University:
California State University, Northridge
Course:
FIN 442 | Theory and Practice of Financial Planning
Academic year:

2024
Views:

500

Pages:

23
Author:

lorenzops0

Chapter 7 Profit Planning Part 4 7-65 Learning Objective 7 Prepare a selling and administrative expense budget. 7-66 Selling and Administrative Expense Budget • At Royal, the selling and administrative expenses budget is divided into variable and fixed components. • The variable selling and administrative expenses are $0.50 per unit sold. • Fixed selling and administrative expenses are $70,000 per month. • The fixed selling and administrative expenses include $10,000 in costs – primarily depreciation – that are not cash outflows of the current month. Let’s prepare the company’s selling and administrative expense budget. 7-67 Selling and Administrative Expense Budget Calculate the selling and administrative cash expenses for the quarter. 7-69 Quick Check  What are the total cash disbursements for selling and administrative expenses for the quarter? a. $180,000 b. $230,000 c. $110,000 d. $ 70,000 7-70 Selling and Administrative Expense Budget 7-71 Learning Objective 8 Prepare a cash budget. 7-72 Format of the Cash Budget The cash budget is divided into four sections: 1. Cash receipts listing all cash inflows excluding borrowing; 2. Cash disbursements listing all payments excluding repayments of principal and interest; 3. Cash excess or deficiency; and 4. The financing section listing all borrowings, repayments and interest. 7-73 The Cash Budget Royal:  Maintains a 16% open line of credit for $75,000  Maintains a minimum cash balance of $30,000  Borrows on the first day of the month and repays loans on the last day of the month  Pays a cash dividend of $49,000 in April  Purchases $143,700 of equipment in May and $48,300 in June paid in cash  Has an April 1 cash balance of $40,000 7-74 The Cash Budget Schedule of Expected Cash Collections 7-75 The Cash Budget Schedule of Expected Cash Disbursements Direct Labor Budget Manufacturing Overhead Budget Selling and Administrative Expense Budget 7-76 The Cash Budget In the month of April will expect to have a cash deficiency of $20,000. 7-77 The Cash Budget Because Royal maintains a cash balance of $30,000, the company must borrow $50,000 on its line-of-credit. Ending cash balance for April is the beginning May balance. 7-78 The Cash Budget 7-80 Quick Check  What is the excess (deficiency) of cash available over disbursements for June? a. $ 85,000 b. $(10,000) c. $ 75,000 d. $ 95,000 7-81 The Cash Budget $50,000 × 16% × 3/12 = $2,000 Borrowings on April 1 and repayment on June 30. 7-82 Learning Objective 9 Prepare a budgeted income statement. 7-83 The Budgeted Income Statement Cash Budget Budgeted Income Statement After we complete the cash budget, we can prepare the budgeted income statement for Royal. 7-84 The Budgeted Income Statement Royal Company Budgeted Income Statement For the Three Months Ended June 30 Sales (100,000 units @ $10) Cost of goods sold (100,000 @ $4.99) Gross margin Selling and administrative expenses Operating income Interest expense Net income Cash Budget $ 1,000,000 499,000 501,000 260,000 241,000 2,000 $ 239,000 Sales Budget Ending Finished Goods Inventory Selling and Administrative Expense Budget 7-85 Learning Objective 10 Prepare a budgeted balance sheet. 7-86 The Budgeted Balance Sheet Royal reported the following account balances prior to preparing its budgeted financial statements: • Land - $50,000 • Common stock - $200,000 • Retained earnings - $146,150 • Equipment - $175,000 7-87 Royal Company Budgeted Balance Sheet June 30 Current assets Cash Accounts receivable Raw materials inventory Finished goods inventory Total current assets Property and equipment Land Equipment Total property and equipment Total assets Accounts payable Common stock Retained earnings Total liabilities and equities $ 43,000 75,000 4,600 24,950 147,550 50,000 367,000 417,000 $ 564,550 $ 28,400 200,000 336,150 $ 564,550 25% of June sales of $300,000 11,500 lbs. at $0.40/lb. 5,000 units at $4.99 each 50% of June purchases of $56,800 7-88 Royal Company Budgeted Balance Sheet June 30 Current assets Cash Accounts receivable Raw materials inventory Finished goods inventory Total current assets Property and equipment Land Equipment Total property and equipment Total assets Accounts payable Common stock Retained earnings Total liabilities and equities $ 43,000 Beginning balance 75,000 Add: net income 4,600 Deduct: dividends 24,950 Ending balance 147,550 50,000 367,000 417,000 $ 564,550 $ 28,400 200,000 336,150 $ 564,550 $146,150 239,000 (49,000) $336,150

Profit Planning, Part 4

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