Introduction to Management Accounting Solutions Manual

Problems: Set A
P9-54A Comprehensive budgeting problem (Learning Objectives 2 & 3)
Solution:
Given

Sales Budget
December January February
Unit sales* 5,067 5,340 5,940
Unit selling price 15 $ 15 $ 15
Total sales Revenue $ 76,000 $ 80,100 $ 89,100
*Hint: Unit sales = Sales in dollars ÷ Selling price per unit

Req. 1

Cash Collections Budget

January February March
Cash Sales (30%) $24,030 $26,730 $24,840
Credit Sales (70%) $ 53,200 $ 56,070 $ 62,370
Total collections $77,230 $82,800 $87,210

Req. 2

Production Budget
January February March
Unit sales 5,340 5,940 5,520
Plus: Desired ending inventory (10%) 594 552 570
Total needed 5,934 6,492 6,090
Lesss: Beginning inventory 534 594 552
Units to produce 5,400 5,898 5,538

Req. 3

Direct Materials Budget

January February March
Units to be produced 5,400 5,898 5,538
Multiply by: Quantity of DM needed per unit 2 2 2
Quantity of DM needed for production 10,800 11,796 11,076
Plus: Desired ending inventory of DM (20%) 2,359 2,215 2,568
Total quantity of DM needed 13,159 14,011 13,644
Less: Beginning inventory of DM 2,160 2,359 2,215
Quantity of DM to purchase 10,999 11,652 11,429
Multiply by: Cost per pound $ 1.50 $ 1.50 $ 1.50
Total cost of DM purchases $16,499 $17,478 $17,143

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Introduction to Management Accounting Solutions Manual

April May
Unit Sales 5,700 5,160
Plus: Desired End Inventory (25%) 1,290
Total Needed 6,990
Less: Beginning Inventory 570
Units to produce 6,420
DM needed per unit 2
Quantity of DM needed for production 12,840

Req. 4

Cash Payments for Direct Material Purchases Budget

January February March
December purchases (From AP) $43,000
January purchases 3300 13199
February purchases 3496 13982
March purchases 3429
Total disbursements $46,300 $16,695 $17,411

a
33,630 x 20%
e
39,220 x 20%
Req. 5

Cash Payments for Direct Labor Costs

January February March
Direct Labor $2,106 $2,300 $2,160

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Introduction to Management Accounting Solutions Manual

Req. 6

Cash Payments for Manufacturing Overhead Budget

January February March
Rent (fixed) $6,500 $6,500 $6,500
Other MOH (fixed) $2,900 $2,900 $2,900
Variable manufacturing overhead $ 7,560 $ 8,257 $ 7,753
Total disbursements $16,960 $17,657 $17,153

Req. 7

Cash Payments for Operating Expenses Budget

January February March
Variable operating expenses $ 6,408 $ 7,128 $ 6,624
Fixed operating expenses $ 1,400 $ 1,400 $ 1,400
Total disbursements $ 7,808 $ 8,528 $ 8,024
* Hint: Units sold x Variable operating expenses per unit sold ($1.25)

Req. 8
Combined Cash Budget
January February March
Cash balance, beginning $4,460 $4,716 $4,861
Plus: cash collections (req. 1) 77,230 82,800 87,210
Total cash available 81,690 87,516 92,071
Less cash payments:
DM purchases (req. 4) 46,300 16,695 17,411
Direct labor (req. 5) 2,106 2,300 2,160
MOH costs (req 6) 16,960 17,657 17,153
Operating expenses (req 7) 7,808 8,528 8,024
Tax payment 10,800
Equipment purchases 5800 11,600 15800
Total cash payments 78,974 67,580 60,548
Ending cash before financing 2,716 19,936 31,523
Financing:
Borrowings 2,000
Repayments -15000 -27000
Interest -75 -75
Total financing 2,000 -15,075 -27,075
Cash balance, ending $4,716 $4,861 $4,448

Req. 9

Budgeted Manufacturing Cost per Unit

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Introduction to Management Accounting Solutions Manual

Direct materials cost per unit $3.00

Direct labor cost per unit $0.39
Variable MOH cost per unit $1.40
Fixed MOH per unit (given in problem) $0.80
Cost of manufacturing each unit $5.59

Req. 10

Damon Manufacturing
Budgeted Income Statement
For the Quarter Ended March 31
Sales $ 252,000
Cost of goods sold -93,912
Gross profit 158,088
Operating expenses 24,360
Depreciation expense -4,400
Operating income 138,128
Less: interest expense -150
Less: provision for income tax @ 30% 41,288
Net income $96,690

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Introduction to Management Accounting Solutions Manual

March April May

5,520 5,700 5,160
$ 15 $ 15 $ 15
$ 82,800 $ 85,500 $ 77,400

Quarter
$75,600
$171,640
$247,240

Quarter
$16,800
570
17,370
534
16,836

Quarter
16,836
2
33,672
2,568
36,240
2,160
34,080
$ 1.50
$51,120

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Introduction to Management Accounting Solutions Manual

Quarter
$43,000
$16,499
$17,478
$3,429
$80,405

Quarter
$6,566

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Introduction to Management Accounting Solutions Manual

Quarter
$19,500
$8,700
$23,570
$51,770

Quarter
$ 20,160
$ 4,200
$ 24,360

Quarter
$4,460
247,240
251,700

80,405
6,566
51,770
24,360
10,800
33,200
207,102
44,598

2,000
-42,000
-150
-40,150
$4,448

Chapter 9: The Master Budget and Responsibility Accounting 7