BKAM3023 MAII EXERCISES TOPIC 2 BUDGETING

Q1
Comprehensive operating budget.
Saujana Bhd, manufactures and sells snowboards. Saujana manufactures a single model, the Pipex. In
late 2017, Saujana’s management accountant gathered the following data to prepare budgets for
January 2018:

Saujana’s CEO expects to sell 2,900 snowboards during January 2018 at an estimated retail price of $650
per board. Further, the CEO expects 2018 beginning inventory of 500 snowboards and would like to end
January 2018 with 200 snowboards in stock.

Variable manufacturing overhead is $7 per direct manufacturing labor-hour. There are also $81,000 in
fixed manufacturing overhead costs budgeted for January 2018. Saujana combines both variable and
fixed manufacturing overhead into a single rate based on direct manufacturing labor-hours. Variable
marketing costs are allocated at the rate of $250 per sales visit. The marketing plan calls for 38 sales
visits during January 2018. Finally, there are $35,000 in fixed nonmanufacturing costs budgeted for
January 2018.
Other data include:

The inventoriable unit cost for ending finished-goods inventory on December 31, 2017, is $374.80.
Assume Saujana uses a FIFO inventory method for both direct materials and finished goods. Ignore work
in process in your calculations.

Required:
1. Prepare the January 2018 revenues budget (in dollars).
2. Prepare the January 2018 production budget (in units).
3. Prepare the direct material usage and purchases budgets for January 2018.
4. Prepare a direct manufacturing labor costs budget for January 2018.
5. Prepare a manufacturing overhead costs budget for January 2018.
6. What is the budgeted manufacturing overhead rate for January 2018?
7. What is the budgeted manufacturing overhead cost per output unit in January 2018?
8. Calculate the cost of a snowboard manufactured in January 2018.
9. Prepare an ending inventory budget for both direct materials and finished goods for January 2018.
10. Prepare a cost of goods sold budget for January 2018.
11. Prepare the budgeted income statement for Saujana, Inc., for January 2018.
12. What questions might the CEO ask the management team when reviewing the budget? Should the
CEO set stretch targets? Explain briefly.
13. How does preparing the budget help Saujana’s management team better manage the company?

Q2
Cash budgeting, budgeted balance sheet. Refer to the information in Q1.
Budgeted balances at January 31, 2018 are as follows:

Selected budget information for December 2017 follows:

Customer invoices are payable within 30 days. From past experience, Saujana’s accountant projects
40% of invoices will be collected in the month invoiced, and 60% will be collected in the following
month.
Accounts payable relates only to the purchase of direct materials. Direct materials are purchased on
credit with 50% of direct materials purchases paid during the month of the purchase, and 50% paid in
the month following purchase.
Fixed manufacturing overhead costs include $64,000 of depreciation costs and fixed
nonmanufacturing overhead costs include $10,000 of depreciation costs. Direct manufacturing labor
and the remaining manufacturing and nonmanufacturing overhead costs are paid monthly.
All property, plant, and equipment acquired during January 2018 were purchased on credit and did
not entail any outflow of cash.
There were no borrowings or repayments with respect to long-term liabilities in January 2018.
On December 15, 2017, Saujana’s board of directors voted to pay a $160,000 dividend to
stockholders on January 31, 2018.

Required:
1. Prepare a cash budget for January 2018. Show supporting schedules for the calculation of collection
of receivables and payments of accounts payable, and for disbursements for fixed manufacturing
and nonmanufacturing overhead.
2. Saujana is interested in maintaining a minimum cash balance of $120,000 at the end of each month.
 Will Saujana be in a position to pay the $160,000 dividend on January 31?
3. Why do Saujana’s managers prepare a cash budget in addition to the revenue, expenses, and
operating income budget?
4. Prepare a budgeted balance sheet for January 31, 2018 by calculating the January 31, 2018 balances
in (a) cash (b) accounts receivable (c) inventory (d) accounts payable and (e) plugging in the balance
for stockholders’ equity.

Q3

Wijaya 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.

   

Required:

a. Prepare a Schedule of Expected Cash Collections for November and December.

b. Prepare a Merchandise Purchases Budget for November and December.
c. Prepare Cash Budgets for November and December.
d. Prepare Budgeted Income Statements for November and December.
e. Prepare a Budgeted Balance Sheet for the end of December.