Solution to Question 1

Purchases budget
a)

April
Budgeted sales in units
Add: Desired ending inventory at 40%
Total Needs
Less: Beginning Inventory
Required Purchases

May

60,000
30,000
90,000
38,000
52,000

75,000
36,000
111,000
30,000
81,000

June
90,000
32,400
122,400
36,000
86,400

Schedule of expected cash collections

b)

April
May
June
$120,000 $150,000 $180,000
$85,000
40,000
80,000
50,000
100,000
60,000
$125,000 $130,000 $160,000

Budgeted Sales at $2 per unit

March 31 Accounts Receivable
April Sales 120,000 x 1/3
120,000 x 2/3
May Sales 150,000 x 1/3
150,000 x2/3
June Sales 180,000 x 1/3
Total cash collection

Page 1

July
81,000

Page 2

Solution to Question 2
a)
Budgeted cash receipts for March
Cash Sales $70,000 x 20%
Collection on account
Jan. Sales $40,000 x 80% x 8%
Feb. Sales $50,000 x 80% x 30%
Mar. Sales $70,000 x80% x 60%
Total Cash receipts
b)

$14,000
2,560
12,000
33,600
$62,160

Cash budget
for the month of March
Cash balance
Add: Cash receipts from sales
Total cash available
Less: Cash disbursement
Inventory purchase
Selling and administrative expenses
Dividends
Total cash disbursement
Cash deficiency
Finance- borrowed
Cash balance- Ending

Page 3

$6,000
62,160
68,160
28,000
40,000
4,000
72,000
(3,840) ($68,160- 72,000)
8,840
$5,000

Solution to Question 3
a)

b)

The major weakness of this performance report is that it compares the cost at different
number of home re-sales level of sales i.e. budgeted cost at 180 number of home
resales and actual cost of 202 number of home resales.
Variable expenses are expected to change in direct proportion to changes in activity levels
Here all the variances are unfavourble. The budgeted activity should always be grea
than the actual activity. Only then the comparison becomes relevant and accurate.
The budgeted activity level should be anything above 202 numbers of home re--sale
for correct comparison.
Budget
Actual Variance
Number of home re-sales
202
202
0
Variable expeses
Sales Commiss$1,102,950 x 202/180 =$1,237,755 $1,205,183 $32,572
Automobile
$ 36,000 x 202/180=
40,400
39,560
$840
Advertising
$ 171,000 x 202/180 =
191,900
192,690
-$790
General overh $656,100 x 202/180 =
736,290
716,970
19,320
Total
$2,206,345 $2,154,403 $51,942
Fixed expenses
General overhead
60,000
$62,300
-$2,300
Total expenses
$2,266,345 $2,216,703 $49,642

cost at different
mber of home

es in activity levels.
ould always be greater
vant and accurate.
ers of home re--sales

F
F
U
F
F
U
F