Introduction to Management Accounting Solutions Manual

Problems: Set A

(60 min.) P 9-59A

P9-59A Comprehensive budgeting problem (Learning Objectives 2 & 3)

Requirements
1. Prepare a schedule of cash collections for January, February, and March, and for the quarter
in total.
2. Prepare a production budget.
3. Prepare a direct materials budget.
4. Prepare a cash payments budget for the direct material purchases from Requirement 3.
5. Prepare a cash payments budget for conversion costs.
6. Prepare a cash payments budget for operating expenses.
7. Prepare a combined cash budget.
8. Calculate the budgeted manufacturing cost per unit.
9. Prepare a budgeted income statement for the quarter ending March 31.
Solution:
Given

Sales Budget
December January February March
Unit sales 7,000 8,000 9,200 9,900
Unit selling price $ 10 $ 10 $ 10 $ 10
Total sales Revenue $ 70,000 $ 80,000 $ 92,000 $ 99,000

Req. 1

Cash Collections
January February March Quarter
Cash Collections (30%) $24,000 $27,600 $29,700 $81,300
Credit Collections (70%) $ 49,000 $ 56,000 $ 64,400 $169,400
Total Cash Collections $73,000 $83,600 $94,100 $250,700

Req. 2

Production Budget
January February March Quarter
Unit sales 8,000 9,200 9,900 27,100
Desired ending inventory 2,300 2,475 2,425 2,425

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Total needed 10,300 11,675 12,325 29,525

Beginning inventory 2,000 2,300 2,475 2,000
Units to produce 8,300 9,375 9,850 27,525

Req. 3

Direct Materials Budget

January February March Quarter
Units to be produced 8,300 9,375 9,850 27,525
Quantity of DM needed per unit 2 2 2 2
Quantity of DM needed for production 16,600 18,750 19,700 55,050
Desired ending inventory of DM 1,875 1,970 1880 1,880
Total quantity of DM needed 18,475 20,720 21,580 56,930
Beginning inventory of DM 1,660 1,875 1,970 1,660
Quantity of DM to purchase 16,815 18,845 19,610 55,270
Cost per pound 2 2 2 2
Total cost of DM purchases $33,630 $37,690 $39,220 $110,540

April May
Unit Sales 9,700 8,500
Desired End Inventory (25%) 2,125
Total Needed 11,825
Beginning Inventory 2,425
Units to produce 9,400
DM needed per unit 2
DM needed for production 18,800
20% of DM

Req. 4

Schedule of Expected Cash Disbursements—Material Purchases

January February March Quarter
December purchases (From Accounts
Payable on balance sheet) $42,400 $42,400
January purchases $6,726 $26,904 $33,630
February purchases $7,538 $30,152 $37,690
March purchases $7,844 $7,844
Total disbursements $49,126 $34,442 $37,996 $121,564

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Req. 5

Schedule of Expected Cash Disbursements—Conversion Costs

January February March Quarter
Rent (fixed) $5,000 $5,000 $5,000 $15,000
Other MOH (fixed) $3,000 $3,000 $3,000 $9,000
Variable conversion costs (DL+MOH) 9960 11250 11820 $33,030
Total payments for conversion costs $17,960 $19,250 $19,820 $57,030

Req. 6

Schedule of Expected Cash Disbursements -- Operating Expenses

January February March Quarter
Variable operating expenses 8,000 9,200 9,900 27,100
Fixed operating expenses $1,000 $1,000 $1,000 3,000
Total disbursements 9,000 10,200 10,900 30,100

Req. 7
Combined Cash Budget
January February March Quarter
Cash balance, beginning $4,500 $4,414 $4,122 $4,500
Add cash collections 73,000 83,600 94,100 250,700
Total cash available 77,500 88,014 98,222 255,200
Less cash disbursements:
For materials 49,126 34,442 37,996 121,564
For conversion costs 17,960 19,250 19,820 57,030
For operating expenses 9,000 10,200 10,900 30,100
For equipment 5,000 12,000 16,000 33,000
For taxes 10,000 10,000
Total disbursements 81,086 85,892 84,716 251,694
Excess (deficiency) of cash -3,586 2,122 13,506 3,506
Financing:
Borrowings 8,000 2,000 10,000
Repayments -9,000 -9,000
Interest -280 -280
Total financing 8,000 2,000 -9,280 720
Cash balance, ending $4,414 $4,122 $4,226 $4,226

Total interest $280

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Req. 8

Budgeted Manufacturing Cost per Unit

Direct materials $4.00
Conversion costs $1.20
Fixed MOH $0.80
Cost of manuafacturing each unit $6.00

Req. 9

Silverman Manufacturing
Budgeted Income Statement
For the Quarter Ended March 31
Sales $ 271,000
Cost of goods sold -162,600
Gross profit 108,400
Operating expenses -30,100
Depreciation -4,800
Operating income 73,500
Less interest expense -280
Less provision for income taxes 21,966
Net income $51,254

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April May
9,700 8,500
$ 10 $ 10
$ 97,000 $ 85,000

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