STRATEGIC COST MANAGEMENT

CHAPTER 5 – MASTER BUDGETING

Instruction: Answer all the requirements in each problem with complete solution. Write
you answer in a yellow paper and it will be submitted on our 1st day of meeting after the
community quarantine. It will be included in your quiz grade computation.

I. Weldon Industrial Gas Corporation supplies acetylene and other compressed gases to
industry. Data regarding the store's operations follow:

• Sales are budgeted at $360,000 for November, $380,000 for December, and
$350,000 for January.
• Collections are expected to be 75% in the month of sale, 20% in the month following
the sale, and 5% uncollectible.
• The cost of goods sold is 65% of sales.
• The company desires an ending merchandise inventory equal to 60% of the cost of
goods sold in the following month.
• Payment for merchandise is made in the month following the purchase.
• Other monthly expenses to be paid in cash are $21,900.
• Monthly depreciation is $20,000.
• Ignore taxes

Balance Sheet
October 31
Assets
Cash $16,000
Accounts receivable (net of allowance for uncollectible accounts) 74,000
Merchandise inventory 140,400
Property, plant and equipment (net of $500,000 accumulated depreciation) 1,066,000
Total assets $1,296,400
Liabilities and Stockholders' Equity
Accounts payable $240,000
Common stock 640,000
Retained earnings 416,400
Total liabilities and stockholders' equity $1,296,400

Required:
1. Prepare a Schedule of Expected Cash Collections for November and December.
2. Prepare a Merchandise Purchases Budget for November and December.
3. Prepare Cash Budgets for November and December.
4. Prepare Budgeted Income Statements for November and December.
5. Prepare a Budgeted Balance Sheet for the end of December.

PROF. GRACE FABOR 1

 II. The following information is budgeted for McCracken Plumbing Supply Corporation for
next quarter:

April May June

Sales $110,000 $130,000 $180,000

Merchandise purchases $85,000 $92,000 $105,000

Selling and administrative expenses $50,000 $50,000 $50,000

All sales at McCracken are on credit. Forty percent are collected in the month of sale,
58% in the month following the sale, and the remaining 2% are uncollectible. Merchandise
purchases are paid in full the month following the month of purchase. The selling and
administrative expenses above include $8,000 of depreciation on display fixtures and
warehouse equipment. All other selling and administrative expenses are paid as incurred.
McCracken wants to maintain a cash balance of $15,000. Any amount below this can be
borrowed from a local bank as needed in increments of $1,000. All borrowings are made
at month end.

Required:

Prepare McCracken's cash budget for May. McCracken expects to have $24,000 of
cash on hand at the beginning of May.

III. Mate Boomerang Corporation manufactures and sells plastic boomerangs. Expected
boomerang sales (in units) for the upcoming months are as follows:

July Aug. Sept. Oct. Nov. Dec.

Budgeted unit
12,000 15,000 10,000 8,000 7,000 11,000
sales

Mate likes to maintain a finished goods inventory equal to 10% of the next month's
estimated sales. Seven ounces of plastic resin are needed to produce every boomerang.
Mate likes to have enough plastic resin on hand at the end of the month to cover 25% of
the next month's production requirements.

Required:

How many ounces of plastic resin should Mate plan on purchasing during the
month of October?

PROF. GRACE FABOR 2