Question 1: It is 31st Dec N-1 today. Star Co. is preparing a detailed budget for year N.

Star has
expected quarterly information for year N as follows:
1. Sales Budget
(The first budget prepared comes from the Sales Forecast)
- Expected sales volume: 4,000 units in the first quarter with 600 unit increases in each
succeeding quarter including quarter 1/N+1 and quarter 2/N+1.
- Sales price: $62 per unit.
Required:
Prepare the sales budget for year N
Quarter 1/N 2/N 3/N 4/N Year
Expected unit sales 4000 4600 5200 5800 19600
Unit selling price 62 62 62 62 62
Expected total sales 248,000 285,200 322,400 359,600 1,215,200

2. Production Budget
(Shows units that must be produced to meet anticipated sales)
Star Co. believes it can meet future sales needs with an ending inventory of 20% of next
quarter’s budgeted sales volume.
Required:
Prepare the production budget for year N

Quarter 1/N 2/N 3/N 4/N 1/N+1 2/N+1

Expected unit sales 4000 4600 5200 5800 6400 7000
Add: Desired ending finished good units 920 1040 1160 1280 1400
Total required units 4920 5640 6360 7080 7800
Less: Beginning finished good units 800 920 1040 1160 1280
Required production units 4120 4720 5320 5920 6520

3. Direct Materials Budget

(Shows both quantity and cost of direct materials to be purchased)
Because of its close proximity to suppliers,
- Star Company maintains an ending inventory of raw materials equal to 15% of the next
quarter’s production requirements.
- The manufacture of each product requires 3 kgs of raw materials, and the expected cost per kg
is $3.5.

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Required:
Prepare the Direct materials budget for year N
Quarter 1/N 2/N 3/N 4/N 1/N+1 Year
Units to be produced 4120 4720 5320 5920 6520
Direct materials per unit 3 3 3 3 3
Total kgs needed for production 12360 14160 15960 17760 19560
Add: Desired ending direct materials (kgs) 2124 2394 2664 2934
Total direct materials required 14484 16554 18624 20694
Less: Beginning direct materials (kgs) 1854 2124 2394 2664
Direct materials purchases 12630 14430 16230 18030
Costs per kg 3.5 3.5 3.5 3.5
Total costs of direct materials purchases 44205 50505 56805 63105 214620

4. Direct Labor Budget

(Shows quantity (hours) and cost of direct labor needed to meet production requirement)
Direct labor hours are determined from the production budget. At Star Company, 2.5 hours of
direct labor are required to produce each unit of finished goods. The anticipated hourly wage rate
is $8.
Required:
Prepare the Direct labor budget for year N
Quarter 1/N 2/N 3/N 4/N Year
Units to be produced 4120 4720 5320 5920
Direct labor time (hours) per unit 2.5 2.5 2.5 2.5
Total required direct labor hours 10300 11800 13300 14800
Direct labor cost per hour 8 8 8 8
Total direct labor cost 82400 94400 106400 118400 401600

5. Manufacturing Overhead Budget

(Distinguishes between fixed and variable overhead costs)
Star Company expects variable costs to fluctuate with production volume on the basis of the
following rates per direct labor hour: indirect materials $1.00, indirect labor $1.20, utilities
$0.50, and maintenance $0.30. Thus, for the X direct labor hours to produce Y units, budgeted
indirect materials are X*$1, and budgeted indirect labor is X*$1.20). Star also recognizes that
some maintenance is fixed. The amounts reported for fixed costs each quarter are assumed
as follows: Supervisory salaries: $19,000; Depreciation: $3,600; Property taxes and insurance:
$10,000; and Maintenance: $5,600.

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Required: Prepare the Manufacturing Overhead budget for year N
Quarter 1/N 2/N 3/N 4/N
Variable costs
Total direct labor hours 10300 11800 13300 14800
Indirect materials 10300 11800 13300 14800
Indirect labor 12360 14160 15960 17760
Utilities 5150 5900 6650 7400
Mainternance 3090 3540 3990 4440
Total variable costs 30900 35400 39900 44400
Fixed costs
Supervisory salaries 19000 19000 19000 19000
Depreciation 3600 3600 3600 3600
Property taxes and insurance 10000 10000 10000 10000
Mainternance 5600 5600 5600 5600
Total fixed costs 38200 38200 38200 38200
Total manufacturing overhead 69100 73600 78100 82600
Manufacturing overhead rate per direct labor hour

6. Selling and Administrative Expense Budget

(Projects anticipated operating expenses; broken out by fixed and variable costs)
Variable expense rates per unit of sales are sales commissions $2.6 and freight-out $1.4. Variable
expenses per quarter are based on the unit sales from the sales budget.
Fixed expenses each quarter are based on assumed data:
Advertising: $4,800; Sales salaries: $14,500; Office salaries: $8,000. Depreciation: $1,000.
Property taxes and insurance: $1,500.
Required:
Prepare the Selling and Administrative Expense Budget for year N
Quarter 1/N 2/N 3/N 4/N Year
Budgeted sales in units 4000 4600 5200 5800
Variable expenses
Sales commisions 10400 11960 13520 15080 50960
Freight-out 5600 6440 7280 8120 27440
Total variable expenses 16000 18400 20800 23200 78400
Fixed expenses
Advertising 4800 4800 4800 4800 19200
Sales salaries 14500 14500 14500 14500 58000
Office salaries 8000 8000 8000 8000 32000
Depreciation 1000 1000 1000 1000 4000
Property taxes and insurance 1500 1500 1500 1500 6000
Total fixed expenses 29800 29800 29800 29800 119200
Total selling and administrative expenses 45800 48200 50600 53000 197600

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7. Calculate the Cost of goods sold for year N
Cost Element Quantity Unit cost Total
Direct materials 3 kg 3.5 10.5
Direct labor 2.5 hour 8 20
Manufacturing overhead 2.5 hour 6.044 15.110
Total unit cost 45.61
Cost of goods sold =45.61*19600= 893947.18

8. All data for the income statement comes from the individual operating budgets except
the following:
(1) interest expense is expected to be $85 (will be seen in the cash flow statement), and
(2) income taxes are estimated to be $25,000 (including the effects of interest from financing
cash deficit).
Required:
Prepare the income statement for year N
Sales 1215200
Cost of goods sold 893947.18
Gross profit 321252.82
Selling and administrative expenses 197600
Interest expenses 85
Income from operations 123567.82
Corporate income tax 25000
Net income 98567.82

Câu 2. Continue from Question 1. We have some more Star Company Assumptions
1. The January 1, N, cash balance is expected to be $38,000. Star wishes to maintain a balance of
at least $15,000.
2. Sales: 60% are collected in the quarter sold and 40% are collected in the following quarter.
Accounts receivable of $60,000 at December 31, N-1, are expected to be collected in full in the
first quarter of N.
3. Short-term investments are expected to be sold for $2,000 cash in the first quarter.
4. Direct materials: 50% are paid in the quarter purchased and 50% are paid in the following
quarter. Accounts payable of $10,600 at December 31, N-1, are expected to be paid in full in the
first quarter of N.
5. Direct labor: 100% is paid in the quarter incurred.

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6. Manufacturing overhead and selling and administrative expenses: All items except
depreciation are paid in the quarter incurred.
7. Management plans to purchase a truck in the second quarter for $10,000 cash.
8. Star makes equal quarterly payments of its estimated annual income taxes.
9. When there is a cash deficit, Star will borrow to finance. The short-term interest of this finance
is $85. Loans are repaid in the earliest quarter in which there is sufficient cash (that is, when the
cash on hand exceeds the $15,000 minimum required balance). In the case where the excessive
cash is not enough to pay all the debt then the interest will be in priority.
Note: Estimated corporate income tax of $25,000 already includes the interest expense from
financing cash deficit.
Required:
1. Prepare the schedule of collections from customers.
This quarter Next quarter
Collection ratio 60% 40%
Expected sales volume 248,000 285,200 322,400 359,600

Quarter Sales 1/N 2/N 3/N 4/N

Collect previous Account receivables 60000
Quarter 1 248,000 148800 99200
Quarter 2 285,200 171120 114080
Quarter 3 322,400 193440 128960
Quarter 4 359,600 215760 143840
Total collections 208800 270320 307520 344720

2. Prepare the schedule of cash payments.

This quarter Next quarter
Payment ratio 50% 50%
Direct materials 44205 50505 56805 63105

Quarter Direct materials 1/N 2/N 3/N 4/N

Pay previous Account payables 10,600
Quarter 1 44,205 22102.5 22102.5
Quarter 2 50,505 25252.5 25252.5
Quarter 3 56,805 28402.5 28402.5
Quarter 4 63,105 31552.5 31552.5
Total dirbursements 32702.5 47355 53655 59955

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3. Prepare the Cash budget.
Quarter 1/N 2/N 3/N 4/N
Collections
Collections from customers 208800 270320 307520 344720
Sales of investment securities 2000
Total collections 210800 270320 307520 344720
Disbursements
Direct materials 32702.5 47355 53655 59955
Direct labor 82400 94400 106400 118400
Manufacturing overhead 65500 70000 74500 79000
Selling and administrative expenses 44800 47200 49600 52000
Purchase of truck 10000
Corporate income tax 6250 6250 6250 6250
Total disbursements 231653 275205 290405 315605
Differences between Collection and Disbursements -20852.5 -4885 17115 29115
Beginning cash balance 38000 17147.5 15000 29292.5
Borrowings 0 2737.5 0 0
Interest expenses 0 0 85 0
Ending loan balance 0 0 2822.5 0
Repayment of debt (both principal and interests) 0 0 2822.5 0
Ending cash balance 17147.5 15000 29292.5 58407.5

Question 3: Budgeted Balance Sheet

Developed from budgeted balance sheet for preceding year and budgets for current year
Pertinent data from the budgeted balance sheet at December 31, N-1, are as follows:
Buildings and equipment $182,000
Common stock 225,000
Accumulated depreciation 28,800
Retained earnings: 60,576.98
Required:
Prepare the budgeted balance sheet for 31/12/N.

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ASSETS 31/12/N
Short-term assets 270897.3
Cash and cash equivalents 58407.5
Account receivables 143840
Finished goods inventory 58380.8
Raw materials inventory 10269
Fixed assets 144800
Historical cost 192000
Accumulated depreciation -47200
TOTAL ASSETS 415697.3
LIABILITIES AND EQUITY 31/12/N
Liabilities 31552.5
Short-term liabilities 31552.5
Account payables 31552.5
Long-term liabilities 0
Equity 384144.8
Common stock 225000
Retained earnings 159144.8
TOTAL LIABILITIES AND EQUITY 415697.3