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Financial Planning and Analysis: The Master Budget: Solutions To Exercises
Financial Planning and Analysis: The Master Budget: Solutions To Exercises
Solutions to exercises
EXERCISE 9-21 (20 MINUTES)
Sales in units:
July................................................................................................ 40,000
August........................................................................................... 42,000
September...................................................................................... 44,100
Total for third quarter...................................................................... 126,100
Add: Desired ending inventory, September 30.................................. 37,044
Subtotal......................................................................................... 163,144
Deduct: Desired ending inventory, June 30...................................... 32,000
Total required production................................................................ 131,144
1.
July August September
Sales.................................................. $240,000 $180,000 $270,000 a
Cash receipts:
From cash sales.............................. $120,000 b $ 90,000 c $135,000
From sales on account..................... 108,000 d 102,000 117,000 e
Total cash receipts.............................. $ 228,000 $ 192,000 $ 252,000
a
$270,00 = $135,000 2
0
b
$120,00 = $240,000 .5
0
c
$ = $180,000 .5
90,000
d
$108,00 = ($120,000 .6) + ($90,000 .4)
0
e
$117,00 = ($135,000 .6) + ($90,000 .4)
0
2. Purchases of raw material (in units), assuming production of 350,000 finished units:
Solutions to Problems
PROBLEM 9-31 (30 MINUTES)
* $47,000 x 6% x 2/12
PROBLEM 9-32 (40 MINUTES)
Direct-labor costs:
Wages ($16.00 per DLH) †...................... $320,00 $272,000 $216,00 $808,000
0 0
Pension contributions
($.50 per DLH).................................. 10,000 8,500 6,750 25,250
Workers' compensation
insurance ($.20 per DLH).................. 4,000 3,400 2,700 10,100
Employee medical insurance
($.80 per DLH).................................. 16,000 13,600 10,800 40,400
Employer's social security
(at 7%)............................................. 22,40 19,040 15,12 56,560
0 0
Total direct-labor cost............................... $372,40 $316,540 $251,37 $940,310
0 0
*100 percent of the first following month's sales plus 50 percent of the second following
month's sales.
†
DLH denotes direct-labor hour.
2. Use of data throughout the master budget (excluding financial statement budgets):
Components of the master budget, other than the production budget and the direct-
labor budget, that would also directly or indirectly use the sales data include the
following:
Sales budget
Cost-of-goods-sold budget
Selling and administrative expense budget
Components of the master budget, other than the production budget and the direct-
labor budget, that would also directly or indirectly use the production data include
the following:
Direct-material budget
Production-overhead budget
Cost-of-goods-sold budget
Components of the master budget, other than the production budget and the direct-
labor budget, that would also directly or indirectly use the direct-labor-hour data
include the following:
Production-overhead budget (for determining the overhead application rate)
Cash disbursements budget
Cash budget
Components of the master budget, other than the production budget and the direct-
labor budget, that would also directly or indirectly use the direct-labor cost data
include the following:
Production-overhead budget (for determining the overhead application rate)
Cost-of-goods-sold budget
Cash disbursements budget
Cash budget
S HADY S HADES , I NC .
P RODUCTION O VERHEAD B UDGET
F OR THE F IRST Q UARTER OF 20 X 1
Month
1. Sales budget:
20x0 20x1
First
Decembe January February March Quarter
r
Total sales.................... $800,000 $880,00 $968,00 $1,064,80 $2,912,80
0 0 0 0
Cash sales*.................. 200,000 220,000 242,000 266,200 728,200
Sales on account †......... 600,000 660,000 726,000 798,600 2,184,600
20x1
First
January February March Quarter
Cash sales...................................... $220,00 $242,000 $266,20 $ 728,200
0 0
Cash collections from credit
sales made during current
month*........................................ 66,000 72,600 79,860 218,460
Cash collections from credit
sales made during preceding
month †......................................... 594,000 1,787,400
540,000 653,400
Total cash receipts.......................... $826,00 $908,600 $999,46 $2,734,060
0 0
20x0 20x1
First
December January February March Quarter
Budgeted cost of
goods sold...............$560,000 $616,00 $677,600 $745,360 $2,038,960
0
Add: Desired
ending inventory....... 308,000 372,680 372,680 *
338,800 372,680 †
Total goods
needed.....................$868,000 $954,80 $1,050,28 $1,118,04 $2,411,640
0 0 0
Less: Expected
beginning
inventory..................††280,000 338,800 372,680
308,000 308,000**
Purchases....................$588,000 $646,80 $711,480 $745,360 $2,103,640
0
*Since April's expected sales and cost of goods sold are the same as the
projections for March, the desired ending inventory for March is the same as that
for February.
†
The desired ending inventory for the quarter is equal to the desired ending
inventory on March 31, 20x1.
**The beginning inventory for the quarter is equal to the December ending
inventory.
††
50% x $560,000 (where $560,000 = December cost of goods sold = December
sales of $800,000 x 70%)
4. Cash disbursements budget:
20x1
First
January February March Quarter
Inventory purchases:
Cash payments for purchases
during the current month*...... $258,72 $284,592 $298,14 $ 841,456
0 4
Cash payments for purchases
during the preceding
month †.................................. 352,800 388,080 426,888 1,167,768
Total cash payments for
inventory purchases................... $611,52 $672,672 $725,03 $2,009,224
0 2
Other expenses:
Sales salaries............................. $ $ 42,000 $ $ 126,000
42,000 42,000
Advertising and promotion.......... 32,000 32,000 32,000 96,000
Administrative salaries................ 42,000 42,000 42,000 126,000
Interest on bonds**..................... 30,000 -0- -0- 30,000
Property taxes**......................... -0- 10,800 -0- 10,800
Sales commissions..................... 9,680 29,128
8,800 10,648
**Bond interest is paid every six months, on January 31 and July 31. Property taxes
also are paid every six months, on February 28 and August 31.
5. Summary cash budget:
20x1
First
January February March Quarter
Cash receipts [from req. (2)]............ $ 826,000 $ $ $2,734,060
908,600 999,460
Cash disbursements
[from req. (4)]............................. (766,320 )
(809,152) (851,680) (2,427,152)
Change in cash balance
during period due to operations... $ 59,680 $ $147,780 $ 306,908
99,448
Sale of marketable securities
(1/2/x1)...................................... 30,000 30,000
Proceeds from bank loan
(1/2/x1)...................................... 200,000 200,000
Purchase of equipment.................... (250,000) (250,000)
Repayment of bank loan
(3/31/x1).................................... (200,000) (200,000)
Interest on bank loan*..................... (5,000) (5,000)
Payment of dividends...................... (100,000) (100,000 )
Cash............................................................................................... $ 51,908
Accounts receivable*........................................................................ 718,740
Inventory......................................................................................... 372,680
Buildings and equipment (net of accumulated depreciation) †.............. 1,352,000
Total assets..................................................................................... $2,495,328