Managerial Accounting 17e Solutions Chapter 8

Chapter 8 Master Budgeting Solutions to Questions 8-1 A budget is a detailed quantitative plan for the acquisition and use of financial and other resources over a given time period. Budgetary control involves using budgets to increase the likelihood that all parts of an organization are working together to achieve the goals set down in the planning stage. 8-2 1. Budgets encourage managers to think about and plan for the future. 2. Budgets communicate financial goals throughout the organization. 3. Budgets allocate resources within the organization where they can be used most effectively. 4. Budgets coordinate the plans and activities of departmental managers. 5. Budgets uncover potential bottlenecks before they occur. 6. Budgets can be compared to actual results to improve the efficiency and effectiveness of operations and to evaluate and reward employees. 8-3 A perpetual budget is a 12-month budget that continuously rolls forward one month (or quarter) at a time as the current month (or quarter) is completed. This approach keeps managers continually focused one year ahead. 8-4 A master budget represents a summary of all of management's plans and goals for the future, and outlines the way in which these plans are to be accomplished. The master budget is composed of a number of smaller, specific budgets encompassing sales, production, raw materials, direct labor, manufacturing overhead, selling and administrative expenses, and inventories. The master budget usually also contains a budgeted income statement, budgeted balance sheet, and cash budget. 8-5 The level of sales impacts virtually every other aspect of the firm's activities. It determines the production budget, cash collections, cash disbursements, and selling and administrative budget that in turn determine the cash budget and budgeted income statement and balance sheet. 8-6 No. Planning and control are different, although related, concepts. Planning involves developing goals and developing budgets to achieve those goals. Control, by contrast, involves the means by which management attempts to ensure that the goals set down at the planning stage are attained. 8-7 Creating a "budgeting assumptions" tab simplifies the process of determining how changes to a master budget's underlying assumptions impact all supporting schedules and the projected financial statements. 8-8 A self-imposed budget is one in which persons with responsibility over cost control prepare their own budgets. This is in contrast to a budget that is imposed from above. The major advantages of a self-imposed budget are: (1) It shows respect for the opinions of lower-level managers. (2) It leverages the knowledge of lower-level managers to provide more accurate estimates than those imposed by top managers who have less intimate knowledge of day-to-day operations. (3) It increases the lower-level managers' motivation to achieve their own selfimposed goals. (4) It empowers lower-level managers to take ownership of the budget and to be accountable for deviations from it. Copyright 2021 © McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. Solutions Manual, Chapter 8 1 Self-imposed budgets do carry with them the risk of budgetary slack. The budgets prepared by lower-level managers should be carefully reviewed to prevent too much slack. 8-9 The direct labor budget and other budgets can be used to forecast workforce staffing needs. Careful planning can help a company avoid erratic hiring and laying off of employees. 8-10 The principal purpose of the cash budget is NOT to see how much cash the company will have in the bank at the end of the year. Although this is one of the purposes of the cash budget, the principal purpose is to provide information on probable cash needs during the budget period, so that bank loans and other sources of financing can be anticipated and arranged well in advance. Copyright 2021 © McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. 2 Managerial Accounting, 17th Edition Chapter 8: Applying Excel The completed worksheet is shown below. A 1 Chapter 8: Applying Excel B C D E 2 3 Data 4 5 Budgeted unit sales 6 Year 2 Quarter Year 3 Quarter 1 2 4 2 40,000 60,000 100.000 50,000 70,000 80.000 7 Selling price per unit $8 8 •Accounts receivable, beginning balance $65.000 9 Sales collected in the quarter sales are made 75% 10 Sales collected in the quarter after sales are made 25% 11 Desired ending finished goods inventory is 12 Finished goods inventory, beginning 13 Raw materials required to produce one unit 5 14 Desired ending inventory of raw materials is 15 Raw materials inventory, beginning 16 Raw material costs 17 Raw materials purchases are paid 30% of the budgeted unit sales of the next quarter 12,000 units pounds 10% of the next quarter's production needs 23.000 рounds $0.80 per pound 60% in the quarter the purchases are made 18 and 40% in the quarter following purchase 19 •Accounts payable for raw materials, beginning balance $81.500 20 21 Enter a formula into each of the cells marked with a ? below 22 Review Problem: Budget Schedules 23 24 Construct the sales budget 25 1 26 Budgeted unit sales 40,000 27 Selling price per unit 28 Total sales $320.000 29 30 Construct the schedule of expected cash collections $8 Year 2 Quarter 2 60,000 $8 $480.000 3 100,000 $8 $800,000 Year 2 Quarter 50,000 $8 $400.000 Year 3 Quarter 70.000 $8 $560,000 2 80.000 $8 $640.000 4 31 1 2 3 4 Year 32 Beginning balance accounts receivable S 65,000 S 65.000 33 First-quarter sales 240.000 $ 80.000 320.000 34 Second-quarter sales 360,000 $ 120,000 480.000 35 Third-quarter sales 600,000 $ 200,000 800.000 36 Fourth-quarter sales 300,000 300,000 37 Total cash collections $ 305.000 $ 440.000 $ 720.000 $ 500.000 $ 1.965.000 38 39 Construct the production budget Year 2 Quarter Year 3 Quarter 40 2 4 Year 1 2 41 Budgeted unit sales 40,000 60.000 100,000 50.000 250.000 70.000 80,000 42 Add desired ending finished goods inventory 18.000 30.000 15.000 21.000 21,000 24,000 43 Total needs 58,000 90,000 115,000 71,000 271,000 94.000 44 Less beginning finished goods inventory 12.000 18.000 30.000 15.000 12.000 21.000 45 Required production in units 46.000 72.000 85.000 56.000 259.000 73.000 46 47 Construct the raw materials purchases budget Year 2 Quarter Year 3 Quarter 48 49 Required production (units) 1 46,000 2 72,000 3 4 85,000 56.000 Year 259,000 1 73,000 50 Raw materials required to produce one unit (pounds) 5 5 5 5 5 51 Production needs (pounds) 230.000 360.000 425.000 280,000 1.295,000 365.000 52 Add desired ending inventory of raw materials (pounds) 36.000 42 500 28,000 36.500 36,500 53 Total needs (pounds) 266,000 402,500 453,000 316.500 1,331,500 54 Less beginning inventory of raw materials (pounds) 23.000 36,000 42.500 28.000 23,000 55 Raw materials to be purchased (pounds) 243,000 366,500 410,500 288,500 1,308,500 56 Cost of raw materials per pound $0.80 $0.80 $0.80 $0.80 $0.80 57 Cost of raw materials to be purchased $194.400 $293.200 $328.400 $230.800 $1.046.800 58 59 Construct the schedule of expected cash payments Year 2 Quarter 60 2 4 Year 61 Beginning balance accounts payable $ 81,500 $ 81,500 62 First-quarter purchases 116,640 $ 77.760 194.400 63 Second-quarter purchases 175,920 S 117.280 293.200 64 Third-quarter purchases 197.040 $ 131.360 328.400 65 Fourth-quarter purchases 138,480 138.480 66 Total cash disbursements $ 198.140 $ 253.680 $ 314.320 $ 269.840 $ 1.035,980 67 Chapter 8 Form Filled in Chapter 8 Form Chapter 8 Formulas Chapter 8 Requiremen Copyright 2021 © McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. Solutions Manual, Chapter 8 3 Chapter 8: Applying Excel (continued) The completed worksheet, with formulas displayed, is shown below. 1 A Chapter 8: Applging Excel 3 Data B C D E F G H Year2 Quarter Year 3Quarter Budgeted unit sales 40000 60000 100000 50000 70000 80000 Selling price pe 8 Accounts receivable, beginning balance 65000 Sales uarter sales ar 0.75 Sales collected in the quarter after sales are made 0.25 Desired ending finished goods inventory is 0.3 12 Finished goods inventory, beginn the budgeted unit sales of the nest quarter 12000 14 De entory of raw materials is 15 ction need entory, beginning 23000 naterials purchases are paid 0.6 and Accounts payable for raw materials, beginning balance quarter following purcha 81500 Enter a formula into each of the cellsmarked with Reviev Problem: Budget Schedules Construct the sales budget 6 Budgetedunit sales 27 Selling price per unit 28 Total salee 30 Construct the schedule of expected cash collectio Beginning balance accounts receivable 34 33 First-quarter sales Second-quarter sales Third-au 36 37 Fourth-quarter sales 40 Total cash collections Construct the production budget 41 Budgeted unit sales Add desired ending finished goods inventory 43 Total needs Less beginning finished goods inventory Required production in units Construct the raw materials purchases budget Required production (units) 50 51 Production needs (pounds) 52 Raw materials required to produce one unit (pounds] Add desired ending inventory erials (pounds) 53 Total needs (pounds) 5455 56 Less beginning inventoryofraw materials (pounds) Raw materials to be purohased (pounds) Sost of raw materials per pound Cost of raw materials to be purchased Construct the schedule of ezpected cash pagment. B28 B9 =B28 B10 =C28 SUM(B32:B36) SUM(C32:C36) B5 =C41$B$11 =B41-B42 =B12 =B43-B44 B45 =$B$13 B49 B50 =$B$14°C5 851.852 51-B =B15 B53-B54 $B$16 C5 (B33:E33 -SUM B3 -SUM B36: SUM(D32:036) SUM(E32:E36) SUM(B37:E37) Year2 Quarter D5 =E5 =SUM(B41:E41) F5 =G41$B$1 =E42 =H41$B$ =D41-D42 =E41-E42 =G41-G42 =D42 =B44 043-D44 =E43-E44 G43-G4 =D41*$B$1 =C41-C42 =B42 43-C44 Year 2 GQuarter =$B$13 49°C50 =$B$14'D51 C51-C52 =B52 =C53-C54 =$B$16 *B56 =F41-F42 F43-F44 F49 F50 F51-F52 F53-F54 =E42 Year 3 Quarter =$B$13 G49*G50 =$B$13 D49 050 $14 E E49 E50 14 G =E =C52 =D5 D53-D54 =E53-E54 =$B$16 5*D5 Year 2 Quarter B19 =B57*B17 =B57*B18 =C57"B17 61 60 First-quarter purchase Beginning balance accounts payable 63 64 Second-quarter purcha purchases 65 Third-quarter purchases 66 Fourth-quarter purchases Total cash disbursements 67 -SUM(B61.B65) =SUM(C61:C65) Chapter 8 Form Filled in Chapter 8 Form Chapter 8 F ... + -SUM(B61:E61) =SUM B62-E621 C57 B18 SUM/B63:E63) =D57*B17 =D57*B18 =SUM(B64:E64] E57 B17 SUM(B65-E65) =SUM(D61:D65) =SUM(E61:E65) =SUM(F61:F65) Π Copyright 2021 © McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. 4 Managerial Accounting, 17th Edition Chapter 8: Applying Excel (continued) 1. When the budgeted unit sales in the second quarter are increased from 60,000 units to 75,000 units, the result is: Copyright 2021 © McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. Solutions Manual, Chapter 8 5 A B C D E F G H Chapter 8: Applying Excel 2 3 Data 4 5 Budgeted unit sales 6 7 Selling price per unit 8 Accounts receivable, beginning balance 9 Sales collected in the quarter sales are made Year 2 Quarter Year 3 Quarter 1 2 4 2 40.000 75,000 100,000 50,000 70,000 80,000 $8 $65.000 75% 10 Sales collected in the quarter after sales are made 25% 11 Desired ending finished goods inventory is 16 Raw material costs 30% of the budgeted unit sales of the next quarter 12.000 units pounds 10% of the next quarter's production needs 3,000 pounds $0.80 per pound 12 Finished goods inventory, beginning 13 . Raw materials required to produce one unit 14 Desired ending inventory of raw materials is 15 Raw materials inventory, beginning 17 Raw materials purchases are paid 18 and 19 Accounts payable for raw materials, beginning balance $81.500 20 21 Enter a formula into each of the cells marked with a? below 60% in the quarter the purchases are made 40% in the quarter following purchase 22 Review Problem: Budget Schedules 23 24 Construct the sales budget Year 2 Quarter 25 1 26 Budgeted unit sales 27 Selling price per unit 28 Total sales $320,000 $600,000 29 30 Construct the schedule of expected cash collections 40.000 $8 75,000 100.000 $8 $800,000 Year 2 Quarter 50.000 $8 $400.000 Year 3 Quarter 12 70.000 $8 $560.000 80.000 $8 $640,000 4 31 1 2 3 32 Beginning balance accounts receivable 33 First-quarter sales S 65,000 Year $ 65,000 240,000 $ 80.000 320,000 34 Second-quarter sales 450,000 $ 150,000 600.000 35 Third-quarter sales 600,000 $ 200.000 800.000 36 Fourth-quarter sales 300.000 300.000 37 Total cash collections 305,000 $ 530,000 $ 750.000 $ 500.000 $ 2.085.000 38 39 Construct the production budget Year 2 Quarter Year 3 Quarter 40 2 4 Year 2 41 Budgeted unit sales 40.000 75.000 100.000 50.000 265.000 70.000 80.000 42 Add desired ending finished goods inventory 22.500 30 000 15.000 21.000 21 000 24.000 43 Total needs 62.500 105.000 115.000 71,000 286.000 94.000 44 Less beginning finished goods inventory 12.000 22.500 30.000 15.000 12.000 21.000 45 Required production in units 50.500 82.500 85,000 56.000 274.000 73,000 46 47 Construct the raw materials purchases budget Year 2 Quarter Year 3 Quarter 48 1 23 4 Year 49 Required production (units) 50.500 82,500 85,000 56,000 274,000 73,000 50 Raw materials required to produce one unit (pounps( 5 5 5 5 5 51 Production needs (pounds) 252,500 412.500 425.000 280,000 1.370.000 365.000 52 Add desired ending inventory of raw materials (pounds) 41.250 42.500 28.000 36.500 36,500 53 Total needs (pounds) 293.750 455.000 453,000 316,500 1,406,500 54 Less beginning inventory of raw materials (pounds) 23.000 41.250 42.500 28.000 23.000 55 Raw materials to be purchased (pounds) 270.750 413.750 410.500 288.500 1.383.500 56 Cost of raw materials per pound $0.80 $0.80 $0.80 S0.80 $0.80 57 Cost of raw materials to be purchased $216,600 $331.000 $328.400 $230.800 $1.106.800 58 59 Construct the schedule of expected cash payments Year 2 Quarter 60 1 2 3 4 Year 61 Beginning balance accounts payable $ 81.500 81.500 62 First-quarter purchases 129,960 $ 86.640 216.600 63 Second-quarter purchases 198,600 $ 132,400 331.000 64 Third-quarter purchases 197,040 $ 131.360 328.400 65 Fourth-quarter purchases 138,480 138,480 66 Total cash disbursements $ 211.460 $ 285.240 $ 329.440 $ 269.840 $ 1,095,980 67 Chapter 8 Requirement 1 Chapter 8 Requirement 2 Sheet3 Copyright 2021 © McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. 6 Managerial Accounting, 17th Edition Chapter 8: Applying Excel (continued) The cash disbursements for raw materials have increased from $1,035,980 to $1,095,980 because the increased unit sales in the second quarter require additional purchases of raw materials. Copyright 2021 © McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. Solutions Manual, Chapter 8 7 Chapter 8: Applying Excel (continued) 2. With the revised sales budget, the worksheet should look like this: A B C D G H 1 Chapter 8: Applying Excel 2 3 Data Year 2 Quarter Year 3 Quarter 4 1 4 1 2 5 Budgeted unit sales 50.000 70.000 120,000 80,000 90,000 100,000 6 7 Selling price per unit $7 8 Accounts receivable, beginning balance $65.000 9 Sales collected in the quarter sales are made 75% 10 Sales collected in the quarter after sales are made 25% 11 Desired ending finished goods inventory is 12 Finished goods inventory, beginning 12.000 units 13 Raw materials required to produce one unit 14 Desired ending inventory of raw materials is 15 Raw materials inventory, beginning 16 Raw material costs 17 Raw materials purchases are paid 18 and 30% of the budgeted unit sales of the next quarter pounds 10% of the next quarter's production needs 23,000 pounds $0.80 per pound 60% in the quarter the purchases are made 40% in the quarter following purchase 19 Accounts payable for raw materials, beginning balance $81,500 20 21 Enter a formula into each of the cells marked with a ? below 22 Review Problem: Budget Schedules 23 24 Construct the sales budget 25 1 26 Budgeted unit sales 50.000 27 Selling price per unit $7 $7 28 Total sales $350,000 29 30 Construct the schedule of expected cash collections Year 2 Quarter 2 70,000 $490,000 3 120,000 $840,000 Year 2 Quarter $560.000 1 $7 Year 3 Quarter 2 80.000 90,000 $7 $7 $7 $630.000 $700,000 100,000 31 1 2 3 4 Year 32 Beginning balance accounts receivable $ 65,000 $ 65.000 33 First-quarter sales 262,500 $ 87.500 350.000 34 Second-quarter sales 367.500 $ 122,500 490.000 35 Third-quarter sales 630.000 $ 210.000 840.000 36 Fourth-quarter sales 420.000 420.000 37 Total cash collections $ 327,500 $ 455,000 $ 752,500 $ 630,000 $ 2,165,000 38 39 Construct the production budget Year 2 Quarter Year 3 Quarter 40 1 2 3 4 Year 2 41 Budgeted unit sales 50.000 70,000 120,000 80,000 320,000 90,000 100,000 42 Add desired ending finished goods inventory 21.000 36.000 24.000 27.000 27.000 30.000 43 Total needs 71.000 106.000 144.000 107.000 347.000 120.000 44 Less beginning finished goods inventory 12.000 21.000 36.000 24.000 12.000 27.000 45 Required production in units 59.000 85.000 108,000 83.000 335.000 93.000 46 47 Construct the raw materials purchases budget Year 2 Quarter Year 3 Quarter 48 1 2 4 Year 49 Required production (units) 59.000 85.000 108.000 83,000 335,000 93.000 50 Raw materials required to produce one unit (pounds) 5 5 5 5 5 5 51 Production needs (pounds 295.000 425.000 540.000 415.000 1,675,000 465,000 52 Add desired ending inventory of raw materials (pounds) 42.500 54.000 41.500 46.500 46,500 53 Total needs (pounds) 337,500 479.000 581.500 461.500 54 Less beginning inventory of raw materials (pounds) 23.000 42.500 54 000 41.500 55 Raw materials to be purchased (pounds) 314,500 436,500 527.500 420.000 56 Cost of raw materials per pound $0.80 $0.80 S0.80 $0.80 57 Cost of raw materials to be purchased $251.600 $349.200 $422,000 $336.000 1.721.500 23 000 1.698.500 $0.80 $1,358,800 58 59 Construct the schedule of expected cash payments Year 2 Quarter 60 1 2 3 4 Year 61 Beginning balance accounts payable $ 81,500 81,500 62 First-quarter purchases 150,960 $ 100,640 251,600 63 Second-quarter purchases 209,520 $ 139,680 349.200 64 Third-quarter purchases 253.200 $ 168.800 422.000 65 Fourth-quarter purchases 201,600 201.600 66 Total cash disbursements $ 232,460 $ 310,160 $ 392,880 $ 370,400 $ 1,305.900 67 Chapter 8 Requirement 1 Chapter 8 Requirement 2 Sheet3 Copyright 2021 © McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. 8 Managerial Accounting, 17th Edition Chapter 8: Applying Excel (continued) a. The total expected cash collections for the year under this revised budget are $2,165,000. b. The total required production for the year under this revised budget is 335,000 units. c. The total cost of raw materials to be purchased for the year under this revised budget is $1,358,800. d. The total expected cash disbursements for raw materials for the year under this revised budget are $1,305,900. e. The production constraint of 90,000 units per quarter is a problem in the third quarter of Year 2 and may be a problem later in Year 3. This problem can be approached in a variety of ways. First, the excess capacity in the first and second quarters could be used to build up finished goods inventories beyond the usual levels. Second, management could investigate acquiring another of the milling machines. Third, improvement efforts can be focused on the milling machine; if these efforts are successful, the capacity of the milling machine can be increased and consequently the capacity of the entire plant can be increased. Fourth, management could investigate hiring another company with such a milling machine to do some of the work. Copyright 2021 © McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. Solutions Manual, Chapter 8 9 The Foundational 15 1. The budgeted sales for July are computed as follows: 2. Unit sales (a) 10,000 Selling price per unit (b). $70 Total sales (a) x (b) $700,000 The expected cash collections for July are computed as follows: June sales: $588,000 × 60% July $352,800 280,000 Total cash collections. $632,800 July sales: $700,000 x 40% 3. The accounts receivable balance at the end of July is: July sales (a) Percent uncollected (b). Accounts receivable (a) x (b)...... $700,000 60% $420,000 4. The required production for July is computed as follows: Budgeted sales in units. Add desired ending inventory*....... 2,400 Total needs Less beginning inventory** Required production July 10,000 12,400 2,000 10,400 *August sales of 12,000 units × 20% = 2,400 units. **July sales of 10,000 units × 20% = 2,000 units. Copyright 2021 © McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. 10 Managerial Accounting, 17th Edition The Foundational 15 (continued) 5. The raw material purchases for July are computed as follows: Required production in units of finished goods Units of raw materials needed per unit of finished goods July 10,400 5 Units of raw materials needed to meet production.......... 52,000 Add desired units of ending raw materials inventory*....... 6,100 Total units of raw materials needed 58,100 Less units of beginning raw materials inventory** 5,200 Units of raw materials to be purchased 52,900 *61,000 рounds × 10% = 6,100 pounds. **52,000 pounds × 10% = 5,200 pounds. 6. The cost of raw material purchases for July is computed as follows: Units of raw materials to be purchased (a) ........52,900 Unit cost of raw materials (b)......... $2.00 Cost of raw materials to be purchased (a) x (b) $105,800 7. The estimated cash disbursements for materials purchases in July is computed as follows: July June purchases: $88,880 × 70%. $62,216 July purchases: $105,800 × 30% 31,740 Total cash disbursements. $93,956 8. The accounts payable balance at the end of July is: July purchases (a) $105,800 Percent unpaid (b) 70% Accounts payable (a) x (b).......... $74,060 Copyright 2021 © McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. Solutions Manual, Chapter 8 11 The Foundational 15 (continued) 9. The estimated raw materials inventory balance at the end of July is computed as follows: Ending raw materials inventory (pounds) (a)..... Cost per pound (b). Raw material inventory balance (a) x (b) 6,100 $2.00 $12,200 10. The estimated direct labor cost for July is computed as follows: Required production in units Direct labor hours per unit July 10,400 × 2.0 20,800 Direct labor cost per hour (b). $15 Total direct labor cost (a) x (b)........ $312,000 Total direct labor-hours needed (a).. 11. The estimated unit product cost is computed as follows: Quantity Cost Total Direct materials. 5 pounds $2 per pound $10.00 Direct labor. 2 hours $15 per hour 30.00 Manufacturing overhead.... 2 hours $10 per hour 20.00 Unit product cost $60.00 12. The estimated finished goods inventory balance at the end of July is computed as follows: Ending finished goods inventory in units (a) Unit product cost (b). Ending finished goods inventory (a) x (b).... 2,400 $60.00 $144,000 Copyright 2021 © McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. 12 Managerial Accounting, 17th Edition The Foundational 15 (continued) 13. The estimated cost of goods sold for July is computed as follows: Unit sales (a) Unit product cost (b). Estimated cost of goods sold (a) x (b)......... 10,000 $60.00 $600,000 $700,000 600,000 $100,000 The estimated gross margin for July is computed as follows: Total sales (a). Cost of goods sold (b) Estimated gross margin (a) - (b) 14. The estimated selling and administrative expense for July is computed as follows: Budgeted unit sales. July 10,000 Variable selling and administrative expense per unit x $1.80 Total variable expense. $18,000 Fixed selling and administrative expenses... 60,000 Total selling and administrative expenses... $78,000 15. The estimated net operating income for July is computed as follows: Gross margin (a)........... Selling and administrative expenses (b) Net operating income (a) - (b) $100,000 78,000 $ 22,000 Copyright 2021 © McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. Solutions Manual, Chapter 8 13 Exercise 8-1 (20 minutes) 1. April May June Total February sales: $230,000 x 10%........ March sales: $260,000 $ 23,000 $ 23,000 × 70%, 10% 182,000 $ 26,000 208,000 April sales: $300,000 × 20%, 70%, 10% 60,000 210,000 $ 30,000 300,000 May sales: $500,000 ☑ 20%, 70% 100,000 350,000 450,000 June sales: $200,000 × 20% 40,000 40,000 Total cash collections..... $265,000 $336,000 $420,000 $1,021,000 Notice that even though sales peak in May, cash collections peak in June. This occurs because the bulk of the company's customers pay in the month following sale. The lag in collections that this creates is even more pronounced in some companies. Indeed, it is not unusual for a company to have the least cash available in the months when sales are greatest. 2. Accounts receivable at June 30: From May sales: $500,000 × 10%. From June sales: $200,000 × (70% + 10%).... Total accounts receivable at June 30. $ 50,000 160,000 $210,000 Copyright 2021 © McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. 14 Managerial Accounting, 17th Edition Exercise 8-2 (10 minutes) Budgeted unit sales April 50,000 May June Quarter 75,000 90,000 215,000 Add desired units of ending finished goods inventory*...... 7,500 9,000 Total needs 57,500 84,000 8,000 98,000 8,000 223,000 Less units of beginning finished goods inventory. 5,000 7,500 9,000 5,000 Required production in units .... 52,500 76,500 89,000 218,000 *10% of the following month's sales in units. Copyright 2021 © McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. Solutions Manual, Chapter 8 15 Exercise 8-3 (15 minutes) Quarter-Year 2 First Second Third Fourth Year Required production in units of finished goods. 60,000 90,000 150,000 100,000 400,000 Units of raw materials needed per unit of finished goods x 3 x 3 x 3 x 3 x 3 Units of raw materials needed to meet production.. 180,000 270,000 450,000 300,000 1,200,000 Add desired units of ending raw materials inventory* 54,000 90,000 Total units of raw materials needed Less units of beginning raw materials 234,000 360,000 60,000 510,000 42,000 42,000 342,000 1,242,000 inventory. 36,000 54,000 90,000 60,000 36,000 Units of raw materials to be purchased........ 198,000 306,000 420,000 282,000 1,206,000 Unit cost of raw materials ............. x $1.50 x $1.50 x $1.50 × $1.50 x $1.50 Cost of raw materials to purchased * Fourth quarter: 70,000 units × 3 grams per unit x 20% = 42,000 grams. $297,000 $459,000 $630,000 $423,000 $1,809,000 16 The McGraw-Hill Companies, Inc., 2021. All rights reserved. Managerial Accounting, 17th Edition Exercise 8-4 (10 minutes) The direct labor budget is as follows: Required production in units Direct labor time per unit (hours) Total direct labor-hours needed Direct labor cost per hour Total direct labor cost. 1st Quarter 8,000 2nd Quarter 3rd Quarter 4th Quarter Year 29,000 x 0.35 6,500 7,000 7,500 x 0.35 x 0.35 x 0.35 x 0.35 2,800 2,275 2,450 2,625 10,150 × $15.00 × $15.00 × $15.00 ☑ $15.00 × $15.00 $ 42,000 $34,125 $ 36,750 $39,375 $152,250 The McGraw-Hill Companies, Inc., 2021. All rights reserved. Solutions Manual, Chapter 8 17 Exercise 8-5 (15 minutes) 1. Yuvwell Corporation Manufacturing Overhead Budget 1st 2nd 3rd 4th Quarter Quarter Quarter Quarter Year Budgeted direct labor-hours.. 8,000 8,200 8,500 7,800 32,500 Variable manufacturing overhead rate x $3.25 x $3.25 x $3.25 x $3.25 x $3.25 Variable manufacturing overhead. $26,000 $26,650 $27,625 $25,350 $105,625 Fixed manufacturing overhead 48,000 48,000 48,000 48,000 192,000 Total manufacturing overhead 74,000 74,650 75,625 73,350 297,625 Less depreciation 16,000 16,000 16,000 16,000 64,000 Cash disbursements for manufacturing overhead. $58,000 $58,650 $59,625 $57,350 $233,625 2. Total budgeted manufacturing overhead for the year (a)... Budgeted direct labor-hours for the year (b). Predetermined overhead rate for the year (a) (b).......... $297,625 32,500 $9.16 18 The McGraw-Hill Companies, Inc., 2021. All rights reserved. Managerial Accounting, 17th Edition Exercise 8-6 (15 minutes) Weller Company Selling and Administrative Expense Budget Budgeted unit sales 1st Quarter 15,000 2nd Quarter 16,000 3rd Quarter 14,000 4th Quarter 13,000 Year 58,000 Variable selling and administrative expense per unit x $2.50 x $2.50 x $2.50 Variable selling and administrative expense. Fixed selling and administrative expenses: $ 37,500 $ 40,000 $ 35,000 × $2.50 $ 32,500 x $2.50 $145,000 Advertising 8,000 8,000 8,000 8,000 32,000 Executive salaries. 35,000 35,000 35,000 35,000 140,000 Insurance 5,000 5,000 10,000 Property taxes 8,000 8,000 Depreciation 20,000 20,000 20,000 20,000 80,000 Total fixed selling and administrative expenses.... Total selling and administrative expenses..... Less depreciation. Cash disbursements for selling and 68,000 71,000 68,000 63,000 270,000 105,500 111,000 103,000 95,500 415,000 20,000 20,000 20,000 20,000 80,000 administrative expenses $85,500 $91,000 $83,000 $ 75,500 $335,000 The McGraw-Hill Companies, Inc., 2021. All rights reserved. Solutions Manual, Chapter 8 19 Exercise 8-7 (15 minutes) Garden Depot Cash Budget 1st 2nd 3rd 4th Quarter Quarter Quarter Quarter Year Beginning cash balance. $ 20,000 $ 10,000 $ 35,800 $ 25,800 $ 20,000 Total cash receipts........ 180,000 330,000 210,000 230,000 950,000 Total cash available...... 200,000 340,000 245,800 255,800 970,000 Less total cash disbursements 260,000 230,000 220,000 240,000 950,000 Excess (deficiency) of cash available over disbursements ........... (60,000) 110,000 25,800 15,800 20,000 Financing: Borrowings (at beginnings of quarters)* 70,000 70,000 Repayments (at ends of quarters)............. (70,000) (70,000) Interests (4,200) (4,200) Total financing 70,000 (74,200) (4,200) Ending cash balance..... $ 10,000 $ 35,800 $ 25,800 $ 15,800 $ 15,800 * Since the deficiency of cash available over disbursements is $60,000, the company must borrow $70,000 to maintain the desired ending cash balance of $10,000. $ $70,000 × 3% × 2 = $4,200. 20 The McGraw-Hill Companies, Inc., 2021. All rights reserved. Managerial Accounting, 17th Edition Exercise 8-8 (10 minutes) Gig Harbor Boating Budgeted Income Statement Sales (460 units × $1,950 per unit) Cost of goods sold (460 units × $1,575 per unit)... Gross margin Selling and administrative expenses* Net operating income. Interest expense. Net income. *(460 units x $75 per unit) + $105,000 = $139,500. The McGraw-Hill Companies, Inc., 2021. All rights reserved. Solutions Manual, Chapter 8 $897,000 724,500 172,500 139,500 33,000 14,000 $ 19,000 21 Exercise 8-9 (15 minutes) Месса Сору Budgeted Balance Sheet Assets Current assets: Cash* $12,200 Accounts receivable 8,100 Supplies inventory. 3,200 Total current assets $23,500 Plant and equipment: Equipment. 34,000 Accumulated depreciation. (16,000) Plant and equipment, net. 18,000 Total assets. $41,500 Liabilities and Stockholders' Equity Current liabilities: Accounts payable. Stockholders' equity: Common stock Retained earnings# $1,800 $5,000 34,700 *Plug figure. Total stockholders' equity. Total liabilities and stockholders' equity.. # Retained earnings, beginning balance. 39,700 $41,500 $28,000 Add net income. 11,500 39,500 Deduct dividends 4,800 Retained earnings, ending balance...... $34,700 22 The McGraw-Hill Companies, Inc., 2021. All rights reserved. Managerial Accounting, 17th Edition Exercise 8-10 (45 minutes) 1. Production budget: SeptemBudgeted unit sales. Add desired units of ending finished goods inventory* July 35,000 August 40,000 ber 50,000 October 30,000 Total needs. 11,000 46,000 13,000 53,000 9,000 59,000 7,000 37,000 Less units of beginning finished goods inventory..... Required production in units.. 10,000 11,000 13,000 9,000 36,000 42,000 46,000 28,000 2. * October: 3,000 units + (20,000 units × 20%) = 7,000 units. During July and August, the company is building inventories in anticipation of peak sales in September. Therefore, production exceeds sales during these months. In September and October, inventories are being reduced in anticipation of a forthcoming decrease in sales. Therefore, production is less than sales during these months. The McGraw-Hill Companies, Inc., 2021. All rights reserved. Solutions Manual, Chapter 8 23 Exercise 8-10 (continued) 3. Direct materials budget: 24 July August Required production in units of finished goods..... Units of raw materials needed per unit of finished 36,000 42,000 September 46,000 Third Quarter 124,000 goods Units of raw materials needed to meet production Add desired units of ending raw materials x 3 CC 108,000 x 3 CC x 3 cC × 3 CC 126,000 138,000 372,000 inventory 63,000 69,000 42,000 * 42,000 Total units of raw materials needed. Less units of beginning raw materials inventory... Units of raw materials to be purchased. 171,000 195,000 180,000 414,000 54,000 63,000 69,000 54,000 117,000 132,000 111,000 360,000 * 28,000 units (October production) × 3 cc per unit = 84,000 cc; 84,000 сc x 1/2 = 42,000 сс. As shown in part (1), production is greatest in September; however, as shown in the raw material purchases budget, purchases of materials are greatest a month earlier—in August. The reason for the large purchases of materials in August is that the materials must be on hand to support the heavy production scheduled for September. The McGraw-Hill Companies, Inc., 2021. All rights reserved. Managerial Accounting, 17th Edition Exercise 8-11 (20 minutes) Quarter (000 omitted) 1 2 3 4 Year Beginning cash balance. $6* $5 $ 5 $ 5 $ 6 Add collections from customers 65 70 99 * 92 323 * Total cash available. 71 * 75 101 97 329 Less cash disbursements: Purchase of inventory. 35 * 45 * 48 35 * 163 Selling and administrative expenses 28 30 * 30 * 25 113 * Equipment purchases 8 * 8 * 10 * 10 36 * Dividends ☐2 * ☐2 * 2 * 2 * 8 Total cash disbursements 73 85 * 90 72 320 Excess (deficiency) of cash available over disbursements (2)* (10) 11 * 25 9 Financing: Borrowings 7 15 * 0 0 22 Total financing. Repayments (including interest) Ending cash balance * Given. 0 (6) (17)* (23) 7 15 (6) (17) (1) $5 $5 $ 5 $8 $ 8 The McGraw-Hill Companies, Inc., 2021. All rights reserved. Solutions Manual, Chapter 8 25 Exercise 8-12 (30 minutes) 1. Schedule of expected cash collections: Month July August Sept. From accounts receivable $136,000 Quarter $136,000 From July sales: 35% × 210,000. 73,500 73,500 65% × 210,000 $136,500 136,500 From August sales: 35% × 230,000. 80,500 80,500 65% × 230,000 $149,500 149,500 From September sales: 35% × 220,000......... 77,000 77,000 Total cash collections....... $209,500 $217,000 $226,500 $653,000 2. a. Merchandise purchases budget: July August Sept. Total Budgeted cost of goods sold (60% of sales) $126,000 $138,000 $132,000 $396,000 Add desired ending merchandise inventory* 41,400 39,600 43,200 43,200 Total needs 167,400 177,600 175,200 439,200 Less beginning merchandise inventory 62,000 41,400 39,600 62,000 Required purchases. .............. $105,400 $136,200 $135,600 $377,200 × 30% = $43,200. *At July 31: $138,000 × 30% = $41,400. At September 30: $144,000 b. Schedule of cash disbursements for purchases: July August Sept. Total From accounts payable.......... $71,100 $71,100 For July purchases... 42,160 $ 63,240 105,400 For August purchases 54,480 $ 81,720 136,200 For September purchases...... 54,240 54,240 Total cash disbursements....... $113,260 $117,720 $135,960 $366,940 The McGraw-Hill Companies, Inc., 2021. All rights reserved. 26 Managerial Accounting, 17th Edition Exercise 8-12 (continued) 3. Beech Corporation Income Statement For the Quarter Ended September 30 Sales ($210,000 + $230,000 + $220,000). Cost of goods sold (Part 2a) $660,000 396,000 Gross margin.. 264,000 Selling and administrative expenses ($60,000 × 3 months) 180,000 Net operating income $ 84,000 4. Beech Corporation Balance Sheet September 30 Assets Cash ($90,000 + $653,000 — $366,940 – ($55,000 × 3)) Accounts receivable ($220,000 × 65%) Inventory (Part 2a).. Plant and equipment, net ($210,000 – ($5,000 ×3)) Total assets. Liabilities and Stockholders' Equity Accounts payable ($135,600 × 60%). Common stock (Given) Retained earnings ($99,900 + $84,000) Total liabilities and stockholders' equity. $211,060 143,000 43,200 195,000 $592,260 $ 81,360 327,000 183,900 $592,260 The McGraw-Hill Companies, Inc., 2021. All rights reserved. Solutions Manual, Chapter 8 27 Exercise 8-13 (30 minutes) 1. Schedule of expected cash collections: Month July August September From accounts receivable $136,000 Quarter $136,000 From July sales: 45% × 210,000. 94,500 94,500 55% × 210,000 $115,500 115,500 From August sales: 45% × 230,000. 103,500 103,500 55% × 230,000 $126,500 126,500 From September sales: 45% × 220,000......... 99,000 Total cash collections....... $230,500 $219,000 $225,500 99,000 $675,000 2. a. Merchandise purchases budget: Budgeted cost of goods sold.... $126,000 $138,000 $132,000 $396,000 July August Sept. Total Add desired ending merchandise inventory*........ 27,600 26,400 28,800 28,800 Total needs 153,600 164,400 160,800 424,800 Less beginning merchandise inventory 62,000 27,600 26,400 62,000 Required purchases. $91,600 $136,800 $134,400 $362,800 28 *At July 31: $138,000 × 20% = $27,600. At September 30: $144,000 ×20% = $28,800. b. Schedule of cash disbursements for purchases: July August Sept. From accounts payable.... $71,100 For July purchases 27,480 $ 64,120 41,040 $ 95,760 40,320 For August purchases.......... For September purchases Total cash disbursements....... $98,580 $105,160 $136,080 Total $ 71,100 91,600 136,800 40,320 $339,820 The McGraw-Hill Companies, Inc., 2021. All rights reserved. Managerial Accounting, 17th Edition Exercise 8-13 (continued) 3. Beech Corporation Income Statement For the Quarter Ended September 30 Sales ($210,000 + $230,000 + $220,000). $660,000 Cost of goods sold (Part 2a) 396,000 Gross margin.. 264,000 Selling and administrative expenses ($60,000 × 3 months) 180,000 Net operating income 84,000 Interest expense 이 Net income $ 84,000 4. Beech Corporation Balance Sheet September 30 Assets Cash ($90,000 + $675,000 - $339,820 – ($55,000 3)) Accounts receivable ($220,000 × 55%) Inventory (Part 2a). x $260,180 121,000 28,800 195,000 $604,980 Plant and equipment, net ($210,000 – ($5,000 ×3)).. Total assets. Liabilities and Stockholders' Equity Accounts payable ($134,400 × 70%). Common stock (Given) Retained earnings ($99,900 + $84,000) Total liabilities and stockholders' equity. $ 94,080 327,000 183,900 $604,980 The McGraw-Hill Companies, Inc., 2021. All rights reserved. Solutions Manual, Chapter 8 29 Exercise 8-14 (30 minutes) 1. Jessi Corporation Sales Budget 1st 2nd 3rd 4th Quarter Quarter Quarter Quarter Year Budgeted unit sales. Selling price per unit Total sales 11,000 12,000 14,000 13,000 50,000 × $18.00 × $18.00 × $18.00 × $18.00 x $18.00 $198,000 $216,000 $252,000 $234,000 $900,000 2. 30 Schedule of Expected Cash Collections Beginning accounts receivable. $ 70,200 $ 70,200 1st Quarter sales (65%, 30%).. 128,700 $59,400 188,100 2nd Quarter sales (65%, 30%). 140,400 $ 64,800 205,200 3rd Quarter sales (65%, 30%).. 163,800 $ 75,600 239,400 4th Quarter sales (65%) 152,100 152,100 Total cash collections $198,900 $199,800 $228,600 $227,700 $855,000 The McGraw-Hill Companies, Inc., 2021. All rights reserved. Managerial Accounting, 17th Edition Exercise 8-14 (continued) 3. Jessi Corporation Production Budget Budgeted unit sales, 1st Quarter 11,000 2nd Quarter 12,000 3rd Quarter 14,000 4th Quarter 13,000 Year 50,000 Add desired units of ending finished goods inventory* 1,800 Total needs. 12,800 2,100 14,100 1,950 15,950 1,850 14,850 1,850 51,850 Less units of beginning finished goods inventory**.... 1,650 Required production in units.... 11,150 1,800 12,300 2,100 13,850 1,950 12,900 1,650 50,200 * For end of first quarter: 12,000 units × 15% = 1,800 units. ** For beginning of first quarter: 11,000 units × 15% = 1,650 units. The McGraw-Hill Companies, Inc., 2021. All rights reserved. Solutions Manual, Chapter 8 31 Exercise 8-15 (30 minutes) 1. Hruska Corporation Direct Labor Budget 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter Year Required production in units......... Direct labor time per unit (hours).. Total direct labor-hours needed .... Direct labor cost per hour Total direct labor cost. 12,000 10,000 13,000 14,000 49,000 0.2 0.2 0.2 0.2 0.2 2,400 2,000 2,600 2,800 9,800 $16.00 $16.00 $16.00 $16.00 $16.00 $38,400 $32,000 $41,600 $44,800 $156,800 2 and 3. Hruska Corporation Manufacturing Overhead Budget 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter Budgeted direct labor-hours.......... Variable manufacturing overhead rate 2,400 2,000 2,600 2,800 Year 9,800 $1.75 $1.75 $1.75 $1.75 $1.75 Variable manufacturing overhead.. $ 4,200 $3,500 $4,550 $ 4,900 $ 17,150 Fixed manufacturing overhead..... 86,000 86,000 86,000 86,000 344,000 Total manufacturing overhead ...... 90,200 89,500 90,550 90,900 361,150 Less depreciation 23,000 23,000 23,000 23,000 92,000 Cash disbursements for manufacturing overhead $67,200 $66,500 $67,550 $67,900 $269,150 The McGraw-Hill Companies, Inc., 2021. All rights reserved. 32 Managerial Accounting, 17th Edition Exercise 8-16 (30 minutes) 1 and 2. Zan Corporation Direct Materials Budget 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter Year Required production in units of finished goods. 5,000 8,000 7,000 6,000 26,000 Units of raw materials needed per unit of finished goods x 8 x 8 x8 x 8 x 8 Units of raw materials needed to meet production 40,000 64,000 56,000 48,000 208,000 Add desired units of ending raw materials inventory* 16,000 Total units of raw materials needed ... Less units of beginning raw materials 56,000 14,000 78,000 12,000 8,000 8,000 68,000 56,000 216,000 inventory 6,000 16,000 14,000 12,000 6,000 Units of raw materials to be purchased. 50,000 62,000 54,000 44,000 210,000 Unit cost of raw materials x $1.20 x $1.20 x $1.20 × $1.20 x $1.20 Cost of raw materials to be purchased. $60,000 $74,400 $64,800 $52,800 $252,000 * End of 1st quarter: 64,000 grams × 25% = 16,000 grams. The McGraw-Hill Companies, Inc., 2021. All rights reserved. Solutions Manual, Chapter 8 33 34 Exercise 8-16 (continued) 3. Zan Corporation Schedule of Expected Cash Disbursements for Materials 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter Year Beginning accounts payable. 1st Quarter purchases.......... 2nd Quarter purchases........ 3rd Quarter purchases......... 4th Quarter purchases......... Total cash disbursements $ 2,880 $ 2,880 36,000 $24,000 44,640 60,000 $29,760 38,880 74,400 $25,920 64,800 31,680 31,680 for materials. $38,880 $68,640 $68,640 $57,600 $233,760 4. Zan Corporation Direct Labor Budget 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter Year Required production in units Direct labor-hours per unit. Total direct labor-hours needed .... Direct labor cost per hour. Total direct labor cost. 5,000 8,000 7,000 6,000 26,000 x 0.20 x 0.20 x 0.20 × 0.20 × 0.20 1,000 1,600 1,400 1,200 5,200 × $15.00 × $15.00 x $15.00 x $15.00 × $15.00 $ 15,000 $ 24,000 $ 21,000 $ 18,000 $ 78,000 The McGraw-Hill Companies, Inc., 2021. All rights reserved. Managerial Accounting, 17th Edition Exercise 8-17 (60 minutes) 1a. The budgeted cash collections are computed as follows: Cash sales ($240,000 x 35%). September credit sales collected in October October credit sales collected in October ($240,000 ☑ 65% x 40%) Total cash collections $ 84,000 90,000 62,400 $236,400 1b. The budgeted merchandise purchases are computed as follows: Budgeted cost of goods sold ($240,000 × 45%) ........ Add: desired ending merchandise inventory ($250,000 $108,000 × 45% × 30%). 33,750 Total needs 141,750 Less: beginning merchandise inventory. Required purchases 32,400 $109,350 1c. The budgeted cash disbursements for merchandise purchases are computed as follows: September credit purchases paid in October October credit purchases paid in October ($109,350 × $ 73,000 30%)........ 32,805 Total cash disbursements for merchandise purchases. $105,805 1d. The net operating income is computed as follows: Sales Cost of goods sold ($240,000 × 45%)... Gross margin Selling and administrative expenses ($78,000 + $2,000) Net operating income The McGraw-Hill Companies, Inc., 2021. All rights reserved. Solutions Manual, Chapter 8 $240,000 108,000 132,000 80,000 $52,000 35 Exercise 8-17 (continued) 1e. The budgeted balance sheet is computed as follows: Wheeling Company Balance Sheet October 31 Assets Cash ($59,000 + $236,400 – $105,805 – $78,000) $111,595 Accounts receivable ($240,000 × 65% × 60%). Inventory ($250,000 x 45% × 30%). 93,600 33,750 Buildings and equipment, (net) ($214,000 - $2,000) 212,000 Total assets $450,945 Liabilities and Stockholders' Equity Accounts payable ($109,350 × 70%) $ 76,545 Common stock 216,000 Retained earnings ($106,400 + $52,000). 158,400 Total liabilities and stockholders' equity $450,945 2a. The budgeted cash collections are computed as follows: Cash sales ($240,000 × 35%). $ 84,000 September credit sales collected in October 90,000 October credit sales collected in October ($240,000 ☑ 65% × 50%) 78,000 Total cash collections $252,000 2b. The budgeted merchandise purchases are computed as follows: Budgeted cost of goods sold ($240,000 × 45%) ........ Add: desired ending merchandise inventory ($250,000 x 45% x 10%). Total needs Less: beginning merchandise inventory. Required purchases $108,000 11,250 119,250 32,400 $ 86,850 36 The McGraw-Hill Companies, Inc., 2021. All rights reserved. Managerial Accounting, 17th Edition Exercise 8-17 (continued) 2c. The budgeted cash disbursements for merchandise purchases are computed as follows: September credit purchases paid in October October credit purchases paid in October ($86,850 × 20%)...... Total cash disbursements for merchandise purchases. 2d. The net operating income is computed as follows: Sales Cost of goods sold ($240,000 × 45%) Gross margin Selling and administrative expenses ($78,000 + $2,000) Net operating income 2e. The budgeted balance sheet is computed as follows: Wheeling Company Balance Sheet October 31 $73,000 17,370 $90,370 $240,000 108,000 132,000 80,000 $ 52,000 Assets Cash ($59,000 + $252,000 - $90,370 - $78,000) Accounts receivable ($240,000 × 65% × 50%). Inventory ($250,000 × 45% × 10%). Buildings and equipment, (net) ($214,000 — $2,000)... Total assets $142,630 78,000 11,250 212,000 $443,880 Liabilities and Stockholders' Equity Accounts payable ($86,850 × 80%) $69,480 Common stock 216,000 Retained earnings ($106,400 + $52,000) 158,400 Total liabilities and stockholders' equity $443,880 The McGraw-Hill Companies, Inc., 2021. All rights reserved. Solutions Manual, Chapter 8 37 Exercise 8-17 (continued) 3. Students may be inclined to conclude that the financial projections in requirement 2 indicate a decline in performance for two reasons. First, the net operating income in the two scenarios is the same. Second, the total assets dropped by $7,065. This interpretation overlooks the importance of cash flows and working capital management. For professors wishing to explore this discussion further, we recommend computing and comparing the operating cycle (as discussed in the chapter titled Financial Statement Analysis) for requirements 1 and 2. The accounts receivable turnover in requirement 1 is 1.70 ($156,000 ÷ $91,800). The average collection period is 17.65 days (30 days ÷ 1.70). The inventory turnover is 3.27 ($108,000 ÷ $33,075). The average sale period is 9.17 days (30÷3.27). The operating cycle is 26.82 days (17.65 days + 9.17 days). The accounts receivable turnover in requirement 2 is 1.86 ($156,000 ÷ $84,000). The average collection period is 16.13 days (30 days ÷ 1.86). The inventory turnover is 4.95 ($108,000 ÷ $21,825). The average sale period is 6.06 days (30÷ 4.95). The operating cycle is 22.19 days (16.13 days + 6.06 days). The operating cycle drops by 4.63 days in requirement 2. 38 The McGraw-Hill Companies, Inc., 2021. All rights reserved. Managerial Accounting, 17th Edition Exercise 8-18 (30 minutes) 1a. The company's budgeted sales are computed as follows: Cash collections in July (a). June sales collected in July (b). $77,000 $50,000 July sales collected in July (a) - (b) $27,000 July sales collected in July (a) Percentage of sales collected in month of sale (b) July sales (a) (b).. $27,000 30% $90,000 1b. The company's budgeted merchandise purchases are computed as follows: Cash paid for merchandise purchases in July (a) ........ June purchases paid in July (b) $44,500 $35,300 July purchases paid in July (a) - (b) $9,200 July purchases paid in July (a) $9,200 Percentage of purchases paid in month of purchase (b). 20% July merchandise purchases (a) + (b) $46,000 1c. The company's budgeted cost of goods sold is computed as follows: Merchandise purchases in July Beginning merchandise inventory in July Total needs in July. $46,000 30,000 $76,000 Total needs in July (a) $76,000 Ending inventory in July (b) $22,000 Cost of goods sold in July (a) - (b). $54,000 The McGraw-Hill Companies, Inc., 2021. All rights reserved. Solutions Manual, Chapter 8 39 Exercise 8-18 (continued) 1d. The company's budgeted net operating income is computed as follows: Sales $90,000 Cost of goods sold. 54,000 Gross margin 36,000 Selling and administrative expenses ($15,000 + $3,000) Net operating income 18,000 $18,000 2. The budgeted balance sheet is computed as follows: Assets Wolfpack Company Balance Sheet July 31 Cash ($75,000 + $77,000 – $44,500 – $15,000) Accounts receivable ($90,000 × 70%) Inventory. $92,500 63,000 22,000 Buildings and equipment, (net) ($150,000 - $3,000) Total assets 147,000 $324,500 Liabilities and Stockholders' Equity Accounts payable ($46,000 × 80%) $36,800 Common stock. 100,000 Retained earnings ($169,700 + $18,000) 187,700 Total liabilities and stockholders' equity $324,500 40 The McGraw-Hill Companies, Inc., 2021. All rights reserved. Managerial Accounting, 17th Edition Problem 8-19 (45 minutes) 1. Schedule of cash collections: Cash sales-May Collections on account receivable: April 30 balance. May sales (50% × ($200,000 — $60,000)) Total cash collections. 2. Schedule of expected cash disbursements: Schedule of cash disbursements for purchases: April 30 accounts payable balance May purchases (40% × $120,000) Total cash disbursements 3. $ 60,000 54,000 70,000 $184,000 $ 63,000 48,000 $111,000 Minden Company Cash Budget For the Month of May Beginning cash balance Add collections from customers (above). Total cash available Less cash disbursements: Purchase of inventory (above) Selling and administrative expenses Purchases of equipment. Total cash disbursements Excess of cash available over disbursements....... Financing: Borrowing-note Repayments-note Interest Total financing Ending cash balance. The McGraw-Hill Companies, Inc., 2021. All rights reserved. Solutions Manual, Chapter 8 $ 9,000 184,000 193,000 111,000 72,000 6,500 189,500 3,500 20,000 (14,500) (100) 5,400 $ 8,900 41 Problem 8-19 (continued) 4. Minden Company Budgeted Income Statement For the Month of May Sales $200,000 Cost of goods sold: Beginning inventory $ 30,000 Add purchases. 120,000 Goods available for sale 150,000 Ending inventory. 40,000 Cost of goods sold Gross margin 110,000 90,000 Selling and administrative expenses ($72,000 + $2,000) Net operating income Interest expense 74,000 16,000 100 Net income $ 15,900 5. Assets Minden Company Budgeted Balance Sheet May 31 Cash (see requirement 3) Accounts receivable (50% × $140,000) Inventory. Buildings and equipment, net of depreciation ($207,000 + $6,500 — $2,000). Total assets. Liabilities and Stockholders' Equity Accounts payable (60% × 120,000) Note payable. Common stock Retained earnings ($42,500 + $15,900) Total liabilities and stockholders' equity. The McGraw-Hill Companies, Inc., 2021. All rights reserved. 42 $ 8,900 70,000 40,000 211,500 $330,400 $ 72,000 20,000 180,000 58,400 $330,400 Managerial Accounting, 17th Edition Problem 8-20 (45 minutes) 1. Schedule of cash collections: Cash sales-May Collections on account receivable: April 30 balance. May sales (60% × ($220,000 – $60,000)). Total cash collections 2. Schedule of expected cash disbursements: Schedule of cash payments for purchases: April 30 accounts payable balance May purchases (50% × $120,000) Total cash disbursements. 3. $ 60,000 54,000 96,000 $210,000 $ 63,000 60,000 $123,000 Minden Company Cash Budget For the Month of May Beginning cash balance Add collections from customers (above). $ 9,000 210,000 Total cash available 219,000 Less cash disbursements: Purchase of inventory (above) 123,000 Selling and administrative expenses 72,000 Purchases of equipment. 6,500 Total cash disbursements 201,500 Excess of cash available over disbursements....... 17,500 Financing: Borrowing-note. 20,000 Interest Repayments-note Total financing Ending cash balance (14,500) (100) 5,400 $ 22,900 The McGraw-Hill Companies, Inc., 2021. All rights reserved. Solutions Manual, Chapter 8 43 Problem 8-20 (continued) 4. Minden Company Budgeted Income Statement For the Month of May 5. 44 Sales Cost of goods sold: Beginning inventory Add purchases. Goods available for sale Ending inventory. Cost of goods sold Gross margin Selling and administrative expenses ($72,000 + $2,000) Net operating income Interest expense Net income $220,000 $ 30,000 120,000 150,000 40,000 110,000 110,000 74,000 36,000 100 $35,900 Assets Minden Company Budgeted Balance Sheet May 31 Cash (see requirement 3) Accounts receivable (40% × $160,000) Inventory. Buildings and equipment, net of depreciation ($207,000 + $6,500 – $2,000). $ 22,900 64,000 40,000 211,500 Total assets. $338,400 Liabilities and Stockholders' Equity Accounts payable (50% × 120,000) $ 60,000 Note payable. 20,000 Capital stock 180,000 Retained earnings ($42,500 + $35,900) 78,400 Total liabilities and stockholders' equity. The McGraw-Hill Companies, Inc., 2021. All rights reserved. $338,400 Managerial Accounting, 17th Edition Problem 8-21 (30 minutes) 1. December cash sales $ 83,000 Collections on account: October sales: $400,000 × 18% 72,000 November sales: $525,000 × 60% 315,000 December sales: $600,000 × 20%. 120,000 Total cash collections $590,000 2. Payments to suppliers: November purchases (accounts payable)... December purchases: $280,000 × 30%..... Total cash disbursements $161,000 84,000 $245,000 3. Ashton Company Cash Budget For the Month of December Beginning cash balance Add collections from customers Total cash available Less cash disbursements: Payments to suppliers for inventory Selling and administrative expenses* New web server Dividends paid. Total cash disbursements. Excess (deficiency) of cash available over disbursements Financing: Borrowings. Repayments Interest. Total financing Ending cash balance. *$430,000 — $50,000 = $380,000. $ 40,000 590,000 630,000 $245,000 380,000 76,000 9,000 710,000 (80,000) 100,000 이 이 100,000 $ 20,000 The McGraw-Hill Companies, Inc., 2021. All rights reserved. Solutions Manual, Chapter 8 45 Problem 8-22 (30 minutes) 1. The budget at Springfield is an imposed "top-down" budget that fails to consider both the need for realistic data and the human interaction essential to an effective budgeting/control process. The President has not given any basis for his goals, so one cannot know whether they are realistic for the company. True participation of company employees in preparation of the budget is minimal and limited to mechanical gathering and manipulation of data. This suggests there will be little enthusiasm for implementing the budget. The sales by product line should be based on an accurate sales forecast of the potential market. Therefore, the sales by product line should have been developed first to derive the sales target rather than the reverse. The initial meeting between the Vice President of Finance, Executive Vice President, Marketing Manager, and Production Manager should have been held earlier. This meeting was held too late in the budget process. 2. Springfield should consider adopting a "bottom-up" budget process. This means that the people responsible for performance under the budget would participate in the decisions by which the budget is established. In addition, this approach requires initial and continuing involvement of sales, financial, and production personnel to define sales and profit goals that are realistic within the constraints under which the company operates. Although time consuming, the approach should produce a more acceptable, honest, and workable goal-control mechanism. The sales forecast should be developed considering internal salesforecasts as well as external factors. Costs within departments should be divided into fixed and variable, controllable and noncontrollable, discretionary and nondiscretionary. Flexible budgeting techniques could then allow departments to identify costs that can be modified in the planning process. 46 The McGraw-Hill Companies, Inc., 2021. All rights reserved. Managerial Accounting, 17th Edition Problem 8-22 (continued) 3. The functional areas should not necessarily be expected to cut costs when sales volume falls below budget. The time frame of the budget (one year) is short enough so that many costs are relatively fixed. For costs that are fixed, there is little hope for a reduction as a consequence of short-run changes in volume. However, the functional areas should be expected to cut costs should sales volume fall below target when: a. control is exercised over the costs within their function. b. budgeted costs were more than adequate for the originally targeted sales, i.e., slack was present. c. budgeted costs vary to some extent with changes in sales. d. there are discretionary costs that can be delayed or omitted with no serious effect on the department. (Adapted unofficial CMA Solution) The McGraw-Hill Companies, Inc., 2021. All rights reserved. Solutions Manual, Chapter 8 47 Problem 8-23 (45 minutes) 1. Schedule of expected cash collections: 48 Month April From accounts receivable $120,000 $ May 16,000 June Quarter $136,000 From April sales: 30% × $300,000 90,000 90,000 60% × $300,000 180,000 180,000 8% × $300,000 $ 24,000 24,000 From May sales: 30% × $400,000 120,000 120,000 60% × $400,000 240,000 240,000 From June sales: 30% × $250,000... 75,000 75,000 Total cash collections....... $210,000 $316,000 $339,000 $865,000 The McGraw-Hill Companies, Inc., 2021. All rights reserved. Managerial Accounting, 17th Edition Problem 8-23 (continued) 2. Cash budget: Month April May Beginning cash balance. $ 24,000 $ 22,000 June $ 26,000 Quarter $ 24,000 Add receipts: Collections from customers 210,000 316,000 339,000 Total cash available.... 234,000 338,000 365,000 865,000 889,000 Less cash disbursements: Merchandise purchases. 140,000 210,000 160,000 510,000 Payroll 20,000 20,000 18,000 58,000 Lease payments ... 22,000 22,000 22,000 66,000 Advertising. 60,000 60,000 50,000 170,000 Equipment purchases.. 65,000 65,000 Total cash disbursements. 242,000 312,000 315,000 869,000 Excess (deficiency) of cash available over disbursements (8,000) 26,000 50,000 20,000 Financing: Borrowings. 30,000 30,000 Repayments (30,000) (30,000) Interest. (1,200) (1,200) Total financing 30,000 (31,200) (1,200) Ending cash balance...... $ 22,000 $ 26,000 $ 18,800 $ 18,800 3. If the company needs a minimum cash balance of $20,000 to start each month, the loan cannot be repaid in full by June 30. Some portion of the loan balance will have to be carried over to July. The McGraw-Hill Companies, Inc., 2021. All rights reserved. Solutions Manual, Chapter 8 49 Problem 8-24 (60 minutes) 1. Collections on sales: April May June Cash sales (@ 20%) ........ $120,000 $180,000 $100,000 $ Quarter 400,000 Sales on account: February: $200,000 × 80% × 20% 32,000 32,000 March: $300,000 × 80% × 70%, 20%...... 168,000 48,000 216,000 April: $600,000 × 80% × 10%, 70%, 20%..... 48,000 336,000 96,000 480,000 May: $900,000 × 80% × 10%, 70% 72,000 504,000 576,000 June: $500,000 × 80% x 10% 40,000 40,000 Total cash collections....... $368,000 $636,000 $740,000 $1,744,000 2. a. Merchandise purchases budget: Budgeted cost of goods sold.. $420,000 $630,000 $350,000 $280,000 Add desired ending April May June July merchandise inventory*...... 126,000 70,000 56,000 Total needs 546,000 700,000 406,000 Less beginning merchandise inventory. 84,000 126,000 70,000 Required inventory purchases $462,000 $574,000 $336,000 *20% of the next month's budgeted cost of goods sold. 50 b. Schedule of expected cash disbursements for merchandise purchases: April May June Quarter Beginning accounts payable.............. $126,000 $ 126,000 April purchases...... 231,000 $231,000 462,000 May purchases....... 287,000 $287,000 574,000 June purchases...... 168,000 168,000 Total cash disbursements..... $357,000 $518,000 $455,000 $1,330,000 The McGraw-Hill Companies, Inc., 2021. All rights reserved. Managerial Accounting, 17th Edition Problem 8-24 (continued) 3. Garden Sales, Inc. Cash Budget For the Quarter Ended June 30 April Beginning cash balance...... $ 52,000 May $ 40,000 June Quarter $ 40,000 $ 52,000 Add collections from customers 368,000 636,000 740,000 1,744,000 Total cash available..... 420,000 676,000 780,000 1,796,000 Less cash disbursements: Purchases for inventory... 357,000 518,000 455,000 1,330,000 Selling expenses 79,000 120,000 62,000 261,000 Administrative expenses.. 25,000 32,000 21,000 78,000 Land purchases 16,000 16,000 Dividends paid 49,000 49,000 Total cash disbursements. 510,000 686,000 538,000 1,734,000 Excess (deficiency) of cash available over disbursements (90,000) (10,000) 242,000 62,000 Financing: Borrowings 130,000 50,000 이 180,000 Repayments. 0 0 (180,000) (180,000) Interest ($130,000 × 1% × 3 + $50,000 × 1% x 2)...... 이 0 (4,900) (4,900) Total financing. 130,000 50,000 (184,900) (4,900) Ending cash balance $ 40,000 $40,000 $ 57,100 $ 57,100 The McGraw-Hill Companies, Inc., 2021. All rights reserved. Solutions Manual, Chapter 8 51 Problem 8-25 (60 minutes) 1. Collections on sales: April May June Cash sales. $120,000 $180,000 $100,000 $ Quarter 400,000 Sales on account: February: $200,000 ☑ 80% × 20% 32,000 32,000 March: $300,000 × 80% × 70%, 20%...... 168,000 48,000 216,000 April: $600,000 × 80% × 25%, 65%, 10%..... 120,000 312,000 48,000 480,000 May: $900,000 × 80% x 25%, 65% 180,000 468,000 648,000 June: $500,000 × 80% x 25% 100,000 100,000 Total cash collections....... $440,000 $720,000 $716,000 $1,876,000 2. a. Merchandise purchases budget: Budgeted cost of goods sold.. $420,000 $630,000 $350,000 $280,000 Add desired ending April May June July merchandise inventory* ...... 94,500 52,500 42,000 Total needs....... 514,500 682,500 392,000 Less beginning merchandise inventory. 84,000 94,500 52,500 Required inventory purchases $430,500 $588,000 $339,500 *15% of the next month's budgeted cost of goods sold. b. Schedule of expected cash disbursements for merchandise purchases: April May June Quarter Beginning accounts payable............... $126,000 $ 126,000 April purchases...... 215,250 $215,250 430,500 May purchases....... 294,000 $294,000 588,000 June purchases...... 169,750 169,750 Total cash disbursements..... $341,250 $509,250 $463,750 $1,314,250 The McGraw-Hill Companies, Inc., 2021. All rights reserved. 52 Managerial Accounting, 17th Edition Problem 8-25 (continued) 3. Garden Sales, Inc. Cash Budget For the Quarter Ended June 30 April Beginning cash balance...... $ 52,000 May $ 40,750 June $ 83,500 Quarter $ 52,000 Add collections from customers 440,000 720,000 716,000 1,876,000 Total cash available..... 492,000 760,750 799,500 1,928,000 Less cash disbursements: Purchases for inventory... 341,250 509,250 463,750 1,314,250 Selling expenses 79,000 120,000 62,000 261,000 Administrative expenses.. 25,000 32,000 21,000 78,000 Land purchases 16,000 16,000 Dividends paid 49,000 _ 49,000 Total cash disbursements. 494,250 677,250 546,750 1,718,250 Excess (deficiency) of cash available over disbursements (2,250) 83,500 252,750 209,750 Financing: Borrowings 43,000 0 43,000 Repayments. 이 이 (43,000) (43,000) Interest ($43,000 x 1% × 3). 이 이 (1,290) (1,290) Total financing 43,000 이 (44,290) (1,290) Ending cash balance $ 40,750 $83,500 $ 208,460 $ 208,460 4. Collecting accounts receivable sooner and reducing inventory levels reduces the company's borrowing from $180,000 to $43,000. It also reduces the company's interest expense from $4,900 to $1,290. The McGraw-Hill Companies, Inc., 2021. All rights reserved. Solutions Manual, Chapter 8 53 Problem 8-26 (45 minutes) 1. a. The reasons that Marge Atkins and Pete Granger use budgetary slack include the following: b. These employees are hedging against the unexpected (reducing uncertainty/risk). The use of budgetary slack allows employees to exceed expectations and/or show consistent performance. This is particularly important when performance is evaluated on the basis of actual results versus budget. Employees are able to blend personal and organizational goals through the use of budgetary slack as good performance generally leads to higher salaries, promotions, and bonuses. The use of budgetary slack can adversely affect Atkins and Granger by: limiting the usefulness of the budget to motivate their employees to top performance. affecting their ability to identify trouble spots and take appropriate corrective action. reducing their credibility in the eyes of management. Also, the use of budgetary slack may affect management decisionmaking as the budgets will show lower contribution margins (lower sales, higher expenses). Decisions regarding the profitability of product lines, staffing levels, incentives, etc., could have an adverse effect on Atkins' and Granger's departments. 54 The McGraw-Hill Companies, Inc., 2021. All rights reserved. Managerial Accounting, 17th Edition Problem 8-26 (continued) 2. The use of budgetary slack, particularly if it has a detrimental effect on the company, may be unethical. In assessing the situation, the specific standards contained in "Standards of Ethical Conduct for Management Accountants" that should be considered are listed below. Competence Clear reports using relevant and reliable information should be prepared. Confidentiality The standards of confidentiality do not apply in this situation. Integrity Any activity that subverts the legitimate goals of the company should be avoided. Favorable as well as unfavorable information should be communicated. Objectivity Information should be fairly and objectively communicated. All relevant information should be disclosed. (Unofficial CMA Solution) The McGraw-Hill Companies, Inc., 2021. All rights reserved. Solutions Manual, Chapter 8 55 Problem 8-27 (45 minutes) 1. The expected cash collections are calculated as follows: April May June Total Cash sales. $ 60,000 $ 66,000 $ 78,000 $204,000 March credit sales collected. 36,000 36,000 April credit sales collected: $40,000 х 20%, 80% 8,000 32,000 40,000 May credit sales collected: $44,000 × 20%, 80%.. 8,800 35,200 44,000 June credit sales collected: $52,000 × 20% 10,400 10,400 Total cash collections.... $104,000 $106,800 $123,600 $334,400 2. The budgeted merchandise purchases are calculated as follows: April May June Total Cost of goods sold $ 60,000 $ 66,000 $ 78,000 $204,000 Add: desired ending merchandise inventory* 43,000 49,000 52,000 Total needs 103,000 115,000 130,000 52,000 256,000 Less: beginning merchandise inventory 40,000 43,000 49,000 40,000 Required purchases...... $63,000 $72,000 $ 81,000 $216,000 * April: $66,000 × 50% + $10,000 = $43,000 May: $78,000 × 50% + $10,000 = $49,000 June: $140,000 × 60% × 50% + $10,000 = $52,000 56 The McGraw-Hill Companies, Inc., 2021. All rights reserved. Managerial Accounting, 17th Edition Problem 8-27 (continued) 3. The budgeted cash disbursements for merchandise purchases are calculated as follows: April May June Total Cash purchases March purchases paid... April credit purchases paid: $63,000 × 90%. May credit purchases $ 6,300 51,300 $ 7,200 $ 8,100 $21,600 51,300 56,700 56,700 paid: $72,000 × 90%. Total cash disbursed ..... 64,800 64,800 $57,600 $63,900 $72,900 $194,400 4. The budgeted balance sheet is calculated as follows: Deacon Company Balance Sheet June 30 Assets Cash ($55,000 + $334,400 - $194,400 – $48,000) Accounts receivable ($130,000 ×x 40% × 80%). Inventory (see requirement 2) Buildings and equipment, (net) ($100,000 - $3,000) Total assets $147,000 41,600 52,000 97,000 $337,600 Liabilities and Stockholders' Equity Accounts payable ($81,000 – $8,100). $72,900 Common stock 70,000 Retained earnings ($109,700 + $25,000 + $27,500 + $32,500).. 194,700 Total liabilities and stockholders' equity $337,600 The McGraw-Hill Companies, Inc., 2021. All rights reserved. Solutions Manual, Chapter 8 57 Problem 8-28 (60 minutes) 1. a. Schedule of expected cash collections: 58 Next Year's Quarter First Second Third Fourth Total Current year-Fourth quarter sales: $200,000 × 33% $ 66,000 $ 66,000 Next year-First quarter sales: $300,000 × 65% 195,000 $300,000 × 33% $99,000 195,000 99,000 Next year-Second quarter sales: $400,000 × 65% 260,000 260,000 $400,000 × 33% $132,000 132,000 Next year-Third quarter sales: $500,000 × 65% 325,000 325,000 $500,000 × 33% $165,000 165,000 Next year-Fourth quarter sales: $200,000 × 65% 130.000 130,000 Total cash collections $261,000 $359,000 $457,000 $295,000 $1,372,000 The McGraw-Hill Companies, Inc., 2021. All rights reserved. Managerial Accounting, 17th Edition Problem 8-28 (continued) 2. Schedule of expected cash disbursements for merchandise purchases for next year: Quarter First Second Third Fourth Total Current year-Fourth quarter purchases: $126,000 × 20% $ 25,200 $ 25,200 Next year-First quarter purchases: $186,000 × 80% 148,800 $186,000 × 20% $ 37,200 148,800 37,200 Next year-Second quarter purchases: $246,000 × 80% 196,800 196,800 $246,000 × 20% $ 49,200 49,200 Next year-Third quarter purchases: $305,000 × 80% 244,000 $305,000 × 20% $ 61,000 244,000 61,000 Next year-Fourth quarter purchases: $126,000 × 80% 100,800 100,800 Total cash disbursements $174,000 $234,000 $293,200 $161,800 $863,000 The McGraw-Hill Companies, Inc., 2021. All rights reserved. Solutions Manual, Chapter 8 59 Budgeted sales in dollars Problem 8-28 (continued) 3. Budgeted cash disbursements for selling and administrative expenses for next year: Quarter Third Fourth $400,000 $500,000 $200,000 First Second Year $300,000 $1,400,000 Variable selling and administrative expense rate x 15% x 15% × 15% x 15% x 15% Variable selling and administrative expense $45,000 $ 60,000 $ 75,000 $30,000 $210,000 Fixed selling and administrative expenses 50,000 50,000 50,000 50,000 200,000 Total selling and administrative expenses 95,000 110,000 125,000 80,000 410,000 Less depreciation 20,000 20,000 20,000 20,000 80,000 Cash disbursements for selling and administrative expenses $75,000 $ 90,000 $105,000 $60,000 $330,000 60 The McGraw-Hill Companies, Inc., 2021. All rights reserved. Managerial Accounting, 17th Edition Problem 8-28 (continued) 4. Cash budget for next year: Quarter First Second Third Fourth Year Beginning cash balance .... Add collections from customers. Total cash available $ 10,000 $ 12,000 $ 10,000 $ 10,800 $ 10,000 261,000 359,000 457,000 295,000 1,372,000 271,000 371,000 467,000 305,800 1,382,000 Less cash disbursements: Merchandise purchases 174,000 234,000 293,200 161,800 863,000 Selling and administrative expenses (above).. 75,000 90,000 105,000 60,000 330,000 Dividends 10,000 10,000 10,000 10,000 40,000 Land 75,000 48,000 123,000 Total cash disbursements 259,000 409,000 456,200 231,800 1,356,000 Excess (deficiency) of cash available over disbursements.. 12,000 (38,000) 10,800 74,000 26,000 Financing: Borrowings. 0 48,000 이 0 48,000 Repayments 이 0 0 (48,000) (48,000) Interest ($48,000 × 2.5% × 3)........ 이 이 이 (3,600) (3,600) Total financing 0 48,000 이 (51,600) (3,600) Ending cash balance $ 12,000 $ 10,000 $ 10,800 $ 22,400 $ 22,400 The McGraw-Hill Companies, Inc., 2021. All rights reserved. Solutions Manual, Chapter 8 61 Problem 8-29 (120 minutes) 1. Schedule of expected cash collections: April May June Quarter Cash sales $36,000 * $43,200 $54,000 $133,200 Credit sales¹ 20,000 * 24,000 28,800 72,800 Total collections. $56,000 * $67,200 $82,800 $206,000 140% of the preceding month's sales. * Given. 2. Merchandise purchases budget: 62 April May June Quarter Budgeted cost of goods sold1 $45,000 * $ 54,000 * $67,500 $166,500 Add desired ending merchandise inventory² 43,200 * 54,000 28,800 * 28,800 Total needs 88,200 * 108,000 96,300 195,300 Less beginning merchandise inventory.. 36,000 * 43,200 54,000 36,000 Required purchases......... $52,200 * $ 64,800 $42,300 $159,300 1For April sales: $60,000 sales × 75% cost ratio = $45,000. 2At April 30: $54,000 × 80% = $43,200. At June 30: July sales $48,000 x 75% cost ratio × 80% = $28,800. * Given. Schedule of expected cash disbursements-merchandise purchases April May June Quarter March purchases......... $21,750 * $ 21,750 * April purchases 26,100 * $26,100 * 52,200 * May purchases 32,400 $32,400 64,800 June purchases... 21,150 21,150 Total disbursements........ $47,850 * $58,500 $53,550 $159,900 * Given. The McGraw-Hill Companies, Inc., 2021. All rights reserved. Managerial Accounting, 17th Edition Problem 8-29 (continued) 3. Cash budget: April Beginning cash balance. $ 8,000 * $ May 4,350 June $4,590 Quarter $ 8,000 Add collections from customers 56,000 * 67,200 82,800 206,000 Total cash available... 64,000 * 71,550 87,390 214,000 Less cash disbursements: For inventory. 47,850 * 58,500 53,550 159,900 For expenses. 13,300 * 15,460 18,700 47,460 For equipment. 1,500 * 0 0 1,500 Total cash disbursements. 62,650 * 73,960 72,250 208,860 Excess (deficiency) of cash available over disbursements. 1,350 * (2,410) 15,140 5,140 Financing: Borrowings. 3,000 7,000 0 10,000 Repayments 0 0 (10,000) (10,000) Interest ($3,000 × 1% × 3 + $7,000 × 1% x 2). 이 이 (230) (230) Total financing 3,000 7,000 (10,230) (230) Ending cash balance...... $4,350 $4,590 $4,910 $ 4,910 * Given. The McGraw-Hill Companies, Inc., 2021. All rights reserved. Solutions Manual, Chapter 8 63 Problem 8-29 (continued) 4. Shilow Company Income Statement For the Quarter Ended June 30 Sales ($60,000 + $72,000 + $90,000)....... Cost of goods sold: $222,000 Beginning inventory (Given) $ 36,000 Add purchases (see requirement 2) 159,300 Goods available for sale 195,300 Ending inventory (see requirement 2) 28,800 Gross margin 166,500* 55,500 Selling and administrative expenses: Commissions (12% of sales) 26,640 Rent ($2,500 × 3) 7,500 Depreciation ($900 × 3). 2,700 Other expenses (6% of sales) 13,320 50,160 Net operating income 5,340 Interest expense (see requirement 3) 230 Net income $ 5,110 * A simpler computation would be: $222,000 × 75% = $166,500. The McGraw-Hill Companies, Inc., 2021. All rights reserved. 64 Managerial Accounting, 17th Edition Problem 8-29 (continued) 5. Shilow Company Balance Sheet June 30 Assets Current assets: Cash (see requirement 3). Accounts receivable ($90,000 × 40%) Inventory (see requirement 2). Total current assets Building and equipment-net ($120,000 + $1,500 – $2,700) Total assets. Liabilities and Stockholders' Equity Accounts payable (Part 2: $42,300 × 50%).. $ 4,910 36,000 28,800 69,710 118,800 $188,510 $ 21,150 Stockholders' equity: Common stock (Given). $150,000 Retained earnings* 17,360 167,360 Total liabilities and stockholders' equity......... $188,510 * Beginning retained earnings $12,250 Add net income (see requirement 4)......... 5,110 Ending retained earnings. $17,360 The McGraw-Hill Companies, Inc., 2021. All rights reserved. Solutions Manual, Chapter 8 65 Problem 8-30 (60 minutes) 1. The estimated sales for the third quarter: Month July August September Budgeted unit sales.... 30,000 70,000 50,000 Quarter 150,000 Selling price per unit... x $12 x $12 x $12 x $12 Budgeted sales........ $360,000 $840,000 $600,000 $1,800,000 2. The expected cash collections from sales for the third quarter: Accounts receivable, June 30: $300,000 × 65% ..... $195,000 $ 195,000 July sales: $360,000 × 30%, 65% 108,000 $234,000 342,000 August sales: $840,000 × 30%, 65% 252,000 $546,000 798,000 September sales: $600,000 × 30%..... Total cash collections.. $303,000 $486,000 180,000 $726,000 180,000 $1,515,000 3. The production budget (quantity of beach umbrellas) for July-October: Budgeted unit sales. July 30,000 August September October 70,000 50,000 20,000 Add desired units of ending finished goods inventory..... 10,500 7,500 3,000 Total needs 40,500 77,500 53,000 1,500 21,500 Less units of beginning finished goods inventory..... 4,500 10,500 Required production in units.. 36,000 67,000 7,500 45,500 3,000 18,500 The McGraw-Hill Companies, Inc., 2021. All rights reserved. 66 Managerial Accounting, 17th Edition Problem 8-30 (continued) 4 and 5. The direct materials budget for the third quarter: July August September Quarter Required production in units of finished goods. 36,000 67,000 45,500 148,500 Units of raw materials needed per unit of finished goods x4 x 4 x 4 x 4 Units of raw materials needed to meet production 144,000 268,000 182,000 594,000 Add desired units of ending raw materials inventory* 134,000 91,000 37,000 37,000 Total units of raw materials needed... 278,000 359,000 219,000 631,000 Less units of beginning raw materials inventory 72,000 134,000 91,000 72,000 Units of raw materials to be purchased 206,000 Unit cost of raw materials x $0.80 225,000 × $0.80 128,000 559,000 × $0.80 x $0.80 Cost of raw materials to be purchased $164,800 $180,000 $102,400 $447,200 * September 30: 18,500 units (October) x 4 feet per unit = 74,000 feet 74,000 feet x 1/2 = 37,000 feet The McGraw-Hill Companies, Inc., 2021. All rights reserved. Solutions Manual, Chapter 8 67 Problem 8-30 (continued) 6. The expected cash disbursements for materials purchases for the third quarter: 68 July August September Quarter Accounts payable, June 30. $ 76,000 $ 76,000 July purchases: $164,800 × 50%, 50%. 82,400 $ 82,400 164,800 August purchases: $180,000 × 50%, 50%. 90,000 $90,000 180,000 September purchases: $102,400 × 50% .......... 51,200 51,200 Total cash disbursements. $158,400 $172,400 $141,200 $472,000 The McGraw-Hill Companies, Inc., 2021. All rights reserved. Managerial Accounting, 17th Edition Problem 8-31 (120 minutes) 1. Schedule of expected cash collections: Cash sales January February March $ 80,000 * $120,000 $ 60,000 Credit sales........ 224,000 * 320,000 480,000 Total cash collections..... $304,000 * $440,000 $540,000 * Given. 2. a. Merchandise purchases budget: Quarter $ 260,000 1,024,000 $1,284,000 January February March Quarter Budgeted cost of goods sold¹ $240,000 * $360,000 * $180,000 $780,000 Add desired ending merchandise inventory2 90,000 * 45,000 30,000 Total needs 330,000 * 405,000 210,000 30,000 810,000 Less beginning merchandise inventory...... 60,000 * 90,000 45,000 60,000 Required purchases........ $270,000 * $315,000 $165,000 $750,000 1For January sales: $400,000 × 60% cost ratio = $240,000. 2At January 31: $360,000 × 25% = $90,000. At March 31: $200,000 April sales × 60% cost ratio × 25% = $30,000. * Given. b. Schedule of expected cash disbursements for merchandise purchases: January February March Quarter December purchases............ $ 93,000 * $ 93,000 * January purchases.. 135,000 * $135,000 * 270,000 * February purchases. 157,500 $157,500 315,000 March purchases..... Total cash disbursements for purchases * Given. The McGraw-Hill Companies, Inc., 2021. All rights reserved. Solutions Manual, Chapter 8 82,500 82,500 $228,000 * $292,500 $240,000 $760,500 69 Problem 8-31 (continued) 3. Cash budget: January February March Quarter Beginning cash balance...... $ 48,000 * $ 30,000 $ 30,800 $ 48,000 Add collections from customers 304,000 * 440,000 540,000 1,284,000 Total cash available. 352,000 * 470,000 570,800 1,332,000 Less cash disbursements: Inventory purchases........ 228,000 * 292,500 240,000 760,500 Selling and administrative expenses** 129,000 * 145,000 121,000 395,000 Equipment purchases...... 이 1,700 84,500 86,200 Cash dividends. 45,000 * 0 0 45,000 Total cash disbursements... 402,000 * 439,200 445,500 1,286,700 Excess (deficiency) of cash available over disbursements (50,000)* 30,800 125,300 45,300 Financing: Borrowings 80,000 0 이 80,000 Repayments. 이 이 (80,000) (80,000) Interest ($80,000 x 1% x 3)..... (2,400) (2,400) Total financing. 80,000 0 (82,400) (2,400) Ending cash balance....... $ 30,000 $ 30,800 $ 42,900 $ 42,900 * Given. ** February: $27,000 + $70,000 + [$600,000 × (5% + 3%)] = $145,000. 70 The McGraw-Hill Companies, Inc., 2021. All rights reserved. Managerial Accounting, 17th Edition Problem 8-31 (continued) 4. Income statement: Sales Cost of goods sold: Hillyard Company Income Statement For the Quarter Ended March 31 Beginning inventory (Given) Add purchases (see requirement 2) Goods available for sale $1,300,000 $ 60,000 750,000 810,000 Ending inventory (see requirement 2) 30,000 Gross margin 780,000 * 520,000 Selling and administrative expenses: Salaries and wages ($27,000 × 3).. 81,000 Advertising ($70,000 x 3) 210,000 Shipping (5% of sales) 65,000 Depreciation (given) 42,000 Other expenses (3% of sales) 39,000 437,000 Net operating income 83,000 Interest expense (see requirement 3) 2,400 Net income $ 80,600 * A simpler computation would be: $1,300,000 x 60% = $780,000. The McGraw-Hill Companies, Inc., 2021. All rights reserved. Solutions Manual, Chapter 8 71 Problem 8-31 (continued) 5. Balance sheet: 72 Hillyard Company Balance Sheet March 31 Assets Current assets: Cash (see requirement 3). Accounts receivable (80% × $300,000). Inventory (see requirement 2a) Total current assets Buildings and equipment, net ($370,000 + $86,200 — $42,000). Total assets. Liabilities and Stockholders' Equity Current liabilities: Accounts payable (50% × $165,000) $ 42,900 240,000 30,000 312,900 414,200 $727,100 $ 82,500 Stockholders' equity: Common stock.. $500,000 Retained earnings* 144,600 644,600 Total liabilities and stockholders' equity. $727,100 * Beginning retained earnings $109,000 Add net income 80,600 Total 189,600 Deduct cash dividends 45,000 Ending retained earnings. $144,600 The McGraw-Hill Companies, Inc., 2021. All rights reserved. Managerial Accounting, 17th Edition Case 8-32 (45 minutes) 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. 2. a. Lack of Coordinated Goals. Emory had been led to believe highquality 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. b. Influence of Uncontrollable Factors. Actual performance relative to budget is greatly influenced by uncontrollable factors (i.e., rush orders, lack of prompt maintenance). Thus, the variance reports serve little purpose for performance evaluation or for locating controllable factors to improve performance. As a result, the system does not encourage coordination among departments. 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. The improvements in the budgetary control system should correct the deficiencies described above. The system should: a. more clearly define the company's objectives. b. develop an accounting reporting system that better matches controllable factors with supervisor responsibility and authority. c. establish budgets for appropriate time periods that do not change monthly simply as a result of a change in the prior month's performance. The entire company from top management down should be educated in sound budgetary procedures. (Unofficial CMA Solution, adapted) The McGraw-Hill Companies, Inc., 2021. All rights reserved. Solutions Manual, Chapter 8 73 Case 8-33 (120 minutes) 1. a. Sales budget: April May June Quarter Budgeted unit sales.... Selling price per unit.. Total sales 65,000 100,000 50,000 215,000 × $10 x $10 x $10 x $10 $650,000 $1,000,000 $500,000 $2,150,000 b. Schedule of expected cash collections: February sales (10%). $ 26,000 $ 26,000 March sales (70%, 10%) ........... 280,000 $ 40,000 320,000 April sales (20%, 70%, 10%)... 130,000 455,000 $ 65,000 650,000 May sales (20%, 70%) 200,000 700,000 900,000 June sales (20%)....... 100,000 100,000 Total cash collections. $436,000 $695,000 $865,000 $1,996,000 c. Merchandise purchases budget: Budgeted unit sales.... 65,000 100,000 50,000 215,000 Add desired ending merchandise inventory 40,000 20,000 12,000 12,000 Total needs. 105,000 120,000 62,000 227,000 Less beginning merchandise inventory ........... 26,000 40,000 20,000 26,000 Required purchases.... 79,000 80,000 42,000 201,000 Cost of purchases at $4 per unit............ $316,000 $320,000 $168,000 $ 804,000 d. Budgeted cash disbursements for merchandise purchases: Accounts payable........ $100,000 $ 100,000 April purchases........... 158,000 $158,000 316,000 May purchases. 160,000 $160,000 320,000 June purchases........... 84,000 84,000 Total cash payments.... $258,000 $318,000 $244,000 $ 820,000 The McGraw-Hill Companies, Inc., 2021. All rights reserved. 74 Managerial Accounting, 17th Edition Case 8-33 (continued) 2. Earrings Unlimited Cash Budget For the Three Months Ending June 30 Beginning cash balance...... April $74,000 $ May 50,000 June $ 50,000 $ Quarter 74,000 Add collections from customers 436,000 695,000 865,000 1,996,000 Total cash available..... 510,000 745,000 915,000 2,070,000 Less cash disbursements: Merchandise purchases... 258,000 318,000 244,000 820,000 Advertising 200,000 200,000 200,000 600,000 Rent. 18,000 18,000 18,000 54,000 Salaries 106,000 106,000 106,000 318,000 Commissions (4% of sales) 26,000 40,000 20,000 86,000 Utilities 7,000 7,000 7,000 21,000 Equipment purchases 이 16,000 40,000 56,000 Dividends paid 15,000 0 0 15,000 Total cash disbursements... 630,000 705,000 635,000 1,970,000 Excess (deficiency) of cash available over disbursements (120,000) 40,000 280,000 100,000 Financing: Borrowings 170,000 10,000 이 180,000 Repayments. 이 이 (180,000) (180,000) Interest ($170,000 × 1% ×3+ $10,000 × 1% x 2)...... 이 이 (5,300) (5,300) Total financing. 170,000 10,000 (185,300) (5,300) Ending cash balance $ 50,000 $ 50,000 $ 94,700 $ 94,700 The McGraw-Hill Companies, Inc., 2021. All rights reserved. Solutions Manual, Chapter 8 75 Case 8-33 (continued) 3. 76 Earrings Unlimited Budgeted Income Statement For the Three Months Ended June 30 Sales (see requirement 1a.) Variable expenses: $2,150,000 Cost of goods sold (@ $4 per unit)... $860,000 Commissions @ 4% of sales. 86,000 946,000 Contribution margin 1,204,000 Fixed expenses: Advertising ($200,000 x 3) 600,000 Rent ($18,000 × 3) 54,000 Salaries ($106,000 × 3) 318,000 Utilities ($7,000 × 3). 21,000 Insurance ($3,000 × 3). 9,000 Depreciation ($14,000 × 3) 42,000 Net operating income Interest expense (see requirement 2)....... Net income The McGraw-Hill Companies, Inc., 2021. All rights reserved. 1,044,000 160,000 5,300 $ 154,700 Managerial Accounting, 17th Edition Case 8-33 (continued) 4. Earrings Unlimited Budgeted Balance Sheet June 30 Assets Cash (see requirement 2) Accounts receivable (see below) Inventory (12,000 units @ $4 per unit) Prepaid insurance ($21,000 – $9,000) Property and equipment, net ($950,000 + $56,000 – $42,000) Total assets Liabilities and Stockholders' Equity Accounts payable, purchases (50% × $168,000). Dividends payable Common stock Retained earnings (see below). Total liabilities and stockholders' equity Accounts receivable at June 30: 10% × May sales of $1,000,000 80% × June sales of $500,000 Total. Retained earnings at June 30: Balance, March 31 Add net income (see requirement 3) ..... Total Less dividends declared Balance, June 30. The McGraw-Hill Companies, Inc., 2021. All rights reserved. Solutions Manual, Chapter 8 $ 94,700 500,000 48,000 12,000 964,000 $1,618,700 $ 84,000 15,000 800,000 719,700 $1,618,700 $100,000 400,000 $500,000 $580,000 154,700 734,700 15,000 $719,700 77