CHAPTER 9 Profit Planning
P 9-51 (Continued)
7. Schedule 7: Ending Finished Goods Inventory Budget
Unit cost computation:
Direct materials (3 units @ $80)……………………………………………
…
$ 240.00
8. Schedule 8: Cost of Goods Sold Budget
Direct materials used (Schedule 3)……………………………………………
…
$ 74,400,000
Direct labor used (Schedule 4)…………………………………..……………
…
15,500,000
9. Cash Budget (in thousands)
Qtr. 1 Qtr. 2 Qtr. 3 Qtr. 4 Total
Beginning cash……
…
$ 250 $ 1,110 $ 3,128 $ 5,568 $ 250
Collections:
Credit sales:
Current quarter… 22,100 23,800 25,500 30,600 102,000
9-32
…
P 9-51 (Continued)
10.
Pro Forma Income Statement
Sales (Schedule 1)…………………………………..………………………
…
$120,000,000
…
11.
Cash……………………………………………………………………………
…
$11,090,000
Accounts receivable………………………………….……………………… 5,400,000
Total assets…………………………………………………………………
…
$58,975,000
Accounts payable……………………………………………………………
…
$ 8,988,000
Beginning plant and equipment $33,500,000
Add: New equipment………………………………………………… 2,000,000
Less: Depreciation expense (for year)……………………………
…
(1,600,000)
a
Liabilities and Stockholders’ Equity
Assets
Optima Company
For the Year Ending December 31, 2014
Optima Company
December 31, 201
4
Pro Forma Balance Sheet
CHAPTER 9 Profit Planning
P 9-52
1.
October Novembe
r
December Total
Units to be produced……………… 20,000 40,000 25,000 85,000
× DM per unit (yds.)………………
…
0.20 0.20 0.20 0.20
2.
October Novembe
r
December Total
Units to be produced……………… 20,000 40,000 25,000 85,000
× DM per unit (oz.)…………………. 6666
3.
October Novembe
r
December Total
Units to be produced……………… 20,000 40,000 25,000 85,000
× Direct labor time per
For the Fourth Quarter
Purchase Budget for Fabric
For the Fourth Quarter
Willison Company
Willison Company
Purchase Budget for Polyfiberfill
For the Fourth Quarter
Willison Company
Direct Labor Budget
P 9-53
1.
August September
Cash sales:
($75,000 × 0.75)….…………………………………..………
…
$56,250
…
…
*Check collections for:
(0.25 × $75,000)….…………………………………..…
…
$18,750
(0.25 × $80,000)….…………………………………..…
…
$20,000
…
…
…
…
July August September
2. a. Revised cash sales estimates:
($60,000 × 1.20 × 0.05)…………………..
…
$ 3,600
($75,000 × 1.20 × 0.05)…………………..
…
$ 4,500
($80,000 × 1.20 × 0.05)…………………..
…
$ 4,800
…
…
…
Schedule of Cash Receipts
9-35
CHAPTER 9 Profit Planning
P 9-53 (Continued)
3. August September
Cash sales:
($90,000 × 0.05)….…………………………………..……
…
$ 4,500
($96,000 × 0.05)….…………………………………..……
…
$ 4,800
9-36
CHAPTER 9 Profit Planning
Case 9-54
Answers will vary.
Case 9-55
1.
Cash collections and cash available*…………………………………………
…
$21,360
Less cash disbursements:
Salaries………………………………………………………………………
…
$12,700
Benefits………………………………………………………………………
…
1,344
Building lease………………………………………………………………
…
1,500
*Total revenues for a month:
Fillings ($50 × 90)…………………………
…
$ 4,500
Crowns ($300 × 19)………………………… 5,700
…
Dr. Roger Jones
Cash Budget
CASES
9-37
…
CHAPTER 9 Profit Planning
Case 9-55 (Continued)
2. Dr. Jones must either increase revenues to make up the deficiency or cut costs or a
combination of the two. Three possible approaches are outlined as follows:
a. Extend office hours so that a total of 40 hours are worked each week. This could
increase revenues by as much as $5,340. Based on a four-week month, the current
revenue earned per hour is $166.88($21,360/128). Thus, the total revenue increase
Approach 1 carries with it some risk. Increasing office hours may not increase
business. If business does not increase as expected, the cash flow problems
could be aggravated rather than relieved. The likelihood of increasing business
would be increased if the additional hours are offered in the early evening instead
9-38
CHAPTER 9 Profit Planning
Case 9-55 (Continued)
Cash collections and cash available ($21,360 + $5,340)………………..
.
$26,700
Less cash disbursements:
Interest payments…………………………………………………………
…
500
Miscellaneous……………………………………………………………… 200
Total cash needs………………………………………………………………
…
$26,560
Excess cash available over needs…………………………………………
…
$ 140
*Dental supplies, utilities, and lab fees are variable expenses. The proportion of total variable
expenses of each is:
%
Dental supplies $1,200 18.2%
b. Cut one dental assistant, eliminate the salary to Mrs. Jones and the
activities she does, and cut Dr. Jones’s salary back by $1,000 per month:
The savings are as follows:
…
Dr. Roger Jones
Revised Cash Budget
CHAPTER 9 Profit Planning
Case 9-55 (Continued)
Although this achieves the savings, the solution may not be feasible. The solution
depends to a large extent on how well the Jones family can do with a $2,000 per
c. A third possibility is to increase the fees charged for the various dental services
Assuming a variable cost ratio of 31% (from the first approach), the increase in
revenues needed to cover the $2,900 deficiency can be computed as follows:
This increase would call for fees to increase an average of 19.7%. Whether this
increase is possible or not depends to some extent on how Dr. Jones’s charges
compare with other dentists in the area. If some increase is possible, then the
increase could be combined with elements of the other two approaches, (e.g., a
Case 9-56
1. Linda’s behavior is not ethical. In the budgeting process, she is deliberately
misrepresenting the capabilities of her division for personal gain. To ensure that she
CHAPTER 9 Profit Planning
Case 9-56 (Continued)
2. There are few, if any, legitimate reasons for deferring the closing of sales. Thus, if a
marketing manager was asked to engage in this behavior, the first response must
3. It would be hard to go against a common practice that seems to have the approval
of the plant managers. The widespread knowledge of the practice may even suggest
that higher-level management is aware of it and essentially condones the practice—or
4. This violates the IMA’s Statement of Ethical Professional Practice. A management
accountant is obligated to report information fairly and objectively and to disclose all
information that can be expected to influence a user’s understanding of accounting