given) ……………….
$ 36,000
Add purchases (see requirement 2) ……..
159,300
Goods available for sale …………………….
195,300
Ending inventory (see requirement 2) …..
28,800
166,500
*
Gross margin …………………………………….
55,500
Selling and administrative expenses:
Commissions (12% of sales) ………………
Rent ($2,500 × 3) …………………………...
Depreciation ($900 × 3) …………………….
Other expenses (6% of sales) …………….
13,320
Net operating income ………………………….
Interest expense (see requirement 3) ……..
Net income ……………………………………….
Problem 8-29 (continued)
5.
Shilow Company
Balance Sheet
June 30
Assets
Current assets:
Cash (see requirement 3) ………………………………………
$ 4,910
Accounts receivable ($90,000 × 40%) ……………………..
Inventory (see requirement 2) ………………………………..
Total current assets ………………………………………………..
Liabilities and Stockholders’ Equity
Accounts payable (Part 2: $42,300 × 50%) ..
$ 21,150
Stockholders’ equity:
Common stock (Given) …………………………
$150,000
Retained earnings* ……………………………..
17,360
167,360
Total liabilities and stockholders’ equity ………
Beginning retained earnings …………………
Ending retained earnings ……………………..
Problem 8-30 (60 minutes)
1. The estimated sales for the third quarter:
Month
Budgeted unit sales ….
Selling price per unit …
Budgeted sales ………..
$360,000
$840,000
2. The expected cash collections from sales for the third quarter:
Accounts receivable,
June 30:
$300,000 × 65% …..
$195,000
$ 195,000
July sales:
$360,000 × 30%,
65% …………………..
108,000
$234,000
342,000
August sales:
$840,000 × 30%,
65% …………………..
252,000
$546,000
798,000
September sales:
$600,000 × 30% …..
180,000
180,000
Total cash collections ..
$303,000
$486,000
$726,000
$1,515,000
3. The production budget (quantity of beach umbrellas) for July-October:
July
August
September
October
Budgeted unit sales ……………
Total needs ………………………
Required production in units ..
67,000
Problem 8-30 (continued)
4 and 5. The direct materials budget for the third quarter:
July
August
September
Quarter
Required production in units of
finished goods ………………………
36,000
67,000
45,500
148,500
Units of raw materials needed per
unit of finished goods …………….
× 4
× 4
× 4
× 4
Units of raw materials needed to
meet production ……………………
144,000
268,000
182,000
594,000
Add desired units of ending raw
materials inventory* ………………
134,000
91,000
37,000
37,000
Total units of raw materials
needed ……………………………….
278,000
359,000
219,000
631,000
91,000
Units of raw materials to be
purchased …………………………...
Unit cost of raw materials ………….
× $0.80
× $0.80
Cost of raw materials to be
$447,200
Problem 8-30 (continued)
6. The expected cash disbursements for materials purchases for the third quarter:
July
August
September
Quarter
Accounts payable,
June 30 ……………………
$ 76,000
$ 76,000
July purchases:
$164,800 × 50%, 50% .
82,400
$ 82,400
164,800
August purchases:
$102,400 × 50% ……….
Problem 8-31 (120 minutes)
1. Schedule of expected cash collections:
January
February
Cash sales ………………..
$ 80,000
*
$120,000
$ 60,000
$ 260,000
Credit sales ……………….
224,000
*
320,000
480,000
1,024,000
Total cash collections …..
$304,000
*
$440,000
$540,000
$1,284,000
2. a. Merchandise purchases budget:
January
February
March
Quarter
Budgeted cost of goods
sold1 ………………………
$240,000
*
$360,000
*
$180,000
$780,000
Add desired ending
merchandise
inventory2 ……………….
90,000
*
45,000
30,000
30,000
Total needs ……………..
330,000
*
405,000
210,000
810,000
Less beginning
merchandise
60,000
*
90,000
45,000
60,000
Required purchases ……..
$270,000
*
$315,000
$165,000
$750,000
* Given.
b. Schedule of expected cash disbursements for merchandise purchases:
January
February
March
Quarter
December
purchases …………
$ 93,000
*
$ 93,000
*
January purchases ..
135,000
*
*
270,000
*
February purchases .
$157,500
315,000
March purchases …..
82,500
*
$760,500
Problem 8-31 (continued)
3. Cash budget:
January
February
March
Quarter
Beginning cash balance ……
$ 48,000
*
$ 30,000
$ 30,800
$ 48,000
Add collections from
customers ………………….
304,000
*
440,000
540,000
1,284,000
Total cash available …………
352,000
*
470,000
570,800
1,332,000
Less cash disbursements:
Inventory purchases ……..
*
292,500
*
145,000
Equipment purchases ……
Cash dividends …………….
45,000
*
0
0
45,000
Total cash disbursements …
402,000
*
439,200
445,500
1,286,700
Excess (deficiency) of cash
available over
disbursements …………….
(50,000)
*
30,800
125,300
45,300
Financing:
Borrowings …………………
80,000
0
0
80,000
Repayments ………………..
0
0
(80,000)
(80,000)
0
0
(2,400)
Total financing ……………….
80,000
0
(2,400)
Ending cash balance ……….
$ 30,000
$ 30,800
$ 42,900
$ 42,900
Problem 8-31 (continued)
4. Income statement:
Hillyard Company
Income Statement
For the Quarter Ended March 31
Sales ………………………………………………….
$1,300,000
Cost of goods sold:
Beginning inventory (Given) ………………….
Add purchases (see requirement 2) ………..
Goods available for sale ……………………….
810,000
*
Gross margin ……………………………………….
520,000
Selling and administrative expenses:
Salaries and wages ($27,000 × 3)…………..
81,000
Advertising ($70,000 × 3) …………………….
210,000
Other expenses (3% of sales) ……………….
437,000
Net operating income …………………………….
Interest expense (see requirement 3) ………..
Net income ………………………………………….
* A simpler computation would be: $1,300,000 x 60% = $780,000.
Problem 8-31 (continued)
5. Balance sheet:
Hillyard Company
Balance Sheet
March 31
Assets
Current assets:
Cash (see requirement 3) ………………………………………
$ 42,900
Accounts receivable (80% × $300,000) …………………….
240,000
Inventory (see requirement 2a) ………………………………
30,000
Total current assets ………………………………………………..
312,900
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable (50% × $165,000) ………….
$ 82,500
Stockholders’ equity:
Common stock……………………………………….
$500,000
Retained earnings* …………………………………
144,600
644,600
Total liabilities and stockholders’ equity ………….
$727,100
*
Beginning retained earnings ………………
$109,000
Add net income ………………………………
45,000
Ending retained earnings …………………..
$144,600
Case 8-32 (45 minutes)
1. The budgetary control system has several important shortcomings that
reduce its effectiveness and may cause it to interfere with good
performance. Some of the shortcomings are explained below.
a.
Lack of Coordinated Goals.
Emory had been led to believe high-
quality output is the goal; it now appears low cost is the goal.
Employees do not know what the goals are and thus cannot make
decisions that further the goals.
c.
The Short-Run Perspectives.
Monthly evaluations and budget
tightening on a monthly basis results in a very short-run perspective.
This results in inappropriate decisions (i.e., inspect forklift trucks
rather than repair inoperative equipment, fail to report supplies
usage).
2. The improvements in the budgetary control system should correct the
deficiencies described above. The system should:
a. more clearly define the company’s objectives.
b. develop an accounting reporting system that better matches
(Unofficial CMA Solution, adapted)
Case 8-33 (120 minutes)
1.
a.
Sales budget:
April
May
June
Quarter
Budgeted unit sales….
65,000
100,000
50,000
215,000
Selling price per unit ..
× $10
× $10
× $10
× $10
Total sales ……………..
$650,000
$1,000,000
$500,000
$2,150,000
Schedule of expected cash collections:
February sales (10%) .
$ 26,000
$ 26,000
April sales
130,000
455,000
$ 65,000
650,000
May sales
June sales (20%) …….
Total cash collections .
$436,000
$695,000
$865,000
$1,996,000
c.
Merchandise purchases budget:
Budgeted unit sales….
65,000
100,000
50,000
215,000
Add desired ending
merchandise
inventory …………….
40,000
20,000
12,000
12,000
Total needs …………….
105,000
120,000
62,000
227,000
Less beginning
merchandise
inventory …………….
26,000
40,000
20,000
26,000
Required purchases ….
79,000
80,000
42,000
201,000
Cost of purchases at
$4 per unit …………..
$316,000
$320,000
$168,000
$ 804,000
Budgeted cash disbursements for merchandise purchases:
Accounts payable ……..
$100,000
April purchases ………..
158,000
$158,000
316,000
May purchases …………
June purchases ………..
84,000
84,000
Case 8-33 (continued)
2.
Earrings Unlimited
Cash Budget
For the Three Months Ending June 30
April
May
June
Quarter
Beginning cash balance ……
$ 74,000
$ 50,000
$ 50,000
$ 74,000
Add collections from
customers ………………….
436,000
695,000
865,000
1,996,000
Total cash available …………
510,000
745,000
915,000
2,070,000
Less cash disbursements:
Merchandise purchases …
244,000
820,000
Advertising …………………
200,000
600,000
Rent ………………………….
18,000
18,000
18,000
Salaries ……………………..
106,000
318,000
Commissions (4% of
sales) ……………………..
26,000
40,000
20,000
86,000
Utilities ………………………
7,000
7,000
7,000
21,000
Equipment purchases ……
0
16,000
40,000
56,000
Dividends paid …………….
15,000
0
0
15,000
Total cash disbursements …
630,000
705,000
635,000
1,970,000
Excess (deficiency) of cash
available over
disbursements …………….
(120,000)
40,000
280,000
100,000
Financing:
Borrowings …………………
10,000
180,000
Repayments ………………..
0
0
0
(5,300)
(5,300)
Ending cash balance ……….
$ 50,000
$ 50,000
$ 94,700
Case 8-33 (continued)
3.
Earrings Unlimited
Budgeted Income Statement
For the Three Months Ended June 30
Sales (see requirement 1a.) ………………….
$2,150,000
Variable expenses:
Cost of goods sold (@ $4 per unit) ………
$860,000
Commissions @ 4% of sales ……………….
86,000
946,000
Contribution margin …………………………...
1,204,000
Fixed expenses:
Rent ($18,000 × 3) ………………………….
Salaries ($106,000 × 3) …………………….
Net operating income ………………………….
Interest expense (see requirement 2) ……..
Net income ……………………………………….
Case 8-33 (continued)
4.
Earrings Unlimited
Budgeted Balance Sheet
June 30
Assets
Cash (see requirement 2) ………………………………………..
$ 94,700
Accounts receivable (see below) ……………………………….
500,000
Inventory (12,000 units @ $4 per unit) ………………………
48,000
Prepaid insurance ($21,000 – $9,000) ………………………..
12,000
Total assets …………………………..……………………………..
$1,618,700
Liabilities and Stockholders’ Equity
Accounts payable, purchases (50% × $168,000)…………..
$ 84,000
Dividends payable ………………………………………………….
15,000
Common stock …………………………..………………………….
800,000
Retained earnings (see below) ………………………………….
719,700
Total liabilities and stockholders’ equity ………………………
$1,618,700
Accounts receivable at June 30:
10% × May sales of $1,000,000 ………..
$100,000
80% × June sales of $500,000 ………….
400,000
Total …………………………………………….
$500,000
Retained earnings at June 30:
Balance, March 31 …………………………..
$580,000
Add net income (see requirement 3) …..
154,700
Total …………………………………………….
Less dividends declared ……………………
15,000
Balance, June 30 …………………………….
$719,700