Managerial Accounting

Solutions to Chapter 9: Budgetary Planning

BE 9-2, p.414:

Palermo Company
Sales Budget
For the Year ended December 31, 2014
Quarter
Year
1 2 3 4
Expected unit sales 10,000 12,000 15,000 18,000 55,000
Unit selling price $ 70 $ 70 $ 70 $ 70 $ 70
Total Sales $ 700,000 $ 840,000 $ 1,050,000 $ 1,260,000 $ 3,850,000

BE 9-3, p.414:
Palermo Company
Production Budget
For the six month ended June 30, 2014
Quarter
Total
1 2
Expected unit sales 10,000 12,000 ##
Add: Desired Ending Finsihed Goods Units 3,000 3,750
Total Required Units 13,000 15,750
Less: Beginning Finished Goods Units 2,500 3,000
Required Production Units 10,500 12,750 23,250

BE 9-4, p.414:

Perine Company
Direct Materials Budget
For January 2014
Month
January
Units to be produced 4,000 5,000
Direct Materials per unit 2 2
Total pounds needed for production 8,000 10,000
Add: Desired ending direct materials (pounds) 2,500
Total materials required 10,500
Less: Beginning direct materials (pounds) 2,000
Direct materials purchases 8,500
Cost per pound $ 6
Total cost of direct materials purchases $ 51,000

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BE 9-5, p.414:

Mize Company
Direct Labor Budget
For the six months ended June 30, 2014
Quarter
Total
1 2
Units to be produced 5,000 6,000
Direct labor time (hours) per unit 1.6 1.6
Total required direct labor hours 8,000 9,600
Direct labor cost per hour $ 15 $ 15
Total direct labor cost $ 120,000 $ 144,000 $ 264,000

BE 9-6, p.414

Roche Inc.
Manufacturing Overhead Budget
For the year ended December 31, 2014
Quarter
Year
1 2 3 4
Variable Costs $ 20,000 $ 25,000 $ 30,000 $ 35,000 $ 110,000
Fixed Costs 40,000 40,000 40,000 40,000 160,000
Total Manufacturing Overhead $ 60,000 $ 65,000 $ 70,000 $ 75,000 $ 270,000

BE 9-7, p.414:

Noble Company
Selling & Administrative Expenses Budget
For the year ended December 31, 2014
Quarter
Year
1 2 3 4
Variable expense $ 22,000 $ 26,000 $ 30,000 $ 34,000 $ 112,000
Fixed expense 40,000 40,000 40,000 40,000 160,000
Total Selling & Administrative Expenses $ 62,000 $ 66,000 $ 70,000 $ 74,000 $ 272,000

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BE 9-8, p.414:

North Company
Budgeted Income Statement
For the year ended December 31, 2014
Sales $ 2,250,000
Cost of goods sold (50,000 unit x $25) 1,250,000
Gross Profit 1,000,000
Selling & Administrative Expenses 300,000
Net Income before taxes 700,000
Income Tax Expense 210,000
Net Income $ 490,000

BE 9-9, p.414:

Brun Company
Schedule of expected collections from customers
Collections by quarter
Sales 1 2 3 4
First Quarter $ 200,000 $ 150,000 $ 50,000
Second Quarter 260,000 195,000 $ 65,000
Third Quarter 300,000 225,000
-
Total Collections $ 150,000 $ 245,000 $ 290,000 $ -

BE 9-10, p.414:
COGS for April = 400,000 x 65% = $260,000
COGS for May = 480,000 x 65% = $312,000

Moore wholesalers
Merchandise Purchase Budget
For the Month Ending April 30, 2014
Budgeted cost of goods sold $ 260,000
Add: Desired ending merchandise inventory ($312,000 x 20%) 62,400
Total 322,400
Less: Beginning merchandise inventory ($260,000 x 20%) 52,000
Required merchandise purchase for April $ 270,400

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E 9-2, p.415:

Edington Electronics Inc.

Sales Budget
For the six months ended June 30, 2014
Product XQ-103
Quarter
Total
1 2
Expected unit sales 20,000 22,000 42,000
Unit selling price $ 15 $ 15 $ 15
Total Sales $ 300,000 $ 330,000 $ 630,000
Product XQ-104
Quarter
Total
1 2
Expected unit sales 12,000 15,000 27,000
Unit selling price $ 25 $ 25 $ 25
Total Sales $ 300,000 $ 375,000 $ 675,000
All Products
Quarter
Total
1 2
Expected unit sales 32,000 37,000 69,000
Unit selling price
Total Sales $ 600,000 $ 705,000 $ 1,305,000

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E 9-3, p.416:

Garza & Neely, CPAs

Revenue Budget
For the year ended December 31, 2014
Auditing
Quarter
Year
1 2 3 4
Expected billable hours 2,300 1,600 2,000 2,400 8,300
Hour rate $ 80 $ 80 $ 80 $ 80 $ 80
Total Revenue $ 184,000 $ 128,000 $ 160,000 $ 192,000 $ 664,000
Tax
Quarter
Year
1 2 3 4
Expected billable hours 3,000 2,200 2,000 2,500 9,700
Hour rate $ 90 $ 90 $ 90 $ 90 $ 90
Total Revenue $ 270,000 $ 198,000 $ 180,000 $ 225,000 $ 873,000
Consulting
Quarter
Year
1 2 3 4
Expected billable hours 1,500 1,500 1,500 1,500 6,000
Hour rate $ 100 $ 100 $ 100 $ 100 $ 100
Total Revenue $ 150,000 $ 150,000 $ 150,000 $ 150,000 $ 600,000
All Department
Quarter
Year
1 2 3 4
Expected billable hours 6,800 5,300 5,500 6,400 24,000
Hour rate
Total Revenue $ 604,000 $ 476,000 $ 490,000 $ 567,000 $ 2,137,000

E 9-4, p.416:

Sales in Q1 of 2015 = sales in Q1 of 2014 x 125% = 5,000 unit x 125% = 6,250 unit
Turney Company
Production Budget
For the year ended December 31, 2014
Quarter
Year
1 2 3 4
Expected unit sales 5,000 7,000 8,000 10,000
Add: Desired Ending Finsihed Goods Units 2,800 3,200 4,000 2,500
Total Required Units 7,800 10,200 12,000 12,500
Less: Beginning Finished Goods Units 2,000 2,800 3,200 4,000
Required Production Units 5,800 7,400 8,800 8,500 30,500

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E 9-5, p.416:

Dallas Industries
Direct Materials Budget
For Q1 2014
Month
Total
January February March
Units to be produced 10,000 8,000 5,000
Direct Materials per unit 2 2 2
Total pounds needed for production 20,000 16,000 10,000
Add: Desired ending direct materials (pounds) 3,200 2,000 1,600
Total materials required 23,200 18,000 11,600
Less: Beginning direct materials (pounds) 4,000 3,200 2,000
Direct materials purchases 19,200 14,800 9,600
Cost per pound $ 2 $ 2 $ 2
Total cost of direct materials purchases $ 38,400 $ 29,600 $ 19,200 $ 87,200

E 9-6, p.416:
a. Production Budget:
Harden Company
Production Budget
For the six months ended June 30, 2014
Quarter
Total
1 2
Expected unit sales 5,000 6,000
Add: Desired Ending Finsihed Goods Units 1,500 1,750
Total Required Units 6,500 7,750
Less: Beginning Finished Goods Units 1,250 1,500
Required Production Units 5,250 6,250 11,500

b. Direct Materials Budget:

Harden Company
Direct Materials Budget
For the six months ended June 30, 2014
Quarter
Total
1 2
Units to be produced 5,250 6,250
Direct Materials per unit 3 3
Total pounds needed for production 15,750 18,750
Add: Desired ending direct materials (pounds) 7,500 8,640
Total materials required 23,250 27,390
Less: Beginning direct materials (pounds) 6,300 7,500
Direct materials purchases 16,950 19,890
Cost per pound $ 4 $ 4
Total cost of direct materials purchases $ 67,800 $ 79,560 $ 147,360

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E 9-7, p.417:

Chandler Ltd.
Production Budget
For Q2 2014
Month
Total
April May June
Expected unit sales 2,550 2,475 2,390
Add: Desired Ending Finsihed Goods Units 2,230 2,200 2,310
Total Required Units 4,780 4,675 4,700
Less: Beginning Finished Goods Units 2,000 2,230 2,200
Required Production Units 2,780 2,445 2,500 7,725

Chandler Ltd.
Direct Materials Budget
For May 2014

Total
May
Units to be produced 2,445
Direct Materials per unit 2
Total units needed for production 4,890
Add: Desired ending direct materials (pounds) 2,500
Total materials required 7,390
Less: Beginning direct materials (pounds) 2,445
Direct materials purchases 4,945
Cost per pound $ 4
Total cost of direct materials purchases $ 19,780

E 9-8, p.417:

Rodriguez, Inc.
Direct Labor Budget
For the year ended December 31, 2014
Quarter
Year
1 2 3 4
Units to be produced 20,000 25,000 35,000 30,000
Direct labor time (hours) per unit 1.5 1.5 1.5 1.5
Total required direct labor hours 30,000 37,500 52,500 45,000
Direct labor cost per hour $ 16 $ 16 $ 18 $ 18
Total direct labor cost $ 480,000 $ 600,000 $ 945,000 $ 810,000 $ 2,835,000

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E 9-9, p.417:

Donnegal Company
Production Budget
For Q1 2014
Month
Total
January February March
Expected unit sales 12,000 14,000 10,000
Add: Desired Ending Finsihed Goods Units 18,000 14,400 15,400
Total Required Units 30,000 28,400 25,400
Less: Beginning Finished Goods Units 17,600 18,000 14,400
Required Production Units 12,400 10,400 11,000 33,800

Donnegal Company
Direct Labor Budget
For Q1 2014
Month
Total
January February March
Units to be produced 12,400 10,400 11,000
Direct labor time (hours) per unit 2.0 2.0 1.5
Total required direct labor hours 24,800 20,800 16,500
Direct labor cost per hour $ 8 $ 8 $ 8
Total direct labor cost $ 198,400 $ 166,400 $ 132,000 $ 496,800

E 9-10, p.417:

Atlanta Company
Manufacturing Overhead Budget
For the year ended December 31, 2014
Quarter
Year
1 2 3 4
Variable Costs:
Indirect materials ($0.80/hour) $ 12,000 $ 14,400 $ 16,800 $ 19,200 $ 62,400
Indirect labor ($1.20/hour) 18,000 21,600 25,200 28,800 93,600
Maintenance ($0.50/hour) 7,500 9,000 10,500 12,000 39,000
Total Variable Costs $ 37,500 $ 45,000 $ 52,500 $ 60,000 $ 195,000
Fixed Costs:
Supervisory salaries $ 35,000 $ 35,000 $ 35,000 $ 35,000 $ 140,000
Depreciation 15,000 15,000 15,000 15,000 60,000
Maintenance 12,000 12,000 12,000 12,000 48,000
Total Fixed Costs $ 62,000 $ 62,000 $ 62,000 $ 62,000 $ 248,000

Total Manufacturing Overhead $ 99,500 $ 107,000 $ 114,500 $ 122,000 $ 443,000

Direct Labor hours 15,000 18,000 21,000 24,000 78,000
Manufacturing overhead rate per direct labor hour ($443,000 ÷ 78,000 hrs) $ 5.68

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E 9-11, p.418:

Duncan Company
Selling & Administrative Expense Budget
For the six months ended June 30, 2014
Quarter
Total
1 2
Budgeted sales in units 20,000 22,000 42,000
Unit selling price $ 20 $ 20 $ 20
Budgeted sales in $ $400,000 $440,000 $840,000
Variable expenses:
Sales Commissions (5%) $ 20,000 $ 22,000 $ 42,000
Delivery expense (2%) 8,000 8,800 16,800
Advertising (4%) 16,000 17,600 33,600
Total Variable expenses $ 44,000 $ 48,400 $ 92,400
Fixed expenses:
Sales Salaries $ 10,000 $ 10,000 $ 20,000
Office Salaries 8,000 8,000 16,000
Deprciation 4,200 4,200 8,400
Insurance 1,500 1,500 3,000
Utilities 800 800 1,600
Repairs expense 500 500 1,000
Total Fixed expenses $ 25,000 $ 25,000 $ 50,000
Total Selling & Administrative expenses $ 69,000 $ 73,400 $ 142,400

E 9-12, p.418:

Fuqua Company
Production Budget
Month
Total
January February
Expected unit sales 10,000 12,000 13,000
Add: Desired Ending Finsihed Goods Units 2,400 2,600
Total Required Units 12,400 14,600
Less: Beginning Finished Goods Units 2,000 2,400
Required Production Units 10,400 12,200 22,600

-9-
 Fuqua Company
Direct Materials Budget
Month
January
Units to be produced 10,400 12,200
Direct Materials per unit 4 4
Total pounds needed for production 41,600 48,800
Add: Desired ending direct materials (pounds) 19,520
Total materials required 61,120
Less: Beginning direct materials (pounds) 16,640
Direct materials purchases 44,480
Cost per pound $ 2
Total cost of direct materials purchases $ 88,960

E 9-13, p.418:

Cost of Goods Sold

Cost element Quantity Unit Cost Total
Direct material 2 pounds $5 $10
Direct labor 3 hours 15 45
Manufacturing overhead 3 hours 5 15
Total unit cost $70

Budgeted Income Statement

Sales ( 30,000 unit x $85 ) $2,550,000
COGS ( 30,000 unit x $70 ) 2,100,000
Gross profit 450,000
Selling & Administrative expenses 200,000
Income before income taxes 250,000
Income tax expense (30%) 75,000
Net income $175,000

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E 9-14, p.418:

Danner Company
Cash Budget
Month
January February
Beginning cash balance $ 45,000 $ 27,500
Add: Receipts
Collections from customers 85,000 150,000
Sales of marketable securties 12,000
Total receipts 97,000 150,000
Total avaliable cash 142,000 177,500
Less: Disbursements
Direct materials 50,000 75,000
Direct labor 30,000 45,000
Manufacturing overhead 19,500 23,500
Selling & Administrative expenses 15,000 20,000
Total disbursements 114,500 163,500
Excess (deficiency) of avaliable cash over
cash disbursements 27,500 14,000
Financing:
Borrowing 6,000
Repayment
Ending cash balance $ 27,500 $ 20,000

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E 9-15, p.418:

Aaron Corporation
Cash Budget
January
Beginning cash balance $ 30,000
Add: Receipts
Collections from customers 180,000
Sales of Equipment 3,000
Total receipts 183,000
Total avaliable cash 213,000
Less: Disbursements
Direct materials 41,000
Direct labor 70,000
Manufacturing overhead 35,000
Selling & Administrative expenses 45,000
Purchase of securities 14,000
Total disbursements 205,000
Excess (deficiency) of avaliable cash over
cash disbursements 8,000
Financing:
Borrowing 17,000
Repayment
Ending cash balance $ 25,000

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E 9-16, p.419:

Trenshaw company
Cash Budget
July
Beginning cash balance $ 45,000
Add: Receipts
Collections from customers 90,000
Total receipts 90,000
Total avaliable cash 135,000
Less: Disbursements
Merhandise purchase 56,200
Operating expenses 40,800
Purchase of equipments 20,000
Total disbursements 117,000
Excess (deficiency) of avaliable cash over
cash disbursements 18,000
Financing:
Borrowing 7,000
Repayment
Ending cash balance $ 25,000

E 9-17, p.419:

Budgeted sales Budgeted D.M. purchases

Month Cash Credit Cash Credit
Total Total
(30%) (70%) (50%) (50%)
January $200,000 $60,000 $140,000 $30,000 $15,000 $15,000
February 220,000 66,000 154,000 36,000 18,000 18,000
March 270,000 81,000 189,000 40,000 20,000 20,000

a. Schedule of expected collections from customers for March:

March
Cash Sales $81,000
Collections from March credit sales ($189,000 x 10%) 18,900
Collections from February credit sales ($154,000 x 50%) 77,000
Collections from January credit sales ($140,000 x 36%) 50,400
Total Collection $227,300

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b. Schedule of expected payments for direct materials for March:
March
Cash purchases $20,000
Payments for March purchases on account ($20,000 x 40%) 8,000
Payments for February purchases on account ($18,000 x 60%) 10,800
Total payments $38,800

E 9-18, p.419:

Same month Month after Second month

Receipts 60% 30% 10%
Payment 60% 40% --

a. 1) Expected collections from clients:

Green Landscaping Inc.
Schedule of expected collections from customers
Sales January February March
November 2013 $80,000 $8,000
December 2013 90,000 27,000 $9,000
January 2014 100,000 60,000 30,000 $10,000
February 2014 120,000 72,000 36,000
March 2014 140,000 84,000
Total collections $95,000 $111,000 $130,000

2) Expected payments for suppliers:

Green Landscaping Inc.
Schedule of expected payment for suppliers
Purchases January February March
December 2013 $14,000 $5,600
January 2014 12,000 7,200 $4,800
February 2014 15,000 9,000 $6,000
March 2014 18,000 10,800
Total collections $12,800 $13,800 $16,800

b. 1) Accounts Receivable at March 31, 2014

Month Sales - Cash Collections = A.R. Balance
January February March 31/03/2014
January $100,000 $60,000 $30,000 $10,000 $0
February 120,000 72,000 36,000 12,000
March 140,000 84,000 56,000
A.R. Balance 31/03/2014 $68,000

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 2) Accounts Payable at March 31, 2014
Month Purchase - Cash Payments = A.P. Balance
January February March 31/03/2014
January $12,000 $7,200 $4,800 $0
February 15,000 9,000 6,000 0
March 18,000 10,800 7,200
A.P. Balance 31/03/2014 $7,200

E 9-19, p.420:

Lager Dental Inc.

Cash Budget
Quarters
Q1 Q2
Beginning cash balance $ 30,000 $ 25,000
Add: Receipts
Collections from clients 230,000 380,000
Interest rom investments 7,000
Sale of equipment 12,000
Total receipts 242,000 387,000
Total avaliable cash 272,000 412,000
Less: Disbursements
Professiona Salaries 140,000 140,000
Overhead costs 75,000 100,000
Selling & Administrative expenses 48,000 68,000
Purchases of equipment 50,000
Payment of income taxes 4,000
Interest payments 400
Total disbursements 263,000 362,400
Excess (deficiency) of avaliable cash over
cash disbursements 9,000 49,600
Financing:
Borrowing 16,000
Repayment 16,000
Ending cash balance $ 25,000 $ 33,600

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E 9-20, p.420:
COGS for June = 500,000 x 75% = $375,000
COGS for May = 600,000 x 75% = $450,000
a.
Grant Stores
Merchandise Purchase Budget
For the Month Ending June 30, 2014
Budgeted cost of goods sold $ 375,000
Add: Desired ending merchandise inventory ($450,000 x 30%) 135,000
Total 510,000
Less: Beginning merchandise inventory ($375,000 x 30%) 112,500
Required merchandise purchase for June $ 397,500

b.
Budgeted Income Statement
Sales $500,000
COGS 375,000
Gross profit $ 125,000

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