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Exercise From Chapter 8

The document outlines various exercises related to budgeting, including cash collections, production budgets, direct labor budgets, and manufacturing overhead budgets for different companies. It provides specific financial data and requirements for preparing schedules and budgets for sales, expenses, and inventory management. The exercises aim to enhance understanding of master budgeting concepts and financial planning.

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27 views14 pages

Exercise From Chapter 8

The document outlines various exercises related to budgeting, including cash collections, production budgets, direct labor budgets, and manufacturing overhead budgets for different companies. It provides specific financial data and requirements for preparing schedules and budgets for sales, expenses, and inventory management. The exercises aim to enhance understanding of master budgeting concepts and financial planning.

Uploaded by

farhanadib577
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF or read online on Scribd
392 | Exercises Chapter 8 11, I we assume that there is no fixed manufacturing overhead and the variable manufacturing ‘overhead is $10 per direct Iabor-hour, what i the estimated unit product cost? 12, What is the estimated finished goods inventory balance atthe end of July? 13, What is the estimated cost of goods sold and gross margin for July? 14, What is the estimated total selling and administrative expense for July? 15, Whatis the estimated net operating income for July? aiconnect Silver Company makes a product that i very popular as a Mother's Day gift. Thus, peak sales occur Jn May ofeach year, as shown inthe company’s sales budget for the second quater given below: Aor May June ‘ota Budgeted sales (all on account) $300,000 $500,000 $200.00 $1,000,000 From past experience, the company has learned that 20% of a month's sales ae collected in the month of sale, another 70% are collected in the month following sale, and the remaining 10% are collected in the second month following sale. Bad debts are negligible and can be ignored. February sales totaled $230,000, and March sales totaled $260,000, Required: 1. Using Schedule 1 as your guide, prepare a schedule of expected cash collections fom sales, bby month and in total, for the second quarter, 2 What isthe accounts teceivable balance on June 30th? "Down Uae otic Ede Areal ar bulged ss ois op boonrang rh nex our months as follows Unt Sates Apri 50,000 May: 75.000 June. 90.000 Jay 30.000 ‘The company i now in the process of preparing a production budget for the second quarter. Past experience has shown that end-of-month inventory levels must equal 10% ofthe following month's unit sles. The inventory atthe end of March was 5,000 units Required Using Schedule 22s your gue, prepare a production budget by month and in total, forthe second quarter, ‘Three grams of musk ol ate required foreach botle of Mink Caress, avery popular perfume made by a small company in western Siberia, The cost ofthe musk oil i $1.50 per gram. Budgeted peo- ‘duction of Mink Caress is given below by quasters for Year 2 and for te first quarter of Year 3: Year2 Year? Fist Second Third Founh First Budgeted production in bottles 160,000 0,000 150,000 100,000 70,000 ‘Musk oil has become so popular asa perfume ingredient that thas become necessary to cary large inventories asa precaution against stock-ous. For this reason, the inventory of musk oi tthe end of a quarter must be equal o 20% of the following quarter's production needs. Some 36,000 ‘grams of musk ol will be on bund to start the ist quayter of Year 2 Master Budgeting 393 Required: ‘Using Schedule 3 as your guide, prepare a dteet materials budget for musk el, by quater and in total, for Year 2 Fp pcg 12 manager of Rerdan Corporation has submited the following quarterly production recast forthe upcoming fiseal year Sstauater 2nd Quarter 3rd Quarter ath Quarter Units tobe produced 8,000 5.500 7,000 7,500 ach unit reqites 0.35 dtectIabor-hours, and dzest laborers are pad $12.00 per hour. Requires: 1. Using Schedule 4 se your guide, prepare the company’s direct Ihor budget for the upcoming fiscal year. Assume thatthe direct labor workforce is adjusted each quarter to match the num ‘oer of hous required to produce the forecasted numberof units produced, 2. Prepare the company’s direct Iabor budget for the upcoming fiscal year, assuming thatthe dlrect labor workforce isnot adjusted each quarter. Instead, assume tha the company's direct labor workforce consists of permanent employees who are guaranteed to be pai for atleast 2,600 hours of work each quarter. I the numberof required direct labor-hours is less than this ‘namber, the workers afe paid fr 2,600 hours snywey, Any hours worked in excess of 2,600 ‘hours ina quarter are paid a the rate of 1.5 times the normal hourly rte for diect labor. ‘The direct labor budget of Yavwell Corporatio forthe upcoming fiseal year contains the follow ing details concerning budgeted dxectlabor-howrs SetQuater 2ne-Quarter 3rd Quarter 4th Quarter Budgeted direct abor-nours 000 8200-500 7.800, ‘The company uses direct Iaborchours as its overhead allocation base. The variable portion of ite predetermined manufacturing overhead rate i $3.25 per direct labor-hour and its total fixed mana {acturing overhead is $48,000 per quater. The only noncash item included in fxed manufacturing overhead is depreciation, whichis $16,000 per quarter. Required: 1. Using Schedule 5 as your guide, prepare the company's manufacturing overhead budget for the upeoming fiscal year 2. Compute the company's predetermined ovethead rate (including both variable and fixed man- ‘facturing overhead) forthe upcoming fiscal year. Round off to the nearest whole cent Weller Company's budgeted unit year are provided below: TstQuader 2nd Quarter ard Quarter 4th Quarter Budgeted unt sales 15000 16000-14000 13.000 ‘The company’s variable selling and administrative expense per unt is $2.50, Fixed selling and administrative expenses include advertising expenses of $8,000 per quarter, executive salaries of '$35,000 per quarter, and depreciation of $20,000 per quarter. In addition, the company will make insurance payments of $5,000 inthe first quarter and $5,000 inthe third quarter. Finally. property taxes of $8,000 willbe paid in the second quarter. Requires: Using Schedule 7 as your guide, prepare the company's selling and administrative expense budget for the upcoming fseal year 394 Chapter 8 [EXERCISE 8-7 Cash Budget O28 Garden Depot is a retailer that is prepating its budget forthe upcoming fiscal yea, Management bas prepared the following sunnnaey a its budgeted cash flows: 'stQuarter 2nd Quarer ard Quarter 4th Quarter Total cash receints $180,000 $330,000 $210,000 $230,000, Total cash disbursements $260,000 $230,000 $220,000 $240,000 ‘The company's beginning cash balance fo the upcoming fiscal year wil be $20,000. Tae company requires a minimum cash balance of $10,000 and may borrow any amount seeded from a local bank ata quarterly interest rate of 3%. The company may borrow any amount at the beginning of any quarter and may epay its loans, or any part ofits loans, athe end of any quarter. Interest pay- reais are due on any principal atthe time i is repaid. For simplicity, assume that interest is not compounded Required: Using Schedule 8 as your guide, prepare the company's cash budget fo the upcoming fiscal year Gig Harbor Boating isthe wholesale distributor ofa small recreational catamaran sailboat. Man- agement hae prepared the following summary data to ue i ils annual budgeting process: Budgeted unt sates 480 Seling pice per unt, 1.950 Cost per unt $1575 Variable seling anc adminstratwe expense (per unt) $75 Fed seling arc administrative expense (per yea? $105,000 Interest expense forthe year ‘$14,000 Required Using Schedule 9 as your guide, prepare the company’s budgeted income statement for the year EXERCISE #-9 Budgeted Balance Sheet LOE—10 ‘The management of Mecca Copy. a photocopying center located on University Avenue, has com- piled the following dats to use in preparing ils budgeted balance sheet for next year Ending Balances cos, 2 ‘Accounts receivable $8,100 Supplies wentory $3,200 Equipment $34,000 ‘Accumulatee depreciation $16,000 ‘Accounts payable $1,800 CComman stock $5,000 Retained eaenings ? ‘The beginning balance of retained earnings was $28,000, net income is budgeted to be $11,500. and dividends are budgeted tobe $4,800. Required Prepare the company’s budgeted balance sheet. [RESET T nes oys pon Sonn [Bast Asia Three cubic centimeters (cc) of solvent H30O are required to manufacture each unit of ‘Supermix, one ofthe company's products. The company now is planning raw materials needs for the third quarter, the quarter in which peak sales of Supermx occur. To keep production and sales moving smoothly, the company has the following inventory requirements: Master Budgeting ‘The finished goods inventary on hand at the end of each month must equal 3,000 units of Supermix plus 20% of the next month's sales, The finished goods inventory on Tune 30 is Duadgeted tobe 10,000 units 1, The raw materials inventory on hand atthe end of each month must equal one-half a the fol lowing months production needs for raw materials, The raw materials inventory on Tune 30 is Dualgeted tobe 54,000 ce of solvent F130, The company maintains no work in process inventories, A monthly sales budget for Supermix forthe third and fourth quarters ofthe year flows. Budgeted Une Sales uy 35,000 ‘August 40,000 September 50,000 October 30,000 November 20,000 December 10,000 Required Prepare a production budget for Supermix for the months July, August, September, and October [Examine the production budget that you prepared in (1) above. Why wil the company’ pre- duce more units than it sells in Joly and August, and fewer units than i sells in September and ‘October? Prepare a direct materials budget showing the quantity of slvent H300 to be purchased for July, August, and September, and for the quarter in total, [EXERCISE 8-11 Cash Budget Ansys 108-8 ‘Sash bags, by quater, nen Below for retail company (000 omits). The company resres minim cash since of least 85,000 fo tart each quarter overer 2 2 4 (Yew Cash balance, begining se $2 ‘Ade colectons fom customers fr fe Tota ash avatabe a Less asbursements: Purchase oferty 348 Sling and acminitave expenses 7 Equipment purchases 2 8 Digenes 2 2 Tela debursemente 2 8 Excess lelency of esh avalible ‘over disbursements 2 a Francing Borrowings. > ~ = - Repayments frckting teres)” = =D Total fancing = eee) Cash paar, ending Rene ‘evel $1,000 arte yese, Required: Flin the missing amount in the ahove table, 395 396 Chapter 8 [EXERCISE 8-12 Schedles of Expected Cash Collections and Disbursements Income Statement; Balance Sheet LOB-2, LOB-4, LOB-8, LOB-10 Beech Corporation is a merchandising company that is preparing a master budget for the third ‘quarter ofthe calendar year. The company’s balance sheet as of June 30th i shown below. Beech Corporation Balance Sheet “dine 30 Assets Cash, $ 30,000 Accounts receivable 136,000 Inventory 62.000 Plant ane equipment net of deprecation 210,000 Total assets $488,000 Lsbilties and Stockholders’ Equity ‘Accounts payable $71,100 ‘Common stock 327,000 Retained earnings 199.900 ‘ota lables and stacknoleers equity $438,000 BBeech’s managers have made the following additional assumptions and estimates 1, Estimated sales for July, August, September, and October will be $210,000, $230,000, '$220,000, and $240,000, respectively 2. Allsales ate on credit anéalleredit sales are collected, Bach month's ereit sales are collected 35% in the month of sale and 65% inthe month following the sale. All ofthe accounts rece able at Tune 30 will be collected in July. Each months ending inventory must equal 30% of the cost of next month's sales, The cost of goods sold is 60% of sales. The company pays for 40% of its merchandise purchases in the ‘month ofthe purchase and the remaining 60% in the month following the purchase. All ofthe accounts payable at Tune 30 willbe paid in July 4. Monthly selling and administrative expenses aze always $60,000, Each month $5,000 of this {otal amount is depreciation expense and the remaining $55,000 relates to expenses that are paid in the month they ae incurred, 5. The company does not plan to borrow money ot pay ot declare dividends during the quarter ended September 30, The company does not plan to issue any comnon stock or repurchase its ‘own stock during the quarter ended September 30, Required 1. Prepare a schedule of expected cash collections for July, August, and September. Also com- pte total eash collections forthe quarter ended September 30. 2 a Prepare a merchandise purchases budget for July, August, and September, Also compute total merchandise purchases for the quarter ended September 30, b. Prepace a schedule of expected cash disbursements for merchandise purchases fo July, ‘August, and September. Also compute total cash disbursements for merchandise put- ‘eases for the quarter ended September 30 3, Using Schedule 9 as your guide, prepare an income statement forthe quarter ended September 30. 4. Prepare a balance sheet as of September 30 [EXERCISE 8-13 Schedules of Expected Cath Collections and Disbursements Income Statement; Balance Sheet 02-2, LO8-4, 108-9, LOB-10 Refer othe data for Beech Corporation in Exercise 8-12. The company is considering making the fling changes othe tsumpons undeying maser bd: Bach months ret sales ae collected 45% in the month of sale and 55% in the month follow ing the sale. 2. Each months ending inventory must equal 20% ofthe cost of next months sales. 3. The company pays for 30% of ts merchandise purchases in the month of the purchase and the remaining 70% in the month following the purchase All other information fom Exercise §-12 that i not mentioned above remains the same. Master Budgeting Required: ‘Using the new assumptions deseribed above, complete the following requirements 1. Prepare a schedule of expected cash collections for Fly, August, and September, Also com- pate total eash collections forthe quarter ended September 30. 2. a Prepare a merchandise purchases budget for July. August and September, Also compute {otal merchandise purchases forthe quarter ended September 30. b. Prepare a schedule of expected cash disbursements for merchandise purchases for July, August, and September. Also compute total cash disbursements for merchandise pur- chases for the quarter ended September 30, 3. Using Schedule 9s your guide, prepare an income statement forthe quarter ended Seprember 30, 4. Prepate a balance sheet as of September 30 ERE adPrccin an0-2108S Th keg dnprnr fr Cnpraton as ote he flowing se cat or he ‘upcoming fisal year (al sales are on aecoun) Sst Quarter 2nd Quarter 3: Quatter sth Quarter Budgeted unt sales 11000 12000 14000-——*13,000 ‘The selling price ofthe company’s product is $18.00 per unit. Management expects to collect 65% of sales in the quarter in which the sales are made, 30% inthe following quarter, and 5% of sales are expected to be uncolletible. The beginning balance of accounts receivable, all of which is expected to be collected in the first quarter, is $70,200, ‘The company expects to stat the frst quarter With 1,650 units in finished goods inventory. Management desites an ending finished goods inventory im each quarter equal to 15% ofthe next quarter's budgeted sales. The desired ending finished goods inventory for the fourth quarter is 1850 units Required: 1. Calculate the estimated sales foreach quarter of the fiscal year and forthe year asa whole ‘Hint: Refer to Sehedule 1 for guidance ) 2. Calculate the expected cash collections for each quarter of the fiscal year and forthe year asa ‘whole (Hint Refer to Sehedule I for guidance ) 3. Caleulate the required production in units of finished goods fr each quarter of the fiseal year and forthe year asa whole. (Hint: Refer to Sehedule 2 for guidance) 5, LOB 6 jon has submited the following forecast of nits to bbe produced by quarter fr the upcoming fiscal year: TstQuater 2nd Quarter are Quarter ath Quarter Unis tobe produced 12000 10900 -—-13000-—14.000 Bach unit requites 0.2 direct Iborhours and direct laborers are paid $12.00 per hour In addition, the variable manufacturing overhead rate is $1.75 per direct labor-hour. The fixed manufacturing overhead is $86,000 per quarter. The only noncash clement of manufacturing over Ine is depreciation, whieh is $23,000 per quarter Required: 1.” Caleulate the company total estimated diect labor cost foreach quarter of the the upeom ing fiseal year and fo the yeat as a whole, Assume thatthe diteet labor workforce is adjusted ‘each quater to mateh the number of hours required to produce the estimated numberof units produced (Hint: Refer to Schedule 4 for guidance) 2, Calealate the company’s total estimated manufacturing overhead cost for each quater of the ‘upcoming fiscal year and for the yeat as a whole Pint: Refer to Schedule 5 for guidance) 3. Calealate the company's eash disbursements for manufactaing overhead for each quarter of the the upcoming fiscal year and for the year a whole (Hint: Refer to Schedule 5 for ‘guidance. 397 Chapter 8 4, 108-5 department of Zan Corporation has submited the following forecast of unit to be produced by quarter for the upcoming fseal year SetQuaner 2nd Quarter 3ré Quarter 4th Quarter Unis tobe produced 5000 8000 7,000 6000 In addition, 6,000 grams of raw materials inventory ison hand at the start ofthe Ist Quarter and the beginning accounts payable forthe 1st Quarter is $2,880, [Bach unit requires 8 grams of aw material that cots $1.20 per gram, Management desires to nd each quavter Witham inventory of raw materials equal to 25% ofthe following quatter'spro-

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