CHAPTER 9 Profit Planning and Flexible Budgets
E 9-51
1st Qtr. 2nd Qtr. 3rd Qtr. 4th Qtr.
Y
ea
r
Sales………………….………
…
800 2,200 5,600 4,600 13,200
Desired ending
1st Qtr. 2nd Qtr. 3rd Qtr. 4th Qtr.
Y
ea
r
Sales………………….………
…
1,300 1,400 5,300 3,900 11,900
Desired ending
inventory………………….
…
420 1,590 1,170 360 360
Total needs………………….
…
1,720 2,990 6,470 4,260 12,260
Less: Beginning
Stillwater Designs
Production Budget for S12L5
For the Year Ended December 31, 20X1
Stillwater Designs
Production Budget for S12L7
For the Year Ended December 31, 20X1
…
…
CHAPTER 9 Profit Planning and Flexible Budgets
E 9-52
1.
January February March Total
Sales……………………………………
…
36,000 38,000 41,000 115,000
2.
Jar Sets: January February Total
Production……………………………………………
…
36,200 38,750 74,950
× 1 jar…………….……………………………………
…
111
Jars for production…………………………………
…
36,200 38,750 74,950
Desired inventory……………………………………
…
3,875 4,150 4,150
Total needs……………………………………………
…
40,075 42,900 79,100
Less: Beginning inventory…………………………
…
3,620 3,875 3,620
Jars purchased………………………………………
…
36,455 39,025 75,480
Peanuts:
…
…
…
…
Direct Materials Purchases Budget
For January and February
Peanut Land Inc.
Production Budget
For the First Quarter of the Year
Peanut Land Inc.
…
…
CHAPTER 9 Profit Planning and Flexible Budgets
E 9-53
April May June Total
Sales………………………………… 180,000 220,000 200,000 600,000
E 9-54
July August Septembe
Total
Units to be produced……………
…
3,500 4,400 4,900 12,800
× Direct materials per unit
(ounces)…………………………
…
151515 15
Production needs…………………
…
52,500 66,000 73,500 192,000
Desired ending inventory
…
…
Aqua-Pro Inc.
Production Budget
For the Second Quarter
Langer Company
Direct Materials Purchases Budget
For July, August, and September
…
…
CHAPTER 9 Profit Planning and Flexible Budgets
E 9-55
March April May Total
Units to be produced………… 4,000 13,000 14,400 31,400
× Direct labor time per
unit (hours)…………………
…
0.40 0.40 0.40 0.40
E 9-56
Units Price Total Sales
LB-1………………………………………………
…
36,750 $32.00 $1,176,000
LB-2………………………………………………
…
18,900 20.00 378,000
WE-6………………………………………………
…
25,200 10.50 264,600
…
Evans Company
Direct Labor Budget
For March, April, and May
Model
Alger Inc.
Sales Budget
For the Coming Year
CHAPTER 9 Profit Planning and Flexible Budgets
E 9-57
1.
Septembe
r
Octobe
r
Novembe
r
Decembe
r
Sales………………………………………
…
250 200 230 380
Desired ending inventory……………
…
10 12 19 5
2.
Fruit Septembe
r
Octobe
r
Novembe
r
Production……………………………………………
…
247 202 237
× Pounds of fruit ……………………………………
…
111
required for production…………………………
…
247 202 237
Desired inventory…………………………………… 10 12 18
Total needs…………………………………………
…
257 214 255
Less: Beginning inventory………………………
…
121012
Pounds purchased…………………………………
…
245 204 243
Small gifts
…
…
…
…
…
3. December includes the holiday season and is a time when many gifts are given. Jani
has factored this into her budgeting. January, on the other hand, is a month with few
national holidays or gift-giving occasions. As a result, Jani has forecast fewer gift
baskets.
Jani’s Flowers and Gifts
Production Budget for Gift Baskets
For September, October, November, and Decembe
r
For September, October, and Novembe
r
Jani’s Flowers and Gifts
Direct Materials Purchases Budget
…
…
E 9-58
1. Credit Sales in May = $290,000 × 0.85 = $246,500
Credit Sales in June = $280,000 × 0.85 = $238,000
2.
July August
Cash sales…………………………………………………………
…
$ 44,250 $ 45,000
Collections on account:
From May credit sales:
(0.05 × $246,500)……………………………………………
…
12,325 0
From June credit sales:
(0.68 × $238,000)……………………………………………
…
161,840
…
…
…
…
E 9-59
1.
Collections on account:
From May credit sales:
(0.23 × $248,000)……………………………………………………………… $ 57,040
From June credit sales:
(0.55 × $260,000)……………………………………………………………… 143,000
Schedule of Cash Receipts
For July
Bennett Inc.
Schedule of Cash Receipts
For July and August
Roybal Inc.
CHAPTER 9 Profit Planning and Flexible Budgets
E 9-59 (Concluded)
2.
Collections on account:
From June credit sales:
(0.23 × $260,000)……………………………………………………………
…
$ 59,800
From July credit sales:
(0.55 × $240,000)……………………………………………………………
…
132,000
E 9-60
Payments on accounts payable:
From July purchases (0.80 × $77,000)…………………………………..…
…
$ 61,600
From August purchases (0.20 × $73,000)…………………………………..
…
14,600
Schedule of Cash Receipts
For August
Roybal Inc.
Fein Company
Schedule of Cash Payments
For August
…
…
CHAPTER 9 Profit Planning and Flexible Budgets
E 9-61
Beginning cash balance……………………………..…………
…
$ 736
Collections:
Cash sales……………………………………………………… 18,600
Less disbursements:
Inventory purchases:
Current month ($72,600 × 0.64 × 0.20)…………………
…
$ 9,293
Prior month ($53,000 × 0.64 × 0.80)……………………
…
27,136
Salaries and wages…………………………………………… 11,750
Rent……………………………………………………………… 4,100
Taxes……………………………………………………………
…
6,780
Total cash needs…………………………………………
…
59,059
Excess of cash available over needs………………………… $ (1,727)
*$28,900 × 0.20 = $5,780
$5,780 × 0.02 = $116
$5,780 + $116 = $5,896
Cash Budget
For June
…
E 9-62
1.
Cost Formula 3,500 units 4,000 units 4,500 units
Direct materials………… $14.00 $ 49,000 $ 56,000 $ 63,000
Direct labor……………… 27.00 94,500 108,000 121,500
2. Unit cost at 3,500 units = $156,600/3,500 = $44.74
Unit cost at 4,000 units = $178,000/4,000 = $44.50
Flexible Budget for
CHAPTER 9 Profit Planning and Flexible Budgets
E 9-63
1.
Activity Level
Formula 90,000 Hours
V
ariable costs: $0.20 $ 18,000
Maintenance…………………………………………
…
0.45 40,500
Power…………………………………………………
…
2.10 189,000
Indirect labor…………………………………………
…
$247,500
Total variable costs…………………………………
…
2. Direct Labor Hours for 15% Higher Production = 90,000 + 0.15(90,000)
= 103,500
Direct Labor Hours for 15% Lower Production = 90,000 – 0.15(90,000)
= 76,500
103,500 76,500
Formula Hours Hours
V
ariable costs:
Maintenance……………………
…
$0.20 $ 20,700 $ 15,300
Power……………………………
…
0.45 46,575 34,425
Indirect labor……………………
…
2.10 217,350 160,650
Total variable costs……………
…
$284,625 $210,375
…
…
Activity Level
Palladium Inc.
Overhead Budget
For the Coming Year
…
…
CHAPTER 9 Profit Planning and Flexible Budgets
E 9-64
Actual Budgeted
V
ariance
Direct labor hours
based on actual…………………………… 93,000 93,000 —
V
Performance Report
CHAPTER 9 Profit Planning and Flexible Budgets
P 9-65
August Septembe
Cash fees……………………………………………..………….…
…
$ 48,500 $ 60,000
Received from sales in:
June (0.75 × 0.26 × $200,000 × 1.03)………
…
40,170 —
July (0.75 × 0.60 × $190,000)………………… 85,500 —
P 9-66
1.
a. Schedule 1:Sales Budget
January February March Total
Units…………………
…
40,000 50,000 60,000 150,000
× Selling price………
…
$205 $205 $205 $205
Sales…………………
…
$8,200,000 $10,250,000 $12,300,000 $30,750,000
b. Schedule 2: Production Budget
January February March Total
Sales (Schedule 1)…
…
40,000 50,000 60,000 150,000
…
PROBLEMS
Allison Manufacturing
For the Quarter Ended March 31
Aragon and Associates
Schedule of Cash Receipts
For August and September
…
r
CHAPTER 9 Profit Planning and Flexible Budgets
P 9-66 (Continued)
c. Schedule 3: Direct Materials Purchases Budget
Component
Units to
be produced………
…
48,000 60,000 60,000 166,000
× Direct
materials……………
…
10 10 6 6
Production
needs………………
…
480,000 600,000 360,000 996,000
Desired
ending
166,000
10
1,660,000
580,000
February
ComponentMetalMetal
58,000
288,000
Component
January
48,000
6
Metal
TotalMarch
Metal
10
Component
58,000
6
348,000
…
CHAPTER 9 Profit Planning and Flexible Budgets
P 9-66 (Continued)
d. Schedule 4: Direct Labor Budget
January February March Total
Units to be
produced
(Schedule 2)……………
…
48,000 58,000 60,000 166,000
e. Schedule 5: Overhead Budget
January February March Total
Budgeted direct
labor (Schedule 4)………
…
144,000 174,000 180,000 498,000
× Variable
overhead rate……………
…
$2.40 $2.40 $2.40 $2.40
Budgeted
variable overhead………
…
$345,600 $417,600 $432,000 $1,195,200
…
CHAPTER 9 Profit Planning and Flexible Budgets
P 9-66 (Continued)
f. Schedule 6: Selling and Administrative Expenses Budget
January February March Total
Planned sales
(Schedule 1)…………………
…
40,000 50,000 60,000 150,000
Total variable expenses……… $144,000 $180,000 $216,000 $540,000
Fixed selling and
administrative
expenses:
Salaries……………………… $ 50,000 $ 50,000 $ 50,000 $150,000
Depreciation………………
…
40,000 40,000 40,000 120,000
Other…………………………
…
20,000 20,000 20,000 60,000
CHAPTER 9 Profit Planning and Flexible Budgets
P 9-66 (Continued)
g. Schedule 7: Ending Finished Goods Inventory Budget
Unit cost computation:
Direct materials:
Metal (10 lbs. × $8)…………………………
…
$80
Components (6 units × $5)………………
…
30 $110.00
Direct labor (3 × $14.25)………………………
…
42.75
h. Schedule 8: Cost of Goods Sold Budget
Direct materials used (Schedule 3)
Metal (1,660,000 × $8)*…………………………………… $13,280,000
Components (996,000 × $5)**…………………………
…
4,980,000 $18,260,000
Direct labor used (Schedule 4)……………………………
…
7,096,500
Overhead (Schedule 5)……………………………………… 2,209,200
Budgeted manufacturing costs………………………
…
$27,565,700
CHAPTER 9 Profit Planning and Flexible Budgets
P 9-66 (Concluded)
i. Schedule 9: Budgeted Income Statement
Sales (Schedule 1)……………………………………………………………………
…
$30,750,000
Less: Cost of goods sold (Schedule 8)……………………………………………
…
24,908,740
j. Schedule 10: Cash Budget
January February March Total
Beginning balance………
…
$ 400,000 $ 50,000 $ 495,004 $ 400,000
Cash receipts……………
…
8,200,000 10,250,000 12,300,000 30,750,000
Cash available……………
…
$8,600,000 $10,300,000 $12,795,004 $31,150,000
Less disbursements:
Purchases (Sch. 3)…
…
$5,830,000 $ 6,490,000 $ 6,688,000 $19,008,000
Direct labor (Sch. 4)…
…
2,052,000 2,479,500 2,565,000 7,096,500
Overhead (Sch. 5)……
…
483,600 555,600 570,000 1,609,200
Selling &
admin. (Sch. 6)……
…
214,000 250,000 286,000 750,000
Total……………………
…
$8,579,600 $ 9,775,100 $10,109,000 $28,463,700
…
…
2. Answers will vary.
CHAPTER 9 Profit Planning and Flexible Budgets
2.
Formula
V
ariable costs:
Maintenance………………………… $0.50 $20,000
Power…………………………………
…
0.40 16,000
Indirect labor………………………
…
2.10 84,000
Total variable costs………………
…
$120,000
Fixed costs:
…
40,000 Hours*
Healthy Pet Compan
y
Overhead Budget
For the Coming Year
Activity Level
CHAPTER 9 Profit Planning and Flexible Budgets
P 9-68
1. Direct Labor Hours for 10% Higher = 40,000 + (0.10 × 40,000 hours)
44,000
2. 10% higher:
Formula
V
ariable costs:
Maintenance…………………………
…
$0.50 $22,000
Power…………………………………
…
0.40 17,600
Indirect labor…………………………
…
2.10 92,400
Total variable costs…………………
…
$132,000
Fixed costs:
…
…
20% lower:
Formula
V
ariable costs:
Maintenance…………………………
…
$0.50 $16,000
Power…………………………………
…
0.40 12,800
Indirect labor…………………………
…
2.10 67,200
…
…
…
Overhead Budget
For the Coming Year
Activity Level
32,000 Hours*
Healthy Pet Compan
y
Healthy Pet Compan
y
Overhead Budget
For the Coming Year
Activity Level
44,000 Hours*