P22A-45A Preparing a financial budget—schedule of cash receipts, schedule cash payments, cash
budget
Learning Objective 7
Appendix 22A
1. Jan. total cash recpts. $68,000
3. Feb. total pmts. for S&A exp. $13,056
Knobbles Company’s budget committee provides the following information:
Requirements
1. Prepare the schedule of cash receipts from customers for January and February 2016. Assume cash
receipts are 60% in the month of the sale and 40% in the month following the sale.
2. Prepare the schedule of cash payments for purchases for January and February 2016. Assume
purchases are paid 60% in the month of purchase and 40% in the month following the purchase.
3. Prepare the schedule of cash payments for selling and administrative expenses for January and
February 2016. Assume 25% of the accrual for Salaries and Commissions Payable is for
commissions and 75% is for salaries. The December 31 balance will be paid in January. Salaries and
commissions are paid 70% in the month incurred and 30% in the following month. Rent and income
tax expenses are paid as incurred. Insurance expense is an expiration of the prepaid amount.
4. Prepare the cash budget for January and February 2016. Assume no financing took place.
SOLUTION
Requirement 1
KNOBBLES COMPANY
Budgeted Cash Receipts from Customers
Requirement 2
KNOBBLES COMPANY
Budgeted Cash Payments for Purchases
For the Two Months Ended February 31, 2016
P22A-45A, cont.
Requirement 3
KNOBBLES COMPANY
Budgeted Cash Payments for Selling and Administrative Expenses
For the Two Months Ended February 31, 2016
January
February
Total
Variable expenses:
30% of last month’s Commission Expense
$ 713
$ 1,200
Total payments for variable expenses
Fixed expenses:
70% of current month’s Salaries Expense
Rent Expense
Total payments for fixed expenses
Total payments for selling and administrative expenses
$ 13,056
$ 25,607
Salaries and Commissions Payable balance, February 28, 2016:
2016
Requirement 4
KNOBBLES COMPANY
Cash Budget
For the Two Months Ended February 31, 2016
$ 23,000
$ 40,629
$ 23,000
Cash receipts
148,960
Cash available
121,589
171,960
Cash payments:
Purchases of merchandise inventory
Selling and administrative expenses
Income taxes
Total cash payments
106,307
Ending cash balance
$ 40,629
$ 65,653
$ 65,653
January
February
Total
P22A-46A Preparing a financial budget—budgeted income statement, balance sheet, and
statement of cash flows
Learning Objective 7
Appendix 22A
2. RE $101,315
3. Net cash OA $35,442
Grant Company has the following post-closing trial balance on December 31, 2016:
The company’s accounting department has gathered the following budgeting information for the first
quarter of 2017:
Additional information:
Rent and income tax expenses are paid as incurred. Insurance expense is an expiration of the prepaid
amount.
Requirements
1. Prepare a budgeted income statement for the quarter ended March 31, 2017.
2. Prepare a budgeted balance sheet as of March 31, 2017.
3. Prepare a budgeted statement of cash flows for the quarter ended March 31, 2017.
SOLUTION
Requirement 1
GRANT COMPANY
Budgeted Income Statement
For the Quarter Ended March 31, 2017
Sales Revenue
$ 121,200
Cost of Goods Sold
Gross Profit
Selling and Administrative Expenses:
Sales Commissions
Salaries Expense
Rent Expense
Depreciation Expense
Insurance Expense
Total Selling and Administrative Expenses
Operating Income
Income Tax Expense
Net Income
P22A-46A, cont.
Requirement 2
GRANT COMPANY
Budgeted Balance Sheet
March 31, 2017
Assets
Current Assets:
Cash (from Statement of Cash Flows)
$ 61,442
Accounts Receivable (a)
12,240
Merchandise Inventory (b)
16,800
Prepaid Insurance (c)
1,400
Total Current Assets
$ 91,882
Property, Plant, and Equipment:
Equipment and Fixtures
56,000
Total Assets
$ 132,482
Liabilities
Current Liabilities:
Accounts Payable (e)
$ 9,225
Salaries and Commissions Payable (f)
4,942
Total Liabilities
$ 14,167
Stockholders’ Equity
Common Stock
$ 17,000
Retained Earnings (g)
101,315
Total Stockholders’ Equity
118,315
Total Liabilities and Stockholders’ Equity
$ 132,482
(a)
Accounts Receivable: Dec. 31 balance + total sales – customer payments = $19,000 +
$121,200 – $127,960 = $12,240
(b)
(e)
Accounts Payable: Dec. 31 balance + purchases – payments = $16,000 + $60,900 – $67,675
= $9,225
$6,125 + $6,060 + $8,000 – $15,243 = $4,942
(g)
P22A-46A, cont.
Requirement 3
GRANT COMPANY
Budgeted Statement of Cash Flows
For the Quarter Ended March 31, 2017
Operating Activities:
Cash receipts from customers
$ 127,960
Cash payments for purchases
Cash payments for income taxes
Net cash provided by operating activities
Investing Activities:
Net cash provided by (used for) for investing activities
Financing Activities:
Net cash provided by (used for) financing activities
Net increase in cash
Cash balance, January 1,2016
Cash balance, March 31, 2016
(h)
Cash payments for S&A expenses:
Salaries and commissions expense
$ 15,243
Rent expense
4,800
Total cash payments for operating expenses
$ 20,043
P22A-47A Completing a comprehensive budgeting problem—merchandising company
Learning Objectives 6, 7
Appendix 22A
6. Total cash pmts. $81,950
7. NI $1,200
Professional Printing Supply of Baltimore has applied for a loan. Its bank has requested a budgeted
balance sheet at April 30, 2016, and a budgeted statement of cash flows for April. The March 31, 2016,
balance sheet follows:
As Professional Printing Supply’s controller, you have assembled the following additional information:
a. April dividends of $4,000 were declared and paid.
b. April capital expenditures of $16,600 budgeted for cash purchase of equipment.
c. April depreciation expense, $600.
d. Cost of goods sold, 40% of sales.
e. Desired ending inventory for April is $23,600.
f. April selling and administrative expenses include salaries of $36,000, 40% of which will be paid in
Requirements
1. Prepare the sales budget for April.
2. Prepare the inventory, purchases, and cost of goods sold budget for April.
3. Prepare the selling and administrative expense budget for April.
4. Prepare the schedule of cash receipts from customers for April.
5. Prepare the schedule of cash payments for selling and administrative expenses for April.
6. Prepare the cash budget for April. Assume the company does not use short-term financing to
maintain a minimum cash balance.
7. Prepare the budgeted income statement for April.
8. Prepare the budgeted balance sheet at April 30, 2016.
9. Prepare the budgeted statement of cash flows for April.
SOLUTION
Requirement 1
PROFESSIONAL PRINTING SUPPLY
Total budgeted sales
Requirement 2
PROFESSIONAL PRINTING SUPPLY
Inventory, Purchases, and Cost of Goods Sold Budget
For the Month Ending April 30, 2016
Cost of goods sold (40% of sales)
Desired ending merchandise inventory
Total merchandise inventory required
Less: Beginning merchandise inventory
Budgeted purchases
Requirement 3
PROFESSIONAL PRINTING SUPPLY
Selling and Administrative Expense Budget
For the Month Ending April 30, 2016
Variable expenses:
Miscellaneous Expenses (15% of sales)
Fixed expenses:
Depreciation Expense
Salaries Expense
Total fixed expenses
P22A-47A, cont.
Requirement 4
PROFESSIONAL PRINTING SUPPLY
Budgeted Cash Receipts from Customers
For the Month Ending April 30, 2016
Requirement 5
PROFESSIONAL PRINTING SUPPLY
Budgeted Cash Payments for Selling and Administrative Expenses
For the Month Ending April 30, 2016
P22A-47A, cont.
Requirement 6
PROFESSIONAL PRINTING SUPPLY
Cash Budget
For the Month Ending April 30, 2016
Cash receipts
Cash available
Cash payments:
Purchases of merchandise inventory*
Selling and administrative expenses
Dividends
Capital expenditures
Total cash payments
Ending cash balance
*Accounts Payable balance, March 31, 2016
$7,900
April cash purchases
7,900
April credit purchases, 50% paid in April
18,550
Total cash payments for purchases
$ 34,350
Requirement 7
PROFESSIONAL PRINTING SUPPLY
Budgeted Income Statement
For Month Ending April 30, 2016
Sales Revenue
Cost of Goods Sold
Gross Profit
Selling and Administrative Expenses:
Miscellaneous Expenses
Depreciation Expense
Salaries Expense
Total Selling and Administrative Expenses
Net Income
P22A-47A, cont.
Requirement 8
PROFESSIONAL PRINTING SUPPLY
Budgeted Balance Sheet
April 30, 2016
Assets
Current Assets:
Cash (from Req. 6)
$ 42,050
Accounts Receivable (from Req. 4)
25,200
Merchandise Inventory
23,600
Total Current Assets
$ 90,850
Property, Plant, and Equipment:
Equipment and Fixtures ($80,400 + $16,600)
97,000
Less: Accumulated Depreciation ($12,300 + 600)
84,100
Total Assets
Liabilities
Current Liabilities:
Accounts Payable (50% of April credit purchases)
$ 18,550
Salaries Payable (from Req. 5)
21,600
Total Liabilities
$ 40,150
Common Stock
Retained Earnings ($107,600 + $1,200 – $4,000)
Total Stockholders’ Equity
P22A-47A, cont.
Requirement 9
PROFESSIONAL PRINTING SUPPLY
Budgeted Statement of Cash Flows
For Month Ending April 30, 2016
Operating Activities (from Req. 6):
Cash receipts from customers
Cash payments for purchases
(34,350)
Cash payments for selling and administrative expenses
(27,000)
Net cash provided by operating activities
Investing Activities:
Cash payments for equipment purchases
(16,600)
Net cash used for investing activities
(16,600)
Financing Activities:
Cash payment of dividends
Net cash used for financing activities
Net decrease in cash
Cash balance, April 1, 2016
Cash balance, April 30, 2016
Problems (Group B)
P22-48B Preparing an operating budget—sales, production, direct materials, direct labor,
overhead, COGS, and S&A expense budgets
Learning Objective 3
3. POHR $3
4. Adult bats COGS $74,175
The Haney Batting Company manufactures wood baseball bats. Haney’s two primary products are a
youth bat, designed for children and young teens, and an adult bat, designed for high school and college-
aged players. Haney sells the bats to sporting goods stores, and all sales are on account. The youth bat
sells for $35; the adult bat sells for $55. Haney’s highest sales volume is in the first three months of the
year as retailers prepare for the spring baseball season. Haney’s balance sheet for December 31, 2016,
follows:
Other data for Haney Batting Company for the first quarter of 2017:
a. Budgeted sales are 1,300 youth bats and 3,100 adult bats.
b. Finished Goods Inventory on December 31 consists of 200 youth bats at $11 each and 750 adult bats
at $19 each.
considered for budgeting purposes).
f. Each bat requires 0.3 hours of direct labor; direct labor costs average $32 per hour.
g. Variable manufacturing overhead is $0.40 per bat.
h. Fixed manufacturing overhead includes $600 per quarter in depreciation and $1,525 per quarter for
other costs, such as insurance and property taxes.
i. Fixed selling and administrative expenses include $14,000 per quarter for salaries; $2,500 per
quarter for rent; $1,900 per quarter for insurance; and $100 per quarter for depreciation.
j. Variable selling and administrative expenses include supplies at 1% of sales.
Requirements
1. Prepare Haney’s sales budget for the first quarter of 2017.
2. Prepare Haney’s production budget for the first quarter of 2017.
SOLUTION
Requirement 1
HANEY BATTING COMPANY
Sales Budget
For the Quarter Ended March 31, 2017
Budgeted bats to be sold
Sales price per bat
Total sales
Requirement 2
HANEY BATTING COMPANY
Production Budget
For the Quarter Ended March 31, 2017
Budgeted bats to be sold
Plus: Desired bats in ending inventory
Total bats needed
Budgeted bats to be produced
P22-48B, cont.
Requirement 3
HANEY BATTING COMPANY
Direct Materials Budget
For the Quarter Ended March 31, 2017
Youth Bats
Adult Bats
Total
Budgeted bats to be produced (from Req. 2)
1,350
2,900
4,250
Direct materials cost per bat
× $13
× $15
Direct materials needed for production
Plus: Desired direct materials in ending inventory
9,000
Total direct materials needed
Less: Direct materials in beginning inventory
9,000
Budgeted purchases of direct materials
HANEY BATTING COMPANY
Direct Labor Budget
For the Quarter Ended March 31, 2017
Youth Bats
Adult Bats
Total
Budgeted bats to be produced (from Req. 2)
1,350
2,900
4,250
Direct labor hours per bat
Direct labor cost per hour
× $32
× $32
Budgeted direct labor cost
P22-48B, cont.
Requirement 3, cont.
HANEY BATTING COMPANY
Manufacturing Overhead Budget
For the Quarter Ended March 31, 2017
Youth Bats
Adult Bats
Total
Budgeted bats to be produced (from Req. 2)
1,350
2,900
4,250
Variable overhead cost per bat
× $0.40
× $0.40
× $0.40
Budgeted variable overhead
$ 540
Budgeted fixed overhead
Depreciation
Insurance and property taxes
1,525
Total budgeted fixed overhead
2,125
Budgeted manufacturing overhead costs
Direct labor hours (from DL budget)
1,275
P22-48B, cont.
Requirement 4
Calculations for Cost of Goods Sold Budget:
Bats in
beginning inventory
×
Cost per bat
=
Cost of bats in
beginning inventory
Youth Bats:
200 bats
×
$11 per bat
=
$ 2,200
Adult Bats:
750 bats
×
$19 per bat
=
$ 14,250
=
Youth Bats:
=
Adult Bats:
=
Manufacturing cost per bat:
Direct materials cost per bat
Direct labor cost per bat (0.3 DLHr/bat × $32/DLHr)
Manufacturing overhead cost per bat (0.3 DLHr/bat × $3/DLHr)
Total projected manufacturing cost per bat
Bats produced
and sold in
1st quarter of 2017
×
Manufacturing
cost per bat
=
Cost of bats
produced and sold
in 1st quarter of 2017
Youth Bats:
1,100 bats
×
$23.50 per bat
=
$25,850
Adult Bats:
2,350 bats
×
$25.50 per bat
=
$59,925
Beginning inventory
Total budgeted cost of goods sold