Problem 8-24 (continued)
2.
Year 2 Quarter
First
Second
Third
Fourth
Year
Budgeted sales ………………
$400,000
$500,000
$600,000
$480,000
$1,980,000
Variable expense rate ……..
× 12%
× 12%
× 12%
× 12%
× 12%
Variable expenses …………..
48,000
60,000
72,000
57,600
237,600
Fixed expenses ……………..
90,000
Total expenses ………………
Less depreciation …………..
20,000
Cash disbursements ……….
$118,000
$130,000
$142,000
$127,600
$ 517,600
Problem 8-24 (continued)
3. Cash budget for Year 2:
Year 2 Quarter
First
Second
Third
Fourth
Year
Cash balance, beginning ………………..
$ 20,000
$ 23,000
$ 18,000
$ 18,500
$ 20,000
Add collections from sales ………………
327,000
425,000
523,000
548,400
1,823,400
Total cash available ……………………….
347,000
448,000
541,000
566,900
1,843,400
Less disbursements:
Merchandise purchases ……………….
196,000
270,000
322,000
344,000
1,132,000
Operating expenses ……………………
118,000
130,000
142,000
127,600
517,600
Dividends …………………………………
10,000
10,000
10,000
10,000
40,000
Land ………………………………………..
48,500
128,500
Total disbursements ………………………
490,000
522,500
481,600
1,818,100
23,000
18,500
Financing:
Borrowings ……………………………….
Repayments ………………………………
Interest ($60,000 × 1% × 9) ……….
Total financing ……………………………..
Cash balance, ending …………………….
$ 23,000
$ 18,000
$ 18,500
$ 19,900
$ 19,900
Problem 8-25 (30 minutes)
1. Cadence and Cross used a top-down approach to prepare the budget.
That is, they prepared the budget with little or no input from the
individuals who would have to implement the budget. In contrast, the
2. While Cadence and Cross are undoubtedly pleased with their work, the
dissatisfaction expressed by some employees with the budget process is
a sign that there may be storm clouds ahead. If employees feel that the
Problem 8-26 (120 minutes)
1. Schedule of expected cash collections:
January
February
March
Quarter
Cash sales ………………………
$34,000
Credit sales* …………………..
36,000
48,000
126,000
Total collections ……………….
$82,000
2. Merchandise purchases budget:
January
February
March
Quarter
Budgeted cost of goods sold
(70% of sales)………………
$49,000
$56,000
$59,500
$164,500
Add desired ending
inventory* ……………………
11,200
11,900
7,700
7,700
Total needs …………………….
60,200
67,900
67,200
172,200
Less beginning inventory …..
9,800
11,200
11,900
9,800
Required purchases ………….
$50,400
$56,700
$55,300
$162,400
*At March 30: April sales $55,000 × 70% × 20% = $7,700.
February
March
Quarter
March purchases ……………..
13,825
13,825
Total disbursements …………
$45,150
$51,975
$56,350
$153,475
Problem 8-26 (continued)
3. Schedule of expected cash disbursements—selling and administrative
expenses
January
February
Quarter
Commissions …………………..
$12,000
$12,000
$36,000
Rent ……………………………..
Other expenses ……………….
18,800
Total disbursements …………
$60,200
4. Cash budget:
January
February
March
Quarter
Cash balance, beginning ….
$ 6,000
$ 5,450
$ 5,275
$ 6,000
Add cash collections ……….
64,000
74,000
82,000
220,000
Total cash available ………
70,000
79,450
87,275
226,000
Less cash disbursements:
For inventory ………………
45,150
51,975
56,350
153,475
For operating expenses …
19,400
20,200
20,600
60,200
For equipment …………….
3,000
8,000
0
11,000
Total disbursements ……….
67,550
80,175
76,950
224,675
Excess (deficiency) of cash
2,450
(725)
10,325
Financing:
Borrowings …………………
Repayments ……………….
Interest* ……………………
0
0
(210)
(210)
Total financing ………………
3,000
6,000
3,790
Cash balance, ending ……..
$ 5,450
$ 5,275
$ 5,115
$ 5,115
*
$3,000 × 1% × 3 =
$6,000 × 1% × 2 =
Total interest
Problem 8-26 (continued)
5.
Picanuy Corporation
Income Statement
For the Quarter Ended March 31
Sales ($70,000 + $80,000 + $85,000) …….
$235,000
Cost of goods sold:
Beginning inventory (Given) ……………….
$ 9,800
Purchases (Part 2) …………………………...
162,400
Goods available for sale ……………………..
172,200
Ending inventory (Part 2) …………………..
7,700
164,500
*
Gross margin ……………………………………..
Selling and administrative expenses:
Commissions (Part 3) ………………………..
Rent (Part 3) …………………………………..
Depreciation (Given) …………………………
Other expenses (Part 3) …………………….
18,800
62,600
Net operating income ………………………….
Interest expense ………………………………..
210
Net income ……………………………………….
$ 7,690
Problem 8-26 (continued)
6.
Picanuy Corporation
Balance Sheet
March 31
Assets
Current assets:
Cash (Part 4) …………………………………………………….
$ 5,115
Accounts receivable ($85,000 × 60%) …………………….
51,000
Total assets …………………………………………………………
Liabilities and Stockholders’ Equity
Accounts payable (Part 2: $55,300 × 75%) …..
$ 41,475
Bank loan payable …………………………………..
4,000
Stockholders’ equity:
Total liabilities and equity ………………………….
Retained earnings, beginning ………………….
Add net income ……………………………………
Retained earnings, ending ……………………..
Problem 8-27 (120 minutes)
1. Schedule of expected cash collections:
April
May
June
Total
Cash sales ………………………..
$14,000
$17,000
$18,000
$ 49,000
Credit sales ………………………
48,000
56,000
68,000
172,000
Total collections …………………
$62,000
$73,000
$86,000
$221,000
2. a. Merchandise purchases budget:
April
May
June
Total
Budgeted cost of goods sold ….
$42,000
$51,000
$54,000
$147,000
Add desired ending inventory* .
15,300
16,200
9,000
9,000
Total needs ………………………..
57,300
67,200
63,000
156,000
Less beginning inventory ………
12,600
15,300
16,200
12,600
Required purchases ……………..
$44,700
$51,900
$46,800
$143,400
*At April 30: $51,000 × 30% = $15,300.
At June 30: $50,000 July sales × 60% × 30% = $9,000.
April
May
June
Total
For March purchases ………….
$18,300
$18,300
For April purchases …………….
$22,350
For May purchases …………….
25,950
$25,950
For June purchases ……………
23,400
23,400
Total cash disbursements …….
Problem 8-27 (continued)
3. Schedule of cash disbursements for selling and administrative expenses:
April
May
June
Total
Salaries and wages ………………..
$ 7,500
Shipping ……………………………..
5,100
5,400
Advertising …………………………..
6,000
6,000
Other expenses …………………….
2,800
3,400
3,600
9,800
4. Cash budget:
April
May
June
Total
Cash balance, beginning …………
$ 9,000
$ 8,350
$ 8,050
$ 9,000
Add cash collections ………………
62,000
73,000
86,000
221,000
Total cash available ……………..
71,000
81,350
94,050
230,000
Less disbursements:
For inventory purchases ……….
40,650
48,300
49,350
138,300
For selling and administrative
expenses ………………………..
20,500
22,000
22,500
65,000
For equipment purchases ……..
11,500
3,000
0
14,500
For dividends ……………………..
0
Total disbursements ……………….
72,650
Excess (deficiency) of cash ……..
18,700
8,700
Financing:
Borrowings ………………………..
10,000
0
0
10,000
Repayments ………………………
0
Interest ($10,000 × 1% × 3) ..
0
Total financing………………………
10,000
Cash balance, ending……………..
$ 8,350
$ 8,050
$ 8,400
$ 8,400
Problem 8-27 (continued)
5. Income Statement:
Nordic Company
Income Statement
For the Quarter Ended June 30
Sales ……………………………………………….
$245,000
Cost of goods sold:
Beginning inventory (given) ………………..
$ 12,600
Purchases (Part 2) …………………………...
143,400
Goods available for sale ……………………..
156,000
Ending inventory (Part 2) …………………..
9,000
147,000
*
Gross margin ……………………………………..
98,000
Salaries and wages (Part 3) ………………..
Shipping (Part 3)………………………………
Advertising (Part 3) …………………………..
Depreciation ……………………………………
Other expenses (Part 3) …………………….
9,800
71,000
300
$ 26,700
Problem 8-27 (continued)
6. Balance sheet:
Nordic Company
Balance Sheet
June 30
Assets
Current assets:
Cash (Part 4) ………………………………………………………..
$ 8,400
Accounts receivable (80% × $90,000) ………………………..
72,000
Inventory (Part 2) ………………………………………………….
9,000
Total current assets ………………………………………………….
89,400
222,600
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable (Part 2: 50% × $46,800) ..
$ 23,400
Stockholders’ equity:
Capital stock ………………………………………..
$190,000
Retained earnings* ……………………………….
288,600
Total liabilities and equity ………………………….
$312,000
*
Retained earnings, beginning ……………….
Less dividends ………………………………….
Retained earnings, ending …………………..
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).
d.
System Does Not Motivate.
The budgetary system appears to focus
on performance evaluation even though most of the essential factors
for that purpose are missing. The focus on evaluation and the
weaknesses take away an important benefit of the budgetary
system—employee motivation.
(Unofficial CMA Solution, adapted)
Case 8-29 (120+ minutes)
1.
a.
Sales budget:
April
May
June
Quarter
Budgeted sales in units
35,000
45,000
60,000
140,000
Selling price per unit …
× $8
× $8
× $8
× $8
Total sales ………………
$280,000
$360,000
$480,000
$1,120,000
Schedule of expected cash collections:
February sales …………
$ 48,000
March sales …………….
168,000
May sales ……………….
90,000
270,000
June sales……………….
Total cash collections …
$230,000
$286,000
$370,000
c.
Merchandise purchases budget:
Budgeted sales in units
35,000
45,000
60,000
140,000
Add budgeted ending
inventory* …………….
40,500
54,000
36,000
36,000
Total needs ……………..
75,500
99,000
96,000
176,000
31,500
40,500
54,000
31,500
58,500
42,000
144,500
Unit cost …………………
× $5
× $5
× $5
× $5
Required dollar
$220,000
$292,500
$210,000
Less beginning
Case 8-29 (continued)
d.
Budgeted cash disbursements for merchandise purchases:
April
May
June
Quarter
March purchases …….
$ 85,750
$ 85,750
April purchases ………
110,000
$110,000
220,000
May purchases ……….
146,250
$146,250
292,500
June purchases ………
Total cash payments …………………………..
$195,750
$256,250
$251,250
Case 8-29 (continued)
2.
Cravat Sales Company
Cash Budget
For the Three Months Ending June 30
April
May
June
Quarter
Cash balance, beginning ..
$ 14,000
$ 10,250
$ 10,000
$ 14,000
230,000
886,000
Total cash available ………
244,000
900,000
Less disbursements:
Add receipts from
Purchase of inventory
(Part 1 d.) ……………..
195,750
256,250
251,250
703,250
Sales commissions ……..
35,000
45,000
60,000
140,000
Salaries and wages …….
22,000
22,000
22,000
66,000
Utilities ……………………
14,000
14,000
14,000
42,000
Miscellaneous ……………
3,000
3,000
3,000
9,000
Dividends paid ………….
12,000
0
0
12,000
Land purchases …………
0
Total disbursements ……..
(37,750)
(97,250)
Financing:
Borrowings ………………
48,000
79,000
0
Repayments* ……………
Interest* …………………
(3,020)
Total financing …………….
Cash balance, ending ……
* This is the maximum amount (in increments of $1,000) that the
company could repay to the bank and still have at least a $10,000
ending balance.
**
$48,000 × 1% × 3
=
$1,440
$79,000 × 1% × 2
=
Total interest
=
$3,020
Case 8-29 (continued)
3.
Cravat Sales Company
Budgeted Income Statement
For the Three Months Ended June 30
Sales revenue (Part 1 a.) ………………..
$1,120,000
Variable expenses:
Cost of goods sold
(140,000 ties @ $5 per tie) …………
$700,000
Commissions
(140,000 ties @ $1 per tie) …………
140,000
840,000
Contribution margin ……………………….
280,000
Fixed expenses:
Net operating income …………………….
154,900
Interest expense …………………………..
Net income ………………………………….
Case 8-29 (continued)
4.
Cravat Sales Company
Budgeted Balance Sheet
June 30
Assets
Cash (Part 2) ………………………………………………….
$ 10,730
Accounts receivable (see below) ………………………….
450,000
Inventory (36,000 ties @ $5 per tie) …………………….
180,000
193,200
Total assets …………………………………………………….
$844,730
Liabilities and Stockholders’ Equity
Accounts payable, purchases (50% × $210,000.) ……
$105,000
Dividends payable ……………………………………………
12,000
Loans payable, bank ($127,000 – $16,000) ……………
111,000
Capital stock, no par …………………………………………
300,000
Retained earnings (see below) …………………………...
316,730
Total liabilities and equity …………………………………..
$844,730
Accounts receivable at June 30:
Retained earnings at June 30:
12,000