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SOLUTIONS TO BRIEF EXERCISES

BRIEF EXERCISE 9-1

SalesBudget

ProductionBudget

Direct

MaterialsBudget

Direct

LaborBudget

Manufacturing

OverheadBudget

Operating

Budgets

Selling andAdministrative

ExpenseBudget

Budgeted

IncomeStatement

CapitalExpenditure

Budget

Cash Budget BudgetedBalance

Sheet

FinancialBudgets

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BRIEF EXERCISE 9-2

MUSSATTO COMPANYSales Budget

For the Year Ending December 31, 2011

Quarter

1 2 3 4 Year

Expected unitsales

Unit sellingpriceTotal sales

10,000

X $80$800,000

12,000

X $80$960,000

14,000

X $80$1,120,000

18,000

X $80$1,440,000

54,000

X $80$4,320,000

BRIEF EXERCISE 9-3

MUSSATTO COMPANYProduction Budget

For the Six Months Ending June 30, 2011

Quarter

1 2Six

Months

Expected unit salesAdd: Desired ending finished goodsTotal required unitsLess: Beginning finished goods inventoryRequired production units

10,0002,40012,4002,000

10,400

a

b

12,0002,80014,8002,400

12,400

c

22,800

a12,000 X .20 b10,000 X .20 c14,000 X .20

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BRIEF EXERCISE 9-4

HANNON COMPANYDirect Materials Budget

For the Month Ending January 31, 2012

Units to be produced.................................................................. 4,000Direct materials per unit............................................................ X 2Total pounds required for production.................................. 8,000Add: Desired ending inventory (20% X 5,500 X 2) ......... 2,200Total materials required............................................................ 10,200

Less: Beginning materials inventory................................... 1,600Direct materials purchases ...................................................... 8,600Cost per pound............................................................................. X $6Total cost of direct materials purchases............................. $51,600

BRIEF EXERCISE 9-5

COBB COMPANYDirect Labor Budget


Quarter

1 2

Six

MonthsUnits to be producedDirect labor time (hours) per unitTotal required direct labor hoursDirect labor cost per hourTotal direct labor cost

5,000X 1.5

7,500X $14$105,000

6,000X 1.5

9,000X $14$126,000 $231,000

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BRIEF EXERCISE 9-6

ECKERT INC.Manufacturing Overhead Budget


Quarter

1 2 3 4 Year

Variable costsFixed costsTotal manufacturing overhead

$20,00035,000

$55,000

$24,00035,000

$59,000

$28,00035,000

$63,000

$32,00035,000

$67,000

$104,000140,000

$244,000

BRIEF EXERCISE 9-7

KASPAR COMPANYSelling and Administrative Expense Budget

For the Year Ending December 31, 2011Quarter

1 2 3 4 Year

Variable expensesFixed expensesTotal selling and administrative

expenses

$25,00040,000

$65,000

$30,00040,000

$70,000

$35,00040,000

$75,000

$40,00040,000

$80,000

$130,000160,000

$290,000

BRIEF EXERCISE 9-8

PAIGE COMPANYBudgeted Income Statement


Sales................................................................................................. $2,000,000Cost of goods sold (50,000 X $22).......................................... 1,100,000Gross profit.................................................................................... 900,000Selling and administrative expenses .................................... 300,000Income before income taxes .................................................... 600,000

Income tax expense .................................................................... 150,000Net income ..................................................................................... $ 450,000

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BRIEF EXERCISE 9-9

Collections from Customers

Credit Sales January February March

January, $200,000February, $260,000March, $310,000

$140,000

$140,000

$ 60,000182,000

$242,000

$ 78,000217,000

$295,000

BRIEF EXERCISE 9-10

Budgeted cost of goods sold ($400,000 X 60%)............................. $240,000Add: Desired ending inventory ($475,000 X 60% X 20%) ......... 57,000Total inventory required......................................................................... 297,000Less: Beginning inventory ($400,000 X 60% X 20%)................... 48,000Required merchandise purchases for April .................................... $249,000

SOLUTIONS FOR DO IT! REVIEW EXERCISES

DO IT! 9-1

1. Operating budgets2. Master budget3. Participative budgeting4. Financial budgets5. Sales forecast6. Long-range plans

DO IT! 9-2

WELLSTONE COMPANYProduction Budget


Quarter Six1 2 Months

Expected unit sales 18,000 24,000

Add: Desired ending finished goods inventory 2,400 3,000Total required units 20,400 27,000Less: Beginning finished goods inventory 1,800 2,400Required production units 18,600 24,600 43,200

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DO IT! 9-3

OAK CREEK COMPANYSales Budget


Quarter

1 2 3 4 Year

Expected unit sales

Unit selling priceTotal sales

200,000

X $40$8,000,000

250,000

X $40$10,000,000

250,000

X $40$10,000,000

300,000

X $45$13,500,000

1,000,000

$41,500,000

OAK CREEK COMPANYProduction Budget


Quarter

1 2 3 4 Year

Expected unit salesAdd: Desired ending finished

goods units

Total required unitsLess: Beginning finished

goods unitsRequired production units

200,000

50,000

250,000

40,000**210,000

250,000

50,000

300,000

50,000250,000

250,000

60,000

310,000

50,000260,000

300,000

44,000*

344,000

60,000284,000 1,004,000

*Estimated first-quarter 2012 sales volume 200,000 + (200,000 X 10%) = 220,000: 220,000 X 20%.

**20% of estimated first-quarter 2010 sales units (200,000 X 20%).

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DO IT! 9-3 (Continued)

OAK CREEK COMPANYDirect Materials Budget


Quarter

1 2 3 4 Year

Units to be produced

Direct materials per unitTotal pounds needed for

productionAdd: Desired ending

direct materials(pounds)

Total materials requiredLess: Beginning direct

materials (pounds)Direct materials

purchasesCost per pound

Total cost of direct materials purchases

210,000

X 2

420,000

50,000

470,000

**42,000

428,000X $10

$4,280,000

250,000

X 2

500,000

52,000552,000

50,000

502,000X $10

$5,020,000

260,000

X 2

520,000

56,800576,800

52,000

524,800X $10

$5,248,000

284,000

X 2

568,000

*50,000618,000

56,800

561,200X $10

$5,612,000 $20,160,000

*Estimated first-quarter 2012 production requirements 500,000 X 10% = 50,000

**10% of estimated first-quarter pounds needed for production.

DO IT! 9-4

(a) Total unit cost:Cost Element Quantity Unit Cost Total

Direct materials.....................................Direct labor.............................................Manufacturing overhead....................

Total unit cost.............................

2 pounds0.3 hours0.3 hours

$10.00$14.00$20.00

$20.004.206.00

$30.20

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DO IT! 9-4 (Continued)

(b) OAK CREEK COMPANY

Budgeted Income Statement


Sales (1,000,000) units from sales budget, page 9-11 ......... $41,500,000Cost of goods sold (1,000,000 X $30.20/unit)...................... 30,200,000Gross profit .................................................................................... 11,300,000Selling and administrative expenses..................................... 7,000,000

Net income...................................................................................... $ 4,300,000

DO IT! 9-5

VENETIAN COMPANYCash Budget

April

Beginning cash balance ........................................................................ $ 22,000Add: Cash receipts for April................................................................ 245,000Total available cash................................................................................. 267,000Less: Cash disbursements in April .................................................. 256,000Excess of available cash over cash disbursements .................... 11,000

Financing ($20,000 $11,000).............................................................. 9,000Ending cash balance............................................................................... $ 20,000

To maintain the desired minimum cash balance of $20,000, Venetian Com-pany must borrow $9,000.

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SOLUTIONS TO EXERCISES

EXERCISE 9-1

MEMOTo Jim Thome

From: Student

Re: Budgeting

I am glad Raney Company is considering preparing a formal budget. There aremany benefits derived from budgeting, as I will discuss later in this memo.

A budget is a formal written statement of managements plans for a specifiedfuture time period, expressed in financial terms. The master budget gener-ally consists of operating budgets such as the sales budget, productionbudget, direct materials budget, direct labor budget, manufacturing overheadbudget, selling and administrative expense budget, and budgeted incomestatement; and financial budgets such as the capital expenditure budget,cash budget, and budgeted balance sheet.

The primary benefits of budgeting are:

1. It requires all levels of management to plan ahead and formalize theirgoals.2. It provides definite objectives for evaluating performance.3. It creates an early warning system for potential problems.4. It facilitates the coordination of activities within the business.5. It results in greater management awareness of the entitys overall

operations.

6. It motivates personnel throughout the organization to meet plannedobjectives.

In order maximize these benefits, it is essential that budgeting takes placewithin a sound organizational structure, so authority and responsibility for allphases of operations are clearly defined. Also, the budget should be based onresearch and analysis that results in realistic goals. Finally, the effectiveness

of a budget program is directly related to its acceptance by all levels ofmanagement.

If you want further explanation of any of these assumptions, please contact me.

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EXERCISE 9-2

TRUSLE

RELECTRONICSINC.

SalesBudget

FortheSixMonthsEndingJune

30,2011

Qua

rter1

Quarter2

SixMonths

Prod

uct

Units

Selling

Pri

ce

Total

Sales

Units

Selling

Price

Total

Sales

Units

Se

lling

P

rice

Total

Sales

XQ-1

03

XQ-1

04

Totals

20,000

12,000

32,000

$1

2

2

5

$240,000

300,000

$540,000

25

,000

15

,000

40

,000

$12

25

$30

0,000

37

5,000

$67

5,000

45,000

27,000

72,000

$12

25

$

540,000

675,000

$1,215,000

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CREDE

ANDRENSING,CPAs

Sal

esRevenueBudget

FortheYea

rEndingDecember31,

2011

Quarter1

Qua

rter2

Quarter3

Quarter4

Billable

Billable

Total

Billable

Billable

Total

Billable

Billable

Total

Billable

Billable

Total

Dept.

Hours

Rate

Rev.

Hours

Ra

te

Rev.

Hours

Rate

Rev.

Hours

Rate

Rev

.

Auditing

2,200

$

80

$176,000

1,600

$

80

128,000

2,000

$

80

$160,000

2,400

$

80

$192,

000

Tax

3,000

90

270,000

2,400

90

216,000

2,000

90

180,000

2,500

90

225,

000

Consulting

1,500

100

150,000

1,500

100

150,000

1,500

100

150,000

1,500

100

150,

000

Totals

$596,000

$494,000

$490,000

$567,

000

Year

Billable

Billable

Total

Dept.

Hours

Rate

Rev.

Auditing

8,200a

$

80

$

656,000

Tax

9,900b

90

891,000

Consulting

6,000c

100

600,000

Totals

$2,147,000

a2,200+1

,600+2,000+2,400

b3,000+2,400+2,000+2,500

c1,500X4

EXERCISE 9-3

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EXERCISE 9-4

PLETCHER COMPANYProduction Budget


Product HD-240

Quarter

1 2 3 4 Year

Expected unit sales

Add: Desired ending

finished goods units(1)

Total required units

Less: Beginning finished

goods units

Required production units

5,000

3,500

8,500

2,500

6,000

7,000

4,000

11,000

3,500

7,500

8,000

5,000

13,000

4,000

9,000

10,000

3,250

13,250

5,000

8,250

(2)

30,750

(1)50% of next quarters sales.(2)50% X (5,000 X 130%).

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EXERCISE 9-5

DEWITT INDUSTRIESDirect Materials Purchases Budget

For the Quarter Ending March 31, 2012

January February March

Units to be producedDirect materials per unitTotal pounds needed for productionAdd: Desired ending direct materials

(pounds)*Total materials requiredLess: Beginning direct materials

(pounds)Direct materials purchasesCost per pound

Total cost of direct materialspurchases

10,000X 330,000

7,20037,200

9,00028,200

X $2

$56,400

8,000X 324,000

4,50028,500

7,20021,300

X $2

$42,600

5,000X 3

15,000

3,60018,600

4,50014,100

X $2

$28,200

*30% of next months production needs.

EXERCISE 9-6

(a) LOVELL COMPANYProduction Budget


Quarter

1 2Six

Months

Expected unit salesAdd: Desired ending finished goods

unitsTotal required unitsLess: Beginning finished goods unitsRequired production units

5,000

1,8006,8001,5005,300

(1)

(3)

6,000

2,1008,1001,8006,300

(2)

11,600

(1)30% X 6,000.(2)30% X 7,000.(3)30% X 5,000.

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EXERCISE 9-6 (Continued)

(b) LOVELL COMPANYDirect Materials Budget


Quarter

1 2Six

Months

Units to be producedDirect materials per unitTotal pounds needed for production

Add: Desired ending directmaterials (pounds)Total materials requiredLess: Beginning direct materials

(pounds)Direct materials purchasesCost per pound

Total cost of direct materialsPurchases

5,300X 315,900

9,45025,350

7,95017,400

X $4

$69,600

(1)

(3)

6,300X 318,900

10,87529,775

9,45020,325

X $4

$81,300

(2)

0000,000

$150,900

(1)50% X 18,900.(2)7,250 X (3 X 50%).(3)50% X 15,900.

EXERCISE 9-7

Finished goods:Ending inventory.............................................................. 2,190Plus: Sales ......................................................................... 2,475

Total required......................................................................... 4,665Less: beginning inventory........................................... 2,230

Production required ............................................................. 2,435

Direct materials per unit ..................................................... X 2Units of direct material required for production......... 4,870Plus: ending inventory........................................................ 3,012(a)

Total required......................................................................... 7,882Less: beginning inventory........................................... 2,922

Purchases of direct material required............................ 4,960Cost per unit ........................................................................... $4.00Total cost of materials......................................................... $19,840

The May raw material purchases would be $19,840.(a)2,390 + 2,310 2,190 = 2,510; 2,510 X 2 X .60 = 3,012

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EXERCISE 9-8

GONZALES, INC.Direct Labor Budget


Quarter

1 2 3 4 Year

Units to be producedDirect labor time

(hours) per unit

Total required directlabor hours

Direct labor cost perhour

Total direct labor cost

20,000

X 1.6

32,000

X $15$480,000

25,000

X 1.6

40,000

X $15$600,000

35,000

X 1.6

56,000

X $16$896,000

30,000

X 1.6

48,000

X $16$768,000

110,000

.2

$2,744,000

EXERCISE 9-9

CHOO-FOO COMPANYProduction Budget


Jan Feb Mar Total

Sales in units 10,000 12,000 8,000 30,000Plus: desired ending inventory 16,000 12,500 13,500 13,500Total needs 26,000 24,500 21,500 43,500Less: beginning inventory 16,000 16,000 12,500 16,000Production needed 10,000 8,500 9,000 27,500

CHOO-FOO COMPANYDirect Labor Budget


Jan Feb Mar TotalSales in units 10,000 12,000 8,000

Direct labor hours per unit X 2.00 X 2.00 X 1.50Total hours needed 20,000 24,000 12,000Rate per hour X $8.00 X $8.00 X $8.00Total direct labor $160,000 $192,000 $96,000 $448,000

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EXERCISE 9-10

FRIZELL COMPANYManufacturing Overhead Budget


Quarter

1 2 3 4 Year

Variable costsIndirect materials ($.70/hour)Indirect labor ($1.20/hour)

Maintenance ($.50/hour)Total variableFixed costs

Supervisory salariesDepreciationMaintenance

Total fixedTotal manufacturing overhead

Direct labor hoursManufacturing overhead rate

per direct labor hour($439,200 78,000)

$10,50018,000

7,50036,000

35,00016,00012,00063,000

$99,000

15,000

$ 12,60021,600

9,00043,200

35,00016,00012,00063,000

$106,200

18,000

$ 14,70025,200

10,50050,400

35,00016,00012,00063,000

$113,400

21,000

$ 16,80028,800

12,00057,600

35,00016,00012,00063,000

$120,600

24,000

$ 54,60093,600

39,000187,200

140,00064,00048,000

252,000$439,200

78,000

$5.63

EXERCISE 9-11

MEDINA COMPANYSelling and Administrative Expense Budget


Quarter1 2 SixMonths

Budgeted sales in units

Variable expenses (1)Sales commissionsDelivery expenseAdvertising

Total variable

20,000

$20,0008,000

12,00040,000

22,000

$22,0008,800

13,20044,000

$42,00016,80025,20084,000

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MEDINA COMPANYSelling and Administrative Expense Budget (Continued)


Quarter

1 2Six

Months

Fixed expensesSales salariesOffice salariesDepreciationInsuranceUtilitiesRepairs expense

Total fixedTotal selling and administrative expenses

10,0006,0004,2001,500

800600

23,100$63,100

10,0006,0004,2001,500

800600

23,100$67,100

20,00012,0008,4003,0001,6001,200

46,200$130,200

(1) Variable costs per dollar of sales are: Sales commissions $.05, Deliveryexpense $.02, and Advertising $.03.

EXERCISE 9-12

(a) ORTIZ COMPANYProduction Budget

For the Two Months Ending February 28, 2011____________________________________________________________

January February

Expected unit sales..................................................... 10,000 12,000

Add: desired ending finished goodsinventory ........................................................... 3,000* 3,250*Total required units..................................................... 13,000 15,250Less: beginning finished goods inventory........ 2,500** 3,000Required production units ....................................... 10,500 12,250

*25% X next months expected sales**25% X 10,000

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(b) ORTIZ COMPANYDirect Materials Budget

For the Month Ending January 31, 2011____________________________________________________________

JanuaryUnits to be produced....................................................................... 10,500Direct material pounds per unit ................................................... X 2Total pounds needed for production ......................................... 21,000Add: desired pounds in ending materials inventory ........... 9,800*

Total materials required ................................................................. 30,800Less: beginning direct materials (pounds).............................. 8,400**Direct materials purchases ........................................................... 22,400Cost per pound.................................................................................. X $3Total cost of direct materials purchases.................................. $67,200

*(12,250 X 2) X 40% **(10,500 X 2) X 40%

EXERCISE 9-13

(a)YONO COMPANY

Computation of Cost of Goods SoldFor the Year Ending December 31, 2011

Cost of one unit of finished goods:Direct materials (2 X $5) .......................................................................... $10Direct labor (3 X $12) ................................................................................ 36Manufacturing overhead (3 X $6) ......................................................... 18

Total ..................................................................................................... $64

30,000 units X $64 = $1,920,000.

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(b)YONO COMPANY

Budgeted Income StatementFor the Year Ending December 31, 2011

Sales (30,000 X $80)....................................................................... $2,400,000Cost of goods sold (see part (a))............................................... 1,920,000Gross profit ...................................................................................... 480,000Selling and administrative expenses....................................... 200,000

Income before income taxes ...................................................... 280,000Income tax expense ($280,000 X 30%) .................................... 84,000Net income........................................................................................ $ 196,000

EXERCISE 9-14

MALONE COMPANYCash Budget

For the Two Months Ending February 28, 2011

January February

Beginning cash balance ................................................

Add: ReceiptsCollections from customers...........................Sale of marketable securities ........................Total receipts ......................................................

Total available cash.........................................................Less: Disbursements

Direct materials ..................................................

Direct labor ..........................................................Manufacturing overhead .................................Selling and administrative expenses..........Total disbursements.........................................

Excess (deficiency) of available cash over cashdisbursements..............................................................

Financing

Borrowings...............................................................Repayments.............................................................

Ending cash balance.......................................................

$ 46,000

85,00010,00095,000

141,000

50,000

30,00020,00015,000

115,000

26,000

00

$ 26,000

$ 26,000

150,0000

150,000176,000

70,000

45,00024,00020,000

159,000

17,000

3,0000

$ 20,000

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EXERCISE 9-15

FULTZ CORPORATIONCash Budget

For the Quarter Ended March 31, 2011

Beginning cash balance .......................................................................Add: Receipts

Collections from customers .................................................Sale of equipment ....................................................................

Total receipts .....................................................................

Total available cash ...............................................................................Less: Disbursements

Direct materials.........................................................................Direct labor.................................................................................Manufacturing overhead........................................................Selling and administrative expense...................................Purchase of securities............................................................

Total disbursements ........................................................Excess of available cash over disbursements .............................Financing

Borrowings.................................................................................Repayments ...............................................................................

Ending cash balance .............................................................................

$ 31,000

180,0003,500

183,500

214,500

41,00070,00035,00045,00012,000

203,00011,500

13,5000

$ 25,000

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EXERCISE 9-16

(a) HARRINGTON COMPANYCash Budget

For the Month Ended July 31, 2011

Beginning cash balance.................................. $45,000Cash collections ................................................ 89,000Total cash available .......................................... $134,000

Cash disbursementsMerchandise purchases ......................... $56,200Operating expenses................................. 36,800Equipment purchase ............................... 20,500

Total cash disbursements .............................. 113,500Borrowings excess (deficiency) ................... 20,500Ending cash balance ........................................ 4,500

$ 25,000

Cash disbursements of $113,500 plus the desired ending cash balanceof $25,000 exceeds the $134,000 total cash available by $4,500. Therefore,Harrington Company will have to borrow $4,500.

(b) An advantage of cash budgeting is that it allows cash shortfalls to be

predicted. If the timing of future cash shortfalls is known, arrange-ments to borrow funds can be made well in advance, which oftenmeans that interest rates may be more favorable than if the funds areneeded on short notice.

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EXERCISE 9-17

(a) CDK COMPANYExpected Collections from Customers

MarchMarch cash sales (40% X $270,000)............................................. $108,000Collection of March credit sales

[(60% X $270,000) X 10%]............................................................ 16,200Collection of February credit sales

[(60% X $220,000) X 50%]............................................................ 66,000

Collection of January credit sales[(60% X $200,000) X 36%]............................................................ 43,200

Total collections................................................................... $233,400

(b) CDK COMPANYExpected Payments for Direct Materials

MarchMarch cash purchases (50% X $41,000)..................................... $20,500Payment of March credit purchases

[(50% X $41,000) X 40%].............................................................. 8,200Payment of February credit purchases

[(50% X $35,000) X 60%].............................................................. 10,500

Total payments..................................................................... $39,200

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EXERCISE 9-18

(a) (1)GREEN LANDSCAPING INC.

Schedule of Expected Collections From ClientsFor the Quarter Ending March 31, 2011

January February March Quarter

November ($90,000).......

December ($80,000) .......

January ($100,000) .........

February ($120,000) .......March ($130,000).............

Total collections ......

$ 9,000

24,000

60,000

______

$93,000

$ 8,000

30,000

72,000_______

$110,000

$ 10,000

36,00078,000

$124,000

$ 9,000

32,000

100,000

108,00078,000

$327,000

(2)GREEN LANDSCAPING INC.

Schedule of Expected Payments for Landscaping SuppliesFor the Quarter Ending March 31, 2011

______________________________________________________

January February March Quarter

December ($14,000) .......

January ($12,000) ...........

February ($15,000) .........

March ($18,000) ...............

Total payments ........

$ 8,400

4,800

$13,200

$ 7,200

6,000

$13,200

$ 9,000

7,200

$16,200

$ 8,400

12,000

15,000

7,200

$42,600

(b) (1) Accounts receivable at March 31, 2011: ($120,000 X 10%) +

($130,000 X 40%) = $64,000

(2) Accounts payable at March 31, 2011: ($18,000 X 60%) = $10,800

EXERCISE 9 19

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EXERCISE 9-19

DEITZ DENTAL CLINICCash Budget

For the Two Quarters Ending June 30, 2011

1st Quarter 2nd Quarter

Beginning cash balance ...............................................Add: Receipts

Collections from clients..............................Sale of equipment .........................................

Investment interest.......................................Total receipts ...........................................

Total cash available .......................................................Less: Disbursements

Professional salaries ...................................Overhead costs..............................................Selling and administrative costs .............Equipment purchase....................................Payment of income taxes...........................

Total disbursements .............................Excess (deficiency) of cash available

over cash disbursements........................................Financing

Borrowings...................................................................Repayments .................................................................Ending cash balance .....................................................

$ 30,000

230,00015,000

0245,000275,000

140,00075,00047,000*

00

262,000

13,000

12,0000$ 25,000

$ 25,000

380,0000

5,000385,000410,000

140,000100,000

67,000**50,0004,000

361,000

49,000

012,300$ 36,700

*$50,000 $3,000**$70,000 $3,000

EXERCISE 9 20

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EXERCISE 9-20

(a) DALBY STORESMerchandise Purchases Budget

For the Month Ending June 30, 2011

Budgeted cost of goods sold ($500,000 X 70%)...................... $350,000Add: Desired ending merchandise inventory

($600,000 X 70% X 40%).............................................................. 168,000Total ....................................................................................................... 518,000Less: Beginning merchandise inventory

($350,000 X 40%)................................................................... 140,000Required merchandise purchases............................................... $378,000

(b) DALBY STORESBudgeted Income Statement

For the Month Ending June 30, 2011

Sales ...................................................................................................... $500,000Cost of goods sold (70% X $500,000) ......................................... 350,000Gross profit.......................................................................................... $150,000

SOLUTIONS TO PROBLEMS

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SOLUTIONS TO PROBLEMS

PROBLEM 9-1A

ZELMER FARM SUPPLY COMPANYSales Budget


Quarter

1 2

Six

Months

Expected unit sales..........................Unit selling price ...............................Total sales ...........................................

28,000X $60

$1,680,000

42,000X $60

$2,520,000

70,000X $60

$4,200,000

ZELMER FARM SUPPLY COMPANYProduction Budget


Quarter

1 2Six

Months

Expected unit sales ...............................................Add: Desired ending finished goods

units ..............................................................Total required units ...............................................Less: Beginning finished goods units...........Required production units..................................

28,000

12,00040,000

8,00032,000

42,000

18,00060,00012,00048,000 80,000

PROBLEM 9-1A (Continued)

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ZELMER FARM SUPPLY COMPANYDirect Materials BudgetGumm

For the Six Months Ending June 30, 2012Quarter

1 2Six

Months

Units to be produced ..........................................Direct materials per unit ....................................Total pounds needed for production ............

Add: Desired ending direct materials(pounds).....................................................

Total materials required.....................................Less: Beginning direct materials

(pounds) ...................................................Direct materials purchases...............................Cost per pound .....................................................

Total cost of direct materialspurchases ..........................................................

32,000 X 4128,000

10,000138,000

9,000129,000

X $4

$516,000

48,000X 4

192,000

13,000205,000

10,000195,000

X $4

$780,000 $1,296,000

ZELMER FARM SUPPLY COMPANYDirect Labor Budget

For the Six Months Ending June 30, 2012Quarter

1 2Six

Months

Units to be produced..................................Direct labor time (hours) per unit...........

Total required direct labor hours ...........Direct labor cost per hour.........................Total direct labor cost................................

32,000X 1/4

8,000X $14$112,000

48,000X 1/4

12,000X $14$168,000 $280,000


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PROBLEM 9 1A (Continued)

ZELMER FARM SUPPLY COMPANYSelling and Administrative Expense Budget


Quarter

1 2Six

Months

Budgeted sales in units

Variable (.15 X sales)................................

Fixed..............................................................Total...............................................................

28,000

$252,000

175,000$427,000

42,000

$378,000

175,000$553,000

70,000

$630,000

350,000$980,000

ZELMER FARM SUPPLY COMPANYBudgeted Income Statement


Sales ............................................................................................................. $4,200,000Cost of goods sold (70,000 X $33.75)* .............................................. 2,362,500Gross profit ................................................................................................ 1,837,500Selling and administrative expenses ................................................ 980,000Income from operations......................................................................... 857,500

Income tax expense (30%) .................................................................... 257,250Net income ................................................................................................. $ 600,250

*Cost Per Bag

Cost Element Quantity Unit Cost Total

Direct materialsGumm ...................................................Tarr ........................................................

Direct labor ..............................................Manufacturing overhead

(150% of direct labor cost).............Total.................................................

4 pounds6 pounds

1/4 hour

$ 4.001.50

14.00

$16.009.003.50

5.25$33.75

PROBLEM 9 2A

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PROBLEM 9-2A

(a) JANTZEN INC.Sales BudgetFor the Year Ending December 31, 2012

JB 50 JB 60 Total

Expected unit sales .............Unit selling price ..................

Total sales ..............................

400,000X $20

$8,000,000

200,000X $25

$5,000,000

000,000,0

$13,000,000

(b) JANTZEN INC.Production Budget


JB 50 JB 60 Total

Expected unit sales...................................Add: Desired ending finished

goods units.....................................Total required units...................................Less: Beginning finished goods

units ..................................................Required production units......................

400,000

25,000425,000

30,000395,000

200,000

15,000215,000

10,000205,000 600,000


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( )

(c) JANTZEN INC.Direct Materials Budget

For the Year Ending December 31, 2012JB 50 JB 60 Total

Units to be produced........................Direct materials per unit..................Total pounds needed for

production .......................................

Add: Desired ending directmaterials (pounds)...............Total materials required ..................Less: Beginning direct

materials (pounds)...............Direct materials purchases ............Cost per pound...................................Total cost of direct materials

purchases ......................................

395,000X 2

790,000

30,000820,000

40,000780,000

X $3

$2,340,000

205,000X 3

615,000

15,000630,000

10,000620,000

X $4

$2,480,000 $4,820,000

(d) JANTZEN INC.Direct Labor Budget


JB 50 JB 60 Total

Units to be produced........................Direct labor time (hours) per

unit .....................................................Total required direct labor

hours .................................................Direct labor cost per hour...............Total direct labor cost......................

395,000

X .4

158,000X $12

$1,896,000

205,000

X .6

123,000X $12

$1,476,000

650,000

301,000X $10$3,372,000


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(e) JANTZEN INC.Budgeted Income Statement

For the Year Ending December 31, 2012JB 50 JB 60 Total

Sales............................................Cost of goods sold .................Gross profit ...............................Operating expenses

Selling expenses ................Administrative

expenses...........................Total operating

expenses .................Income before income

taxes .......................................

Income tax expense(30%).......................................

Net income ................................

$8,000,0004,800,0003,200,000

660,000

540,000

1,200,000

$2,000,000

(1)$5,000,000

4,200,000800,000

360,000

340,000

700,000

$ 100,000

(2)$13,000,000

9,000,0004,000,000

1,020,000

880,000

1,900,000

2,100,000

630,000$ 1,470,000

(1)400,000 X $12.(2)200,000 X $21.

PROBLEM 9-3A

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PROBLEM 9 3A

(a) NIETO INDUSTRIESSales BudgetFor the Year Ending December 31, 2012

Plan A Plan B

Expected unit sales ...........................................Unit selling price.................................................

Total sales.............................................................

760,000X $8.40

$6,384,000

(1) 950,000X $7.50

$7,125,000

(2)

(1)$6,400,000 $8 = 800,000 X 95% = 760,000.(2)800,000 + 150,000 = 950,000.

(b) NIETO INDUSTRIES

Production BudgetFor the Year Ending December 31, 2012

Plan A Plan B

Expected unit sales ......................................................Add: Desired ending finished goods units ........

Total required units ......................................................Less: Beginning finished goods units ..................Required production units .........................................

760,00038,000

798,00040,000758,000

(1)950,000

50,000

1,000,00040,000960,000

(1)760,000 X 5%

(c) Variable costs = $4.25 per unit ($1.80 + $1.25 + $1.20) for both plans.

Plan A Plan B

Total variable costsTotal fixed costsTotal costs (a)

Total units (b)

Unit cost (a) (b)

$3,221,5001,895,000

$5,116,500

758,000

$6.75

(758,000 X $4.25) $4,080,0001,895,000

$5,975,000

960,000

$6.22

(960,000 X $4.25)

The difference is due to the fact that fixed costs are spread over a largernumber of units (202,000) in Plan B.


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(d) Gross Profit

Plan A Plan B

SalesCost of goods soldGross profit

$6,384,0005,130,000

$1,254,000(760,000 X $6.75)

$7,125,0005,909,000

$1,216,000(950,000 X $6.22)

Plan A should be accepted because it produces a higher gross profit thanPlan B.

PROBLEM 9-4A

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(a) (1) Expected Collections from Customers

January February

November ($260,000)......................................December ($320,000) ......................................

anuary ($350,000) ..........................................February ($400,000) ........................................

Total collections....................................

$ 52,00096,000

175,000 .

$323,000

$ 064,000

105,000200,000

$369,000

(2) Expected Payments for Direct Materials

January February

December ($100,000) ......................................

anuary ($110,000) ..........................................February ($130,000) ........................................

Total payments ......................................

$ 40,000

66,000 .$106,000

$ 0

44,00078,000

$122,000


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(b) DINKLE COMPANYCash Budget

For the Two Months Ending February 28, 2012January February

Beginning cash balance .........................................Add: Receipts

Collections from customers................[See Schedule (1)]

Notes receivable......................................Sale of securities.....................................

Total receipts...................................Total available cash .................................................

$ 60,000

323,000

15,000338,000398,000

$ 54,000

369,000

6,000375,000429,000

Less: DisbursementsDirect materials ......................................

[See Schedule 2]

Direct labor ..............................................Manufacturing overhead .....................Selling and administrative

expenses* ............................................Withdrawal by owner............................

Total disbursements....................Excess (deficiency) of available cash

over cash disbursements ..................................Financing

Borrowings.......................................................Repayments .....................................................

Ending cash balance ...............................................

106,000

90,00070,000

78,000344,000

54,000

00

$ 54,000

122,000

100,00075,000

85,0005,000

387,000

42,000

8,0000

$ 50,000

*Selling and administrative expenses less $1,000 depreciation.

PROBLEM 9-5A

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(a) HARDESTY COMPANYSan Miguel Store

Merchandise Purchases BudgetFor the Months of May and June, 2012

May June

Budgeted cost of goods sold.................................

Add: Desired ending merchandise inventory........Total ................................................................................Less: Beginning merchandise inventory ...........Required merchandise purchases .......................

$600,000

132,000732,000120,000

$612,000

(2)

(4)

$660,000

145,200805,200132,000

$673,200

(1)

(3)

(1)$800,000 X 110% = $880,000; $880,000 X 75% = $660,000.(2)$660,000 X 20% = $132,000.(3)$880,000 X 110% = $968,000; $968,000 X 75% = $726,000; $726,000 X

20% = $145,200.(4)$600,000 X 20% = $120,000.


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(b) HARDESTY COMPANYSan Miguel Store

Budgeted Income StatementFor the Months of May and June, 2012

May June

Sales................................................................................Cost of goods sold

Beginning inventory .........................................

Purchases.............................................................Cost of goods available for sale ...................Less: Ending inventory...................................

Cost of goods sold ...................................Gross profit...................................................................

$800,000

120,000

612,000732,000132,000600,000200,000

$880,000

132,000

673,200805,200145,200660,000220,000

Operating expensesSales salaries ......................................................

Advertising* .........................................................Delivery** ..............................................................Sales commissions*** ......................................Rent ........................................................................Depreciation ........................................................Utilities...................................................................Insurance..............................................................

Total...............................................................Income from operations ...........................................Income tax expense (30%).......................................Net income....................................................................

30,000

40,00024,00032,000

5,000800600500

132,90067,10020,130

$ 46,970

30,000

44,00026,40035,2005,000

800600500

142,50077,50023,250

$ 54,250

*5% of sales.**3% of sales.

***4% of sales.

PROBLEM 9-6A

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CLARKE INDUSTRIESBudgeted Income Statement


Sales (8,000 X $35)............................................................. $280,000Cost of goods sold

Finished goods inventory, January 1................. $ 30,000Cost of goods manufactured

($69,400 + $56,600 + $54,000) ........................... 180,000Cost of goods available for sale .......................... 210,000Finished goods inventory, December 31

(3,000 X $20) ........................................................... 60,000Cost of goods sold .......................................... 150,000

Gross profit .......................................................................... 130,000

Selling and administrative expenses .......................... 76,000Income from operations................................................... 54,000Interest expense................................................................. 3,500Income before income taxes.......................................... 50,500Income tax expense (30%) .............................................. 15,150Net income ........................................................................... $ 35,350


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CLARKE INDUSTRIESBudgeted Balance Sheet

December 31, 2012

AssetsCurrent assets

Cash .................................................................................. $ 7,950Accounts receivable ($84,000 X 40%).................... 33,600Finished goods inventory

(3,000 units X $20).................................................... 60,000Total current assets............................................ $101,550

Property, plant, and equipmentEquipment ($40,000 + $19,000) ................................ $59,000Less: Accumulated depreciation

($10,000 + $4,000)............................................ 14,000 45,000

Total assets ........................................................... $146,550

Liabilities and Stockholders EquityLiabilities

Notes payable ($25,000 $8,000) ............................ $17,000Accounts payable ($8,500* + $5,700) ..................... 14,200Income taxes payable ................................................. 5,000

Total liabilities....................................................... $ 36,200

Stockholders equityCommon stock .............................................................. $50,000Retained earnings

($30,000 + $35,350 $5,000) ................................. 60,350Total stockholders equity................................ 110,350

Total liabilities and stockholdersequity................................................................... $146,550

*$17,000 X 50%

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