The McGraw-Hill Companies, Inc., 2021. All rights reserved. 16. Managerial Accounting, 17th Edition. Exercise 8-3 (15 minutes). Quarter—Year 2. First Second ...
Chapter 8 Master Budgeting Solutions to Questions 8-1 A budget is a detailed quantitative plan for the acquisition and use of financial and other master budget usually also contains a budgeted income statement, budgeted balance sheet, and resources over a given time period. Budgetary control involves using budgets to increase the likelihood that all parts of an organization are working together to achieve the goals set down in the planning stage. 8-2 1. Budgets encourage managers to think about and plan for the future. 2. Budgets communicate financial goals throughout the organization. 3. Budgets allocate resources within the organization where they can be used most effectively. 4. Budgets coordinate the plans and activities of departmental managers. 5. Budgets uncover potential bottlenecks before they occur. 6. Budgets can be compared to actual results to improve the efficiency and effectiveness of operations and to evaluate and cash budget. 8-5 The level of sales impacts virtually every other aspect of the firm's activities. It determines the production budget, cash collections, cash disbursements, and selling and administrative budget that in turn determine the cash budget and budgeted income statement and balance sheet. 8-6 No. Planning and control are different, although related, concepts. Planning involves developing goals and developing budgets to achieve those goals. Control, by contrast, involves the means by which management attempts to ensure that the goals set down at the planning stage are attained. 8-7 Creating a "budgeting assumptions" tab simplifies the process of determining how changes to a master budget's underlying reward employees. 8-3 A perpetual budget is a 12-month budget that continuously rolls forward one month (or quarter) at a time as the current month (or quarter) is completed. This approach keeps managers continually focused one year ahead. 8-4 A master budget represents a summary of all of management's plans and goals for the future, and outlines the way in which these plans are to be accomplished. The master budget is composed of a number of smaller, specific budgets encompassing sales, production, raw materials, direct labor, manufacturing overhead, selling and administrative expenses, and inventories. The assumptions impact all supporting schedules and the projected financial statements. 8-8 A self-imposed budget is one in which persons with responsibility over cost control prepare their own budgets. This is in contrast to a budget that is imposed from above. The major advantages of a self-imposed budget are: (1) It shows respect for the opinions of lower-level managers. (2) It leverages the knowledge of lower-level managers to provide more accurate estimates than those imposed by top managers who have less intimate knowledge of day-to-day operations. (3) It increases the lower-level managers' motivation to achieve their own selfimposed goals. (4) It empowers lower-level managers to take ownership of the budget and to be accountable for deviations from it. Copyright 2021 © McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. Solutions Manual, Chapter 8 1 Self-imposed budgets do carry with them the risk of budgetary slack. The budgets prepared by lower-level managers should be carefully reviewed to prevent too much slack. 8-9 The direct labor budget and other budgets can be used to forecast workforce staffing needs. Careful planning can help a company avoid erratic hiring and laying off of employees. 8-10 The principal purpose of the cash budget is NOT to see how much cash the company will have in the bank at the end of the year. Although this is one of the purposes of the cash budget, the principal purpose is to provide information on probable cash needs during the budget period, so that bank loans and other sources of financing can be anticipated and arranged well in advance. Copyright 2021 © McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. 2 Managerial Accounting, 17th Edition Chapter 8: Applying Excel The completed worksheet is shown below. Copyright 2021 © McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. Solutions Manual, Chapter 8 3 Chapter 8: Applying Excel (continued) The completed worksheet, with formulas displayed, is shown below. Copyright 2021 © McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. 4 Managerial Accounting, 17th Edition Chapter 8: Applying Excel (continued) 1. When the budgeted unit sales in the second quarter are increased from 60,000 units to 75,000 units, the result is: Copyright 2021 © McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. Solutions Manual, Chapter 8 5 Copyright 2021 © McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. 6 Managerial Accounting, 17th Edition Chapter 8: Applying Excel (continued) The cash disbursements for raw materials have increased from $1,035,980 to $1,095,980 because the increased unit sales in the second quarter require additional purchases of raw materials. Copyright 2021 © McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. Solutions Manual, Chapter 8 7 Chapter 8: Applying Excel (continued) 2. With the revised sales budget, the worksheet should look like this: Copyright 2021 © McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. 8 Managerial Accounting, 17th Edition Chapter 8: Applying Excel (continued) a. The total expected cash collections for the year under this revised budget are $2,165,000. b. The total required production for the year under this revised budget is 335,000 units. c. The total cost of raw materials to be purchased for the year under this revised budget is $1,358,800. d. The total expected cash disbursements for raw materials for the year under this revised budget are $1,305,900. e. The production constraint of 90,000 units per quarter is a problem in the third quarter of Year 2 and may be a problem later in Year 3. This problem can be approached in a variety of ways. First, the excess capacity in the first and second quarters could be used to build up finished goods inventories beyond the usual levels. Second, management could investigate acquiring another of the milling machines. Third, improvement efforts can be focused on the milling machine; if these efforts are successful, the capacity of the milling machine can be increased and consequently the capacity of the entire plant can be increased. Fourth, management could investigate hiring another company with such a milling machine to do some of the work. Copyright 2021 © McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. Solutions Manual, Chapter 8 9 The Foundational 15 1. The budgeted sales for July are computed as follows: Unit sales (a) ............................. 10,000 Selling price per unit (b) ............. $70 Total sales (a) × (b) ................... $700,000 2. The expected cash collections for July are computed as follows: June sales: $588,000 × 60% ................... July sales: $700,000 × 40% ................... Total cash collections ................ July $352,800 280,000 $632,800 3. The accounts receivable balance at the end of July is: July sales (a).............................. $700,000 Percent uncollected (b) ............... 60% Accounts receivable (a) × (b) ...... $420,000 4. The required production for July is computed as follows: Budgeted sales in units ................. Add desired ending inventory* ...... Total needs .................................. Less beginning inventory** ........... Required production ..................... July 10,000 2,400 12,400 2,000 10,400 *August sales of 12,000 units × 20% = 2,400 units. **July sales of 10,000 units × 20% = 2,000 units. Copyright 2021 © McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. 10 Managerial Accounting, 17th Edition The Foundational 15 (continued) 5. The raw material purchases for July are computed as follows: Required production in units of finished goods................. Units of raw materials needed per unit of finished goods Units of raw materials needed to meet production ......... Add desired units of ending raw materials inventory* ....... Total units of raw materials needed .............................. Less units of beginning raw materials inventory** ........... Units of raw materials to be purchased ......................... July 10,400 5 52,000 6,100 58,100 5,200 52,900 *61,000 pounds × 10% = 6,100 pounds. **52,000 pounds × 10% = 5,200 pounds. 6. The cost of raw material purchases for July is computed as follows: Units of raw materials to be purchased (a) ........ Unit cost of raw materials (b) ........................... Cost of raw materials to be purchased (a) × (b) 52,900 $2.00 $105,800 7. The estimated cash disbursements for materials purchases in July is computed as follows: June purchases: $88,880 × 70% ...................... July purchases: $105,800 × 30% .................... Total cash disbursements ........... July $62,216 31,740 $93,956 8. The accounts payable balance at the end of July is: July purchases (a) ...................... $105,800 Percent unpaid (b)...................... 70% Accounts payable (a) × (b) ......... $74,060 Copyright 2021 © McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. Solutions Manual, Chapter 8 11 The Foundational 15 (continued) 9. The estimated raw materials inventory balance at the end of July is computed as follows: Ending raw materials inventory (pounds) (a) ..... 6,100 Cost per pound (b) .......................................... $2.00 Raw material inventory balance (a) × (b) .......... $12,200 10. The estimated direct labor cost for July is computed as follows: Required production in units............ Direct labor hours per unit .............. Total direct labor-hours needed (a) .. Direct labor cost per hour (b) .......... Total direct labor cost (a) × (b) ....... July 10,400 × 2.0 20,800 $15 $312,000 11. The estimated unit product cost is computed as follows: Direct materials ................... Direct labor ......................... Manufacturing overhead ...... Unit product cost ................. Quantity 5 pounds 2 hours 2 hours Cost $2 per pound $15 per hour $10 per hour Total $10.00 30.00 20.00 $60.00 12. The estimated finished goods inventory balance at the end of July is computed as follows: Ending finished goods inventory in units (a) ...... 2,400 Unit product cost (b) ....................................... $60.00 Ending finished goods inventory (a) × (b) ......... $144,000 Copyright 2021 © McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. 12 Managerial Accounting, 17th Edition The Foundational 15 (continued) 13. The estimated cost of goods sold for July is computed as follows: Unit sales (a) .................................................. 10,000 Unit product cost (b) ....................................... $60.00 Estimated cost of goods sold (a) × (b) .............. $600,000 The estimated gross margin for July is computed as follows: Total sales (a) ................................................. $700,000 Cost of goods sold (b) ..................................... 600,000 Estimated gross margin (a) (b) ...................... $100,000 14. The estimated selling and administrative expense for July is computed as follows: Budgeted unit sales .................................. Variable selling and administrative ............. expense per unit .................................... Total variable expense .............................. Fixed selling and administrative expenses .. Total selling and administrative expenses ... July 10,000 × $1.80 $18,000 60,000 $78,000 15. The estimated net operating income for July is computed as follows: Gross margin (a) ............................................. $100,000 Selling and administrative expenses (b) ............ 78,000 Net operating income (a) (b) ......................... $ 22,000 Copyright 2021 © McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. Solutions Manual, Chapter 8 13 Exercise 8-1 (20 minutes) 1. April May June Total February sales: $230,000 × 10% ....... March sales: $260,000 × 70%, 10% ............. April sales: $300,000 × 20%, 70%, 10%........ May sales: $500,000 × 20%, 70% ................ June sales: $200,000 × 20% ......................... Total cash collections .... $ 23,000 $ 23,000 182,000 $ 26,000 208,000 60,000 210,000 $ 30,000 300,000 100,000 350,000 450,000 40,000 40,000 $265,000 $336,000 $420,000 $1,021,000 Notice that even though sales peak in May, cash collections peak in June. This occurs because the bulk of the company's customers pay in the month following sale. The lag in collections that this creates is even more pronounced in some companies. Indeed, it is not unusual for a company to have the least cash available in the months when sales are greatest. 2. Accounts receivable at June 30: From May sales: $500,000 × 10% ....................... From June sales: $200,000 × (70% + 10%) ........ Total accounts receivable at June 30 .................... $ 50,000 160,000 $210,000 Copyright 2021 © McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. 14 Managerial Accounting, 17th Edition Exercise 8-2 (10 minutes) Budgeted unit sales ................. Add desired units of ending finished goods inventory* ...... Total needs ............................. Less units of beginning finished goods inventory .................... Required production in units ..... April May 50,000 75,000 7,500 9,000 57,500 84,000 5,000 7,500 52,500 76,500 *10% of the following month's sales in units. June Quarter 90,000 215,000 8,000 8,000 98,000 223,000 9,000 5,000 89,000 218,000 Copyright 2021 © McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. Solutions Manual, Chapter 8 15 Exercise 8-3 (15 minutes) Required production in units of finished goods ...................................................... Units of raw materials needed per unit of finished goods ......................................... Units of raw materials needed to meet production ............................................... Add desired units of ending raw materials inventory* ............................................... Total units of raw materials needed .............. Less units of beginning raw materials inventory ................................................. Units of raw materials to be purchased......... Unit cost of raw materials............................ Cost of raw materials to purchased .............. Quarter--Year 2 First Second Third Fourth Year 60,000 90,000 150,000 100,000 400,000 × 3 × 3 × 3 × 3 × 3 180,000 270,000 450,000 300,000 1,200,000 54,000 90,000 60,000 42,000 42,000 234,000 360,000 510,000 342,000 1,242,000 36,000 54,000 90,000 60,000 36,000 198,000 306,000 420,000 282,000 1,206,000 × $1.50 × $1.50 × $1.50 × $1.50 × $1.50 $297,000 $459,000 $630,000 $423,000 $1,809,000 * Fourth quarter: 70,000 units × 3 grams per unit × 20% = 42,000 grams. © The McGraw-Hill Companies, Inc., 2021. All rights reserved. 16 Managerial Accounting, 17th Edition Exercise 8-4 (10 minutes) The direct labor budget is as follows: 1st 2nd 3rd 4th Quarter Quarter Quarter Quarter Year Required production in units............................ 8,000 6,500 7,000 7,500 29,000 Direct labor time per unit (hours) .................... × 0.35 × 0.35 × 0.35 × 0.35 × 0.35 Total direct labor-hours needed ....................... 2,800 2,275 2,450 2,625 10,150 Direct labor cost per hour ............................... × $15.00 × $15.00 × $15.00 × $15.00 × $15.00 Total direct labor cost ..................................... $ 42,000 $ 34,125 $ 36,750 $ 39,375 $152,250 © The McGraw-Hill Companies, Inc., 2021. All rights reserved. Solutions Manual, Chapter 8 17 Exercise 8-5 (15 minutes) 1. Yuvwell Corporation Manufacturing Overhead Budget Budgeted direct labor-hours ............................... Variable manufacturing overhead rate................. Variable manufacturing overhead ....................... Fixed manufacturing overhead ........................... Total manufacturing overhead............................ Less depreciation .............................................. Cash disbursements for manufacturing overhead . 1st 2nd 3rd 4th Quarter Quarter Quarter Quarter Year 8,000 8,200 8,500 7,800 32,500 × $3.25 × $3.25 × $3.25 × $3.25 × $3.25 $26,000 $26,650 $27,625 $25,350 $105,625 48,000 48,000 48,000 48,000 192,000 74,000 74,650 75,625 73,350 297,625 16,000 16,000 16,000 16,000 64,000 $58,000 $58,650 $59,625 $57,350 $233,625 2. Total budgeted manufacturing overhead for the year (a)... Budgeted direct labor-hours for the year (b) .................... Predetermined overhead rate for the year (a) ÷ (b) .......... $297,625 32,500 $9.16 © The McGraw-Hill Companies, Inc., 2021. All rights reserved. 18 Managerial Accounting, 17th Edition Exercise 8-6 (15 minutes) Weller Company Selling and Administrative Expense Budget Budgeted unit sales........................................... Variable selling and administrative expense per unit ............................................................... Variable selling and administrative expense ........ Fixed selling and administrative expenses: Advertising ..................................................... Executive salaries ........................................... Insurance ...................................................... Property taxes................................................ Depreciation .................................................. Total fixed selling and administrative expenses ... Total selling and administrative expenses ........... Less depreciation .............................................. Cash disbursements for selling and administrative expenses.................................. 1st 2nd 3rd 4th Quarter Quarter Quarter Quarter 15,000 16,000 14,000 13,000 Year 58,000 × $2.50 × $2.50 × $2.50 × $2.50 × $2.50 $ 37,500 $ 40,000 $ 35,000 $ 32,500 $145,000 8,000 35,000 5,000 20,000 68,000 105,500 20,000 8,000 35,000 8,000 20,000 71,000 111,000 20,000 8,000 35,000 5,000 20,000 68,000 103,000 20,000 8,000 35,000 20,000 63,000 95,500 20,000 32,000 140,000 10,000 8,000 80,000 270,000 415,000 80,000 $ 85,500 $ 91,000 $ 83,000 $ 75,500 $335,000 © The McGraw-Hill Companies, Inc., 2021. All rights reserved. Solutions Manual, Chapter 8 19 Exercise 8-7 (15 minutes) Garden Depot Cash Budget 1st 2nd 3rd Quarter Quarter Quarter Beginning cash balance $ 20,000 $ 10,000 $ 35,800 Total cash receipts ....... 180,000 330,000 210,000 Total cash available...... 200,000 340,000 245,800 Less total cash disbursements........... 260,000 230,000 220,000 Excess (deficiency) of cash available over disbursements........... (60,000) 110,000 25,800 Financing: Borrowings (at beginnings of quarters)* .............. 70,000 Repayments (at ends of quarters) ............ Interest§ ................... (70,000) (4,200) Total financing............. 70,000 (74,200) Ending cash balance .... $ 10,000 $ 35,800 $ 25,800 4th Quarter Year $ 25,800 $ 20,000 230,000 950,000 255,800 970,000 240,000 950,000 15,800 20,000 70,000 (70,000) (4,200) (4,200) $ 15,800 $ 15,800 * Since the deficiency of cash available over disbursements is $60,000, the company must borrow $70,000 to maintain the desired ending cash balance of $10,000. § $70,000 × 3% × 2 = $4,200. © The McGraw-Hill Companies, Inc., 2021. All rights reserved. 20 Managerial Accounting, 17th Edition Exercise 8-8 (10 minutes) Gig Harbor Boating Budgeted Income Statement Sales (460 units × $1,950 per unit) ...................... Cost of goods sold (460 units × $1,575 per unit) .. Gross margin ...................................................... Selling and administrative expenses* ................... Net operating income .......................................... Interest expense ................................................. Net income......................................................... $897,000 724,500 172,500 139,500 33,000 14,000 $ 19,000 *(460 units × $75 per unit) + $105,000 = $139,500. © The McGraw-Hill Companies, Inc., 2021. All rights reserved. Solutions Manual, Chapter 8 21 Exercise 8-9 (15 minutes) Mecca Copy Budgeted Balance Sheet Assets Current assets: Cash* ............................................... Accounts receivable ........................... Supplies inventory ............................. Total current assets ............................. Plant and equipment: Equipment ........................................ Accumulated depreciation .................. Plant and equipment, net ..................... Total assets ......................................... $12,200 8,100 3,200 $23,500 34,000 (16,000) 18,000 $41,500 Liabilities and Stockholders' Equity Current liabilities: Accounts payable .............................. Stockholders' equity: Common stock .................................. Retained earnings# ........................... Total stockholders' equity ..................... Total liabilities and stockholders' equity . $ 1,800 $ 5,000 34,700 39,700 $41,500 *Plug figure. # Retained earnings, beginning balance . Add net income ................................. Deduct dividends............................... Retained earnings, ending balance ..... $28,000 11,500 39,500 4,800 $34,700 © The McGraw-Hill Companies, Inc., 2021. All rights reserved. 22 Managerial Accounting, 17th Edition Exercise 8-10 (45 minutes) 1. Production budget: Budgeted unit sales ............... Add desired units of ending finished goods inventory* .... Total needs ........................... Less units of beginning finished goods inventory...... Required production in units... SeptemJuly August ber October 35,000 40,000 50,000 30,000 11,000 13,000 9,000 7,000 46,000 53,000 59,000 37,000 10,000 11,000 13,000 9,000 36,000 42,000 46,000 28,000 * October: 3,000 units + (20,000 units × 20%) = 7,000 units. 2. During July and August, the company is building inventories in anticipation of peak sales in September. Therefore, production exceeds sales during these months. In September and October, inventories are being reduced in anticipation of a forthcoming decrease in sales. Therefore, production is less than sales during these months. © The McGraw-Hill Companies, Inc., 2021. All rights reserved. Solutions Manual, Chapter 8 23 Exercise 8-10 (continued) 3. Direct materials budget: Required production in units of finished goods..... Units of raw materials needed per unit of finished goods ............................................................ Units of raw materials needed to meet production Add desired units of ending raw materials inventory ........................................................ Total units of raw materials needed .................... Less units of beginning raw materials inventory ... Units of raw materials to be purchased ............... July August 36,000 42,000 × 3 cc × 3 cc 108,000 126,000 63,000 171,000 54,000 117,000 69,000 195,000 63,000 132,000 * 28,000 units (October production) × 3 cc per unit = 84,000 cc; 84,000 cc × 1/2 = 42,000 cc. September 46,000 Third Quarter 124,000 × 3 cc 138,000 × 3 cc 372,000 42,000 * 42,000 180,000 414,000 69,000 54,000 111,000 360,000 As shown in part (1), production is greatest in September; however, as shown in the raw material purchases budget, purchases of materials are greatest a month earlier--in August. The reason for the large purchases of materials in August is that the materials must be on hand to support the heavy production scheduled for September. © The McGraw-Hill Companies, Inc., 2021. All rights reserved. 24 Managerial Accounting, 17th Edition Exercise 8-11 (20 minutes) Beginning cash balance ............................... Add collections from customers.................... Total cash available ..................................... Less cash disbursements: Purchase of inventory ............................... Selling and administrative expenses........... Equipment purchases ............................... Dividends ................................................ Total cash disbursements ............................ Excess (deficiency) of cash available over disbursements ......................................... Financing: Borrowings .............................................. Repayments (including interest) ................ Total financing ............................................ Ending cash balance ................................... * Given. Quarter (000 omitted) 1 2 3 4 $ 6* $ 5 $ 5 $ 5 65 70 96 * 92 71 * 75 101 97 Year $ 6 323 * 329 35 * 28 8 * 2 * 73 45 * 30 * 8 * 2 * 85 * 48 30 * 10 * 2 * 90 35 * 25 10 2 * 72 163 113 * 36 * 8 320 (2)* (10) 11 * 25 9 7 15 * 0 0 22 0 0 (6) (17)* (23) 7 15 (6) (17) (1) $ 5 $5 $ 5 $ 8 $ 8 © The McGraw-Hill Companies, Inc., 2021. All rights reserved. Solutions Manual, Chapter 8 25 Exercise 8-12 (30 minutes) 1. Schedule of expected cash collections: Month July August From accounts receivable $136,000 From July sales: 35% × 210,000 ........... 73,500 65% × 210,000 ........... $136,500 From August sales: 35% × 230,000 ........... 80,500 65% × 230,000 ........... From September sales: 35% × 220,000 ........... Total cash collections ...... $209,500 $217,000 Sept. Quarter $136,000 73,500 136,500 80,500 $149,500 149,500 77,000 77,000 $226,500 $653,000 2. a. Merchandise purchases budget: July August Sept. Total Budgeted cost of goods sold (60% of sales)...................... $126,000 $138,000 $132,000 $396,000 Add desired ending merchandise inventory* ........ 41,400 39,600 43,200 43,200 Total needs ............................. 167,400 177,600 175,200 439,200 Less beginning merchandise inventory.............................. 62,000 41,400 39,600 62,000 Required purchases ................. $105,400 $136,200 $135,600 $377,200 *At July 31: $138,000 × 30% = $41,400. At September 30: $144,000 × 30% = $43,200. b. Schedule of cash disbursements for purchases: July August Sept. Total From accounts payable .......... $ 71,100 $ 71,100 For July purchases................. 42,160 $ 63,240 105,400 For August purchases ............ 54,480 $ 81,720 136,200 For September purchases....... 54,240 54,240 Total cash disbursements ....... $113,260 $117,720 $135,960 $366,940 © The McGraw-Hill Companies, Inc., 2021. All rights reserved. 26 Managerial Accounting, 17th Edition Exercise 8-12 (continued) 3. Beech Corporation Income Statement For the Quarter Ended September 30 Sales ($210,000 + $230,000 + $220,000) .. Cost of goods sold (Part 2a) ..................... Gross margin ............................................ Selling and administrative expenses ($60,000 × 3 months) ........................... Net operating income ................................ $660,000 396,000 264,000 180,000 $ 84,000 4. Beech Corporation Balance Sheet September 30 Assets Cash ($90,000 + $653,000 $366,940 ($55,000 × 3)) ..................................................................... $211,060 Accounts receivable ($220,000 × 65%)...................... 143,000 Inventory (Part 2a) ................................................... 43,200 Plant and equipment, net ($210,000 ($5,000 ×3)) ... 195,000 Total assets .............................................................. $592,260 Liabilities and Stockholders' Equity Accounts payable ($135,600 × 60%) ......................... $ 81,360 Common stock (Given).............................................. 327,000 Retained earnings ($99,900 + $84,000) ..................... 183,900 Total liabilities and stockholders' equity ...................... $592,260 © The McGraw-Hill Companies, Inc., 2021. All rights reserved. Solutions Manual, Chapter 8 27 Exercise 8-13 (30 minutes) 1. Schedule of expected cash collections: Month July August September From accounts receivable $136,000 From July sales: 45% × 210,000 ........... 94,500 55% × 210,000 ........... $115,500 From August sales: 45% × 230,000 ........... 103,500 55% × 230,000 ........... $126,500 From September sales: 45% × 220,000 ........... 99,000 Total cash collections ...... $230,500 $219,000 $225,500 Quarter $136,000 94,500 115,500 103,500 126,500 99,000 $675,000 2. a. Merchandise purchases budget: July August Sept. Total Budgeted cost of goods sold .... $126,000 $138,000 $132,000 $396,000 Add desired ending merchandise inventory* ........ 27,600 26,400 28,800 28,800 Total needs ............................. 153,600 164,400 160,800 424,800 Less beginning merchandise inventory.............................. 62,000 27,600 26,400 62,000 Required purchases ................. $ 91,600 $136,800 $134,400 $362,800 *At July 31: $138,000 × 20% = $27,600. At September 30: $144,000 ×20% = $28,800. b. Schedule of cash disbursements for purchases: July August Sept. Total From accounts payable .......... $ 71,100 $ 71,100 For July purchases................. 27,480 $ 64,120 91,600 For August purchases ............ 41,040 $ 95,760 136,800 For September purchases....... 40,320 40,320 Total cash disbursements ....... $ 98,580 $105,160 $136,080 $339,820 © The McGraw-Hill Companies, Inc., 2021. All rights reserved. 28 Managerial Accounting, 17th Edition Exercise 8-13 (continued) 3. Beech Corporation Income Statement For the Quarter Ended September 30 Sales ($210,000 + $230,000 + $220,000) .. Cost of goods sold (Part 2a) ..................... Gross margin ............................................ Selling and administrative expenses ($60,000 × 3 months) ........................... Net operating income ................................ Interest expense....................................... Net income............................................... $660,000 396,000 264,000 180,000 84,000 0 $ 84,000 4. Beech Corporation Balance Sheet September 30 Assets Cash ($90,000 + $675,000 $339,820 ($55,000 × 3)) ..................................................................... $260,180 Accounts receivable ($220,000 × 55%)...................... 121,000 Inventory (Part 2a) ................................................... 28,800 Plant and equipment, net ($210,000 ($5,000 ×3)) ... 195,000 Total assets .............................................................. $604,980 Liabilities and Stockholders' Equity Accounts payable ($134,400 × 70%) ......................... $ 94,080 Common stock (Given).............................................. 327,000 Retained earnings ($99,900 + $84,000) ..................... 183,900 Total liabilities and stockholders' equity ...................... $604,980 © The McGraw-Hill Companies, Inc., 2021. All rights reserved. Solutions Manual, Chapter 8 29 Exercise 8-14 (30 minutes) 1. Jessi Corporation Sales Budget Budgeted unit sales ................. Selling price per unit ................ Total sales .............................. 1st Quarter 11,000 × $18.00 $198,000 2nd Quarter 12,000 × $18.00 $216,000 3rd Quarter 14,000 × $18.00 $252,000 4th Quarter 13,000 × $18.00 $234,000 Year 50,000 × $18.00 $900,000 2. Schedule of Expected Cash Collections Beginning accounts receivable .. 1st Quarter sales (65%, 30%)... 2nd Quarter sales (65%, 30%) .. 3rd Quarter sales (65%, 30%) .. 4th Quarter sales (65%) ........... Total cash collections............... $ 70,200 128,700 $198,900 $ 59,400 140,400 $199,800 $ 64,800 163,800 $228,600 $ 75,600 152,100 $227,700 $ 70,200 188,100 205,200 239,400 152,100 $855,000 © The McGraw-Hill Companies, Inc., 2021. All rights reserved. 30 Managerial Accounting, 17th Edition Exercise 8-14 (continued) 3. Budgeted unit sales ................. Add desired units of ending finished goods inventory*...... Total needs............................. Less units of beginning finished goods inventory** .... Required production in units..... Jessi Corporation Production Budget 1st Quarter 11,000 2nd Quarter 12,000 1,800 12,800 2,100 14,100 1,650 11,150 1,800 12,300 3rd Quarter 14,000 1,950 15,950 2,100 13,850 4th Quarter 13,000 1,850 14,850 1,950 12,900 * For end of first quarter: 12,000 units × 15% = 1,800 units. ** For beginning of first quarter: 11,000 units × 15% = 1,650 units. Year 50,000 1,850 51,850 1,650 50,200 © The McGraw-Hill Companies, Inc., 2021. All rights reserved. Solutions Manual, Chapter 8 31 Exercise 8-15 (30 minutes) 1. Hruska Corporation Direct Labor Budget Required production in units......... Direct labor time per unit (hours) . Total direct labor-hours needed .... Direct labor cost per hour ............ Total direct labor cost .................. 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter 12,000 10,000 13,000 14,000 0.2 0.2 0.2 0.2 2,400 2,000 2,600 2,800 $16.00 $16.00 $16.00 $16.00 $38,400 $32,000 $41,600 $44,800 Year 49,000 0.2 9,800 $16.00 $156,800 2 and 3. Hruska Corporation Manufacturing Overhead Budget Budgeted direct labor-hours ......... Variable manufacturing overhead rate ......................................... Variable manufacturing overhead . Fixed manufacturing overhead ..... Total manufacturing overhead...... Less depreciation ........................ Cash disbursements for manufacturing overhead............ 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter 2,400 2,000 2,600 2,800 $1.75 $ 4,200 86,000 90,200 23,000 $1.75 $ 3,500 86,000 89,500 23,000 $1.75 $ 4,550 86,000 90,550 23,000 $1.75 $ 4,900 86,000 90,900 23,000 $67,200 $66,500 $67,550 $67,900 Year 9,800 $1.75 $ 17,150 344,000 361,150 92,000 $269,150 © The McGraw-Hill Companies, Inc., 2021. All rights reserved. 32 Managerial Accounting, 17th Edition Exercise 8-16 (30 minutes) 1 and 2. 1 Zan Corporation . Direct Materials Budget Required production in units of finished goods ............................... Units of raw materials needed per unit of finished goods ........................... Units of raw materials needed to meet production ..................................... Add desired units of ending raw materials inventory* ...................... Total units of raw materials needed ... Less units of beginning raw materials inventory ....................................... Units of raw materials to be purchased ..................................... Unit cost of raw materials ................. Cost of raw materials to be purchased ..................................... 1st Quarter 5,000 × 8 40,000 16,000 56,000 6,000 50,000 × $1.20 $60,000 2nd Quarter 8,000 × 8 64,000 14,000 78,000 16,000 62,000 × $1.20 $74,400 3rd 4th Quarter Quarter Year 7,000 6,000 26,000 × 8 × 8 × 8 56,000 48,000 208,000 12,000 8,000 8,000 68,000 56,000 216,000 14,000 12,000 6,000 54,000 44,000 210,000 × $1.20 × $1.20 × $1.20 $64,800 $52,800 $252,000 * End of 1st quarter: 64,000 grams × 25% = 16,000 grams. © The McGraw-Hill Companies, Inc., 2021. All rights reserved. Solutions Manual, Chapter 8 33 Exercise 8-16 (continued) 3. Zan Corporation Schedule of Expected Cash Disbursements for Materials Beginning accounts payable 1st Quarter purchases ........ 2nd Quarter purchases ....... 3rd Quarter purchases ........ 4th Quarter purchases ........ Total cash disbursements for materials .................... 1st Quarter $ 2,880 36,000 $38,880 2nd Quarter $24,000 44,640 $68,640 3rd Quarter 4th Quarter $29,760 38,880 $68,640 $25,920 31,680 $57,600 Year $ 2,880 60,000 74,400 64,800 31,680 $233,760 4. 1 Zan Corporation . Direct Labor Budget Required production in units......... Direct labor-hours per unit ........... Total direct labor-hours needed .... Direct labor cost per hour ............ Total direct labor cost .................. 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter Year 5,000 8,000 7,000 6,000 26,000 × 0.20 × 0.20 × 0.20 × 0.20 × 0.20 1,000 1,600 1,400 1,200 5,200 × $15.00 × $15.00 × $15.00 × $15.00 × $15.00 $ 15,000 $ 24,000 $ 21,000 $ 18,000 $ 78,000 © The McGraw-Hill Companies, Inc., 2021. All rights reserved. 34 Managerial Accounting, 17th Edition Exercise 8-17 (60 minutes) 1a. The budgeted cash collections are computed as follows: Cash sales ($240,000 × 35%) ................................... September credit sales collected in October................ October credit sales collected in October ($240,000 × 65% × 40%) ...................................................... Total cash collections ................................................ $ 84,000 90,000 62,400 $236,400 1b. The budgeted merchandise purchases are computed as follows: Budgeted cost of goods sold ($240,000 × 45%) ......... Add: desired ending merchandise inventory ($250,000 × 45% × 30%) ................................................... Total needs .............................................................. Less: beginning merchandise inventory ...................... Required purchases .................................................. $108,000 33,750 141,750 32,400 $109,350 1c. The budgeted cash disbursements for merchandise purchases are computed as follows: September credit purchases paid in October ............... October credit purchases paid in October ($109,350 × 30%) .................................................................. Total cash disbursements for merchandise purchases .. $ 73,000 32,805 $105,805 1d. The net operating income is computed as follows: Sales ....................................................................... Cost of goods sold ($240,000 × 45%)........................ Gross margin............................................................ Selling and administrative expenses ($78,000 + $2,000) ................................................................. Net operating income................................................ $240,000 108,000 132,000 80,000 $ 52,000 © The McGraw-Hill Companies, Inc., 2021. All rights reserved. Solutions Manual, Chapter 8 35 Exercise 8-17 (continued) 1e. The budgeted balance sheet is computed as follows: Wheeling Company Balance Sheet October 31 Assets Cash ($59,000 + $236,400 $105,805 $78,000) .......... Accounts receivable ($240,000 × 65% × 60%) ............... Inventory ($250,000 × 45% × 30%) .............................. Buildings and equipment, (net) ($214,000 $2,000)........ Total assets................................................................... Liabilities and Stockholders' Equity Accounts payable ($109,350 × 70%) .............................. Common stock .............................................................. Retained earnings ($106,400 + $52,000) ........................ Total liabilities and stockholders' equity ........................... $111,595 93,600 33,750 212,000 $450,945 $ 76,545 216,000 158,400 $450,945 2a. The budgeted cash collections are computed as follows: Cash sales ($240,000 × 35%) ................................... September credit sales collected in October................ October credit sales collected in October ($240,000 × 65% × 50%) ...................................................... Total cash collections ................................................ $ 84,000 90,000 78,000 $252,000 2b. The budgeted merchandise purchases are computed as follows: Budgeted cost of goods sold ($240,000 × 45%) ......... Add: desired ending merchandise inventory ($250,000 × 45% × 10%) ................................................... Total needs .............................................................. Less: beginning merchandise inventory ...................... Required purchases .................................................. $108,000 11,250 119,250 32,400 $ 86,850 © The McGraw-Hill Companies, Inc., 2021. All rights reserved. 36 Managerial Accounting, 17th Edition Exercise 8-17 (continued) 2c. The budgeted cash disbursements for merchandise purchases are computed as follows: September credit purchases paid in October ............... October credit purchases paid in October ($86,850 × 20%) .................................................................. Total cash disbursements for merchandise purchases .. $73,000 17,370 $90,370 2d. The net operating income is computed as follows: Sales ....................................................................... Cost of goods sold ($240,000 × 45%)........................ Gross margin............................................................ Selling and administrative expenses ($78,000 + $2,000) ................................................................. Net operating income................................................ $240,000 108,000 132,000 80,000 $ 52,000 2e. The budgeted balance sheet is computed as follows: Wheeling Company Balance Sheet October 31 Assets Cash ($59,000 + $252,000 $90,370 $78,000) ............ Accounts receivable ($240,000 × 65% × 50%) ............... Inventory ($250,000 × 45% × 10%) .............................. Buildings and equipment, (net) ($214,000 $2,000)........ Total assets................................................................... Liabilities and Stockholders' Equity Accounts payable ($86,850 × 80%) ................................ Common stock .............................................................. Retained earnings ($106,400 + $52,000) ........................ Total liabilities and stockholders' equity ........................... $142,630 78,000 11,250 212,000 $443,880 $ 69,480 216,000 158,400 $443,880 © The McGraw-Hill Companies, Inc., 2021. All rights reserved. Solutions Manual, Chapter 8 37 Exercise 8-17 (continued) 3. Students may be inclined to conclude that the financial projections in requirement 2 indicate a decline in performance for two reasons. First, the net operating income in the two scenarios is the same. Second, the total assets dropped by $7,065. This interpretation overlooks the importance of cash flows and working capital management. For professors wishing to explore this discussion further, we recommend computing and comparing the operating cycle (as discussed in the chapter titled Financial Statement Analysis) for requirements 1 and 2. The accounts receivable turnover in requirement 1 is 1.70 ($156,000 ÷ $91,800). The average collection period is 17.65 days (30 days ÷ 1.70). The inventory turnover is 3.27 ($108,000 ÷ $33,075). The average sale period is 9.17 days (30 ÷ 3.27). The operating cycle is 26.82 days (17.65 days + 9.17 days). The accounts receivable turnover in requirement 2 is 1.86 ($156,000 ÷ $84,000). The average collection period is 16.13 days (30 days ÷ 1.86). The inventory turnover is 4.95 ($108,000 ÷ $21,825). The average sale period is 6.06 days (30 ÷ 4.95). The operating cycle is 22.19 days (16.13 days + 6.06 days). The operating cycle drops by 4.63 days in requirement 2. © The McGraw-Hill Companies, Inc., 2021. All rights reserved. 38 Managerial Accounting, 17th Edition Exercise 8-18 (30 minutes) 1a. The company's budgeted sales are computed as follows: Cash collections in July (a) ........................................ June sales collected in July (b) .................................. July sales collected in July (a) (b) ........................... $77,000 $50,000 $27,000 July sales collected in July (a).................................... Percentage of sales collected in month of sale (b) ....... July sales (a) ÷ (b) ................................................... $27,000 30% $90,000 1b. The company's budgeted merchandise purchases are computed as follows: Cash paid for merchandise purchases in July (a) ......... June purchases paid in July (b).................................. July purchases paid in July (a) (b)........................... $44,500 $35,300 $9,200 July purchases paid in July (a) ................................... Percentage of purchases paid in month of purchase (b) ........................................................................ July merchandise purchases (a) ÷ (b) ........................ $9,200 20% $46,000 1c. The company's budgeted cost of goods sold is computed as follows: Merchandise purchases in July................................... Beginning merchandise inventory in July .................... Total needs in July .................................................... $46,000 30,000 $76,000 Total needs in July (a)............................................... Ending inventory in July (b)....................................... Cost of goods sold in July (a) (b) ............................ $76,000 $22,000 $54,000 © The McGraw-Hill Companies, Inc., 2021. All rights reserved. Solutions Manual, Chapter 8 39 Exercise 8-18 (continued) 1d. The company's budgeted net operating income is computed as follows: Sales ...................................................... Cost of goods sold ................................... Gross margin........................................... Selling and administrative expenses ($15,000 + $3,000) .............................. Net operating income............................... $90,000 54,000 36,000 18,000 $18,000 2. The budgeted balance sheet is computed as follows: Wolfpack Company Balance Sheet July 31 Assets Cash ($75,000 + $77,000 $44,500 $15,000) .............. Accounts receivable ($90,000 × 70%) ............................ Inventory ...................................................................... Buildings and equipment, (net) ($150,000 $3,000)........ Total assets................................................................... Liabilities and Stockholders' Equity Accounts payable ($46,000 × 80%) ................................ Common stock .............................................................. Retained earnings ($169,700 + $18,000) ........................ Total liabilities and stockholders' equity ........................... $ 92,500 63,000 22,000 147,000 $324,500 $ 36,800 100,000 187,700 $324,500 © The McGraw-Hill Companies, Inc., 2021. All rights reserved. 40 Managerial Accounting, 17th Edition Problem 8-19 (45 minutes) 1. Schedule of cash collections: Cash sales--May............................................... Collections on account receivable: April 30 balance ............................................. May sales (50% × ($200,000 $60,000)) ....... Total cash collections ........................................ $ 60,000 54,000 70,000 $184,000 2. 2. Schedule of expected cash disbursements: Schedule of cash disbursements for purchases: April 30 accounts payable balance ..................... May purchases (40% × $120,000) ..................... Total cash disbursements .................................. $ 63,000 48,000 $111,000 3. Minden Company Cash Budget For the Month of May Beginning cash balance..................................... Add collections from customers (above) ............. Total cash available........................................... Less cash disbursements: Purchase of inventory (above) ........................ Selling and administrative expenses ................ Purchases of equipment ................................. Total cash disbursements .................................. Excess of cash available over disbursements....... Financing: Borrowing--note ............................................ Repayments--note ......................................... Interest ......................................................... Total financing.................................................. Ending cash balance ......................................... $ 9,000 184,000 193,000 111,000 72,000 6,500 189,500 3,500 20,000 (14,500) (100) 5,400 $ 8,900 © The McGraw-Hill Companies, Inc., 2021. All rights reserved. Solutions Manual, Chapter 8 41 Problem 8-19 (continued) 4. Minden Company Budgeted Income Statement For the Month of May Sales ....................................................... Cost of goods sold: Beginning inventory ............................... Add purchases ....................................... Goods available for sale .......................... Ending inventory .................................... Cost of goods sold .................................... Gross margin............................................ Selling and administrative expenses ($72,000 + $2,000) ............................... Net operating income................................ Interest expense ...................................... Net income .............................................. $200,000 $ 30,000 120,000 150,000 40,000 110,000 90,000 74,000 16,000 100 $ 15,900 5. Minden Company Budgeted Balance Sheet May 31 Assets Cash (see requirement 3)........................................... Accounts receivable (50% × $140,000)....................... Inventory .................................................................. Buildings and equipment, net of depreciation ($207,000 + $6,500 $2,000) ................................. Total assets ............................................................... Liabilities and Stockholders' Equity Accounts payable (60% × 120,000) ............................ Note payable ............................................................. Common stock .......................................................... Retained earnings ($42,500 + $15,900) ...................... Total liabilities and stockholders' equity ....................... $ 8,900 70,000 40,000 211,500 $330,400 $ 72,000 20,000 180,000 58,400 $330,400 © The McGraw-Hill Companies, Inc., 2021. All rights reserved. 42 Managerial Accounting, 17th Edition Problem 8-20 (45 minutes) 1. Schedule of cash collections: Cash sales--May............................................... Collections on account receivable: April 30 balance ............................................. May sales (60% × ($220,000 $60,000)) ....... Total cash collections ........................................ $ 60,000 54,000 96,000 $210,000 2. Schedule of expected cash disbursements: Schedule of cash payments for purchases: April 30 accounts payable balance ..................... May purchases (50% × $120,000) ..................... Total cash disbursements .................................. $ 63,000 60,000 $123,000 3. Minden Company Cash Budget For the Month of May Beginning cash balance..................................... Add collections from customers (above) ............. Total cash available........................................... Less cash disbursements: Purchase of inventory (above) ........................ Selling and administrative expenses ................ Purchases of equipment ................................. Total cash disbursements .................................. Excess of cash available over disbursements....... Financing: Borrowing--note ............................................ Repayments--note ......................................... Interest ......................................................... Total financing.................................................. Ending cash balance ......................................... $ 9,000 210,000 219,000 123,000 72,000 6,500 201,500 17,500 20,000 (14,500) (100) 5,400 $ 22,900 © The McGraw-Hill Companies, Inc., 2021. All rights reserved. Solutions Manual, Chapter 8 43 Problem 8-20 (continued) 4. Minden Company Budgeted Income Statement For the Month of May Sales ....................................................... Cost of goods sold: Beginning inventory ............................... Add purchases ....................................... Goods available for sale .......................... Ending inventory .................................... Cost of goods sold .................................... Gross margin............................................ Selling and administrative expenses ($72,000 + $2,000) ............................... Net operating income................................ Interest expense ...................................... Net income .............................................. $220,000 $ 30,000 120,000 150,000 40,000 110,000 110,000 74,000 36,000 100 $ 35,900 5. Minden Company Budgeted Balance Sheet May 31 Assets Cash (see requirement 3)........................................... Accounts receivable (40% × $160,000)....................... Inventory .................................................................. Buildings and equipment, net of depreciation ($207,000 + $6,500 $2,000) ................................. Total assets ............................................................... $ 22,900 64,000 40,000 211,500 $338,400 Liabilities and Stockholders' Equity Accounts payable (50% × 120,000) ............................ Note payable ............................................................. Capital stock ............................................................. Retained earnings ($42,500 + $35,900) ...................... Total liabilities and stockholders' equity ....................... $ 60,000 20,000 180,000 78,400 $338,400 © The McGraw-Hill Companies, Inc., 2021. All rights reserved. 44 Managerial Accounting, 17th Edition Problem 8-21 (30 minutes) 1. December cash sales .................................. Collections on account: October sales: $400,000 × 18% ............... November sales: $525,000 × 60% ............ December sales: $600,000 × 20% ............ Total cash collections ............................... $ 83,000 72,000 315,000 120,000 $590,000 2. Payments to suppliers: November purchases (accounts payable) ... December purchases: $280,000 × 30%..... Total cash disbursements ......................... $161,000 84,000 $245,000 3. Ashton Company Cash Budget For the Month of December Beginning cash balance................................... Add collections from customers ....................... Total cash available......................................... Less cash disbursements: Payments to suppliers for inventory ............... $245,000 Selling and administrative expenses*............. 380,000 New web server ........................................... 76,000 Dividends paid ............................................. 9,000 Total cash disbursements ................................ Excess (deficiency) of cash available over disbursements ............................................. Financing: Borrowings .................................................. Repayments ................................................. Interest ....................................................... Total financing................................................ Ending cash balance ....................................... *$430,000 $50,000 = $380,000. $ 40,000 590,000 630,000 710,000 (80,000) 100,000 0 0 100,000 $ 20,000 © The McGraw-Hill Companies, Inc., 2021. All rights reserved. Solutions Manual, Chapter 8 45 Problem 8-22 (30 minutes) 1. The budget at Springfield is an imposed "top-down" budget that fails to consider both the need for realistic data and the human interaction essential to an effective budgeting/control process. The President has not given any basis for his goals, so one cannot know whether they are realistic for the company. True participation of company employees in preparation of the budget is minimal and limited to mechanical gathering and manipulation of data. This suggests there will be little enthusiasm for implementing the budget. The sales by product line should be based on an accurate sales forecast of the potential market. Therefore, the sales by product line should have been developed first to derive the sales target rather than the reverse. The initial meeting between the Vice President of Finance, Executive Vice President, Marketing Manager, and Production Manager should have been held earlier. This meeting was held too late in the budget process. 2. Springfield should consider adopting a "bottom-up" budget process. This means that the people responsible for performance under the budget would participate in the decisions by which the budget is established. In addition, this approach requires initial and continuing involvement of sales, financial, and production personnel to define sales and profit goals that are realistic within the constraints under which the company operates. Although time consuming, the approach should produce a more acceptable, honest, and workable goal-control mechanism. The sales forecast should be developed considering internal salesforecasts as well as external factors. Costs within departments should be divided into fixed and variable, controllable and noncontrollable, discretionary and nondiscretionary. Flexible budgeting techniques could then allow departments to identify costs that can be modified in the planning process. © The McGraw-Hill Companies, Inc., 2021. All rights reserved. 46 Managerial Accounting, 17th Edition Problem 8-22 (continued) 3. The functional areas should not necessarily be expected to cut costs when sales volume falls below budget. The time frame of the budget (one year) is short enough so that many costs are relatively fixed. For costs that are fixed, there is little hope for a reduction as a consequence of short-run changes in volume. However, the functional areas should be expected to cut costs should sales volume fall below target when: a. control is exercised over the costs within their function. b. budgeted costs were more than adequate for the originally targeted sales, i.e., slack was present. c. budgeted costs vary to some extent with changes in sales. d. there are discretionary costs that can be delayed or omitted with no serious effect on the department. (Adapted unofficial CMA Solution) © The McGraw-Hill Companies, Inc., 2021. All rights reserved. Solutions Manual, Chapter 8 47 Problem 8-23 (45 minutes) 1. Schedule of expected cash collections: Month April May June From accounts receivable $120,000 $ 16,000 From April sales: 30% × $300,000 ......... 90,000 60% × $300,000 ......... 180,000 8% × $300,000 ........... $ 24,000 From May sales: 30% × $400,000 ......... 120,000 60% × $400,000 ......... 240,000 From June sales: 30% × $250,000 ......... 75,000 Total cash collections ...... $210,000 $316,000 $339,000 Quarter $136,000 90,000 180,000 24,000 120,000 240,000 75,000 $865,000 © The McGraw-Hill Companies, Inc., 2021. All rights reserved. 48 Managerial Accounting, 17th Edition Problem 8-23 (continued) 2. Cash budget: Beginning cash balance. Add receipts: Collections from customers ............... Total cash available ...... Less cash disbursements: Merchandise purchases ............... Payroll ....................... Lease payments......... Advertising ................ Equipment purchases . Total cash disbursements ........... Excess (deficiency) of cash available over disbursements ........... Financing: Borrowings ................ Repayments .............. Interest ..................... Total financing ............. Ending cash balance ..... Month April May $ 24,000 $ 22,000 210,000 316,000 234,000 338,000 140,000 20,000 22,000 60,000 -- 210,000 20,000 22,000 60,000 -- 242,000 312,000 (8,000) 26,000 30,000 -- -- 30,000 $ 22,000 -- -- -- -- $ 26,000 June $ 26,000 339,000 365,000 160,000 18,000 22,000 50,000 65,000 315,000 50,000 -- (30,000) (1,200) (31,200) $ 18,800 Quarter $ 24,000 865,000 889,000 510,000 58,000 66,000 170,000 65,000 869,000 20,000 30,000 (30,000) (1,200) (1,200) $ 18,800 3. If the company needs a minimum cash balance of $20,000 to start each month, the loan cannot be repaid in full by June 30. Some portion of the loan balance will have to be carried over to July. © The McGraw-Hill Companies, Inc., 2021. All rights reserved. Solutions Manual, Chapter 8 49 Problem 8-24 (60 minutes) 1. Collections on sales: Cash sales (@ 20%)........ Sales on account: February: $200,000 × 80% × 20% .............. March: $300,000 × 80% × 70%, 20% ..... April: $600,000 × 80% × 10%, 70%, 20% .... May: $900,000 × 80% × 10%, 70% ............. June: $500,000 × 80% × 10% ...................... Total cash collections....... April May June Quarter $120,000 $180,000 $100,000 $ 400,000 32,000 32,000 168,000 48,000 216,000 48,000 336,000 96,000 480,000 72,000 504,000 576,000 40,000 40,000 $368,000 $636,000 $740,000 $1,744,000 2. a. Merchandise purchases budget: April May June July Budgeted cost of goods sold... $420,000 $630,000 $350,000 $280,000 Add desired ending merchandise inventory*....... 126,000 70,000 56,000 Total needs ........................... 546,000 700,000 406,000 Less beginning merchandise inventory ............................ 84,000 126,000 70,000 Required inventory purchases . $462,000 $574,000 $336,000 *20% of the next month's budgeted cost of goods sold. b. Schedule of expected cash disbursements for merchandise purchases: Beginning accounts payable ............... April purchases ...... May purchases ....... June purchases ...... Total cash disbursements ..... April May June Quarter $126,000 231,000 $231,000 287,000 $ $287,000 168,000 126,000 462,000 574,000 168,000 $357,000 $518,000 $455,000 $1,330,000 © The McGraw-Hill Companies, Inc., 2021. All rights reserved. 50 Managerial Accounting, 17th Edition Problem 8-24 (continued) 3. Garden Sales, Inc. Cash Budget For the Quarter Ended June 30 Beginning cash balance ..... Add collections from customers ...................... Total cash available ........... Less cash disbursements: Purchases for inventory .. Selling expenses............. Administrative expenses . Land purchases .............. Dividends paid ............... Total cash disbursements Excess (deficiency) of cash available over disbursements ............... Financing: Borrowings .................... Repayments ................... Interest ($130,000 × 1% × 3 + $50,000 × 1% × 2) ..... Total financing .................. Ending cash balance ......... April May June Quarter $ 52,000 $ 40,000 $ 40,000 $ 52,000 368,000 636,000 740,000 1,744,000 420,000 676,000 780,000 1,796,000 357,000 79,000 25,000 -- 49,000 510,000 518,000 120,000 32,000 16,000 -- 686,000 455,000 62,000 21,000 -- -- 538,000 1,330,000 261,000 78,000 16,000 49,000 1,734,000 (90,000) (10,000) 242,000 62,000 130,000 0 50,000 0 180,000 0 (180,000) (180,000) 0 130,000 $ 40,000 0 (4,900) 50,000 (184,900) $ 40,000 $ 57,100 $ (4,900) (4,900) 57,100 © The McGraw-Hill Companies, Inc., 2021. All rights reserved. Solutions Manual, Chapter 8 51 Problem 8-25 (60 minutes) 1. Collections on sales: Cash sales ...................... Sales on account: February: $200,000 × 80% × 20% .............. March: $300,000 × 80% × 70%, 20% ..... April: $600,000 × 80% × 25%, 65%, 10% .... May: $900,000 × 80% × 25%, 65% ............. June: $500,000 × 80% × 25% ...................... Total cash collections....... April May June Quarter $120,000 $180,000 $100,000 $ 400,000 32,000 32,000 168,000 48,000 216,000 120,000 312,000 48,000 480,000 180,000 468,000 648,000 100,000 100,000 $440,000 $720,000 $716,000 $1,876,000 2. a. Merchandise purchases budget: April May June July Budgeted cost of goods sold... $420,000 $630,000 $350,000 $280,000 Add desired ending merchandise inventory*....... 94,500 52,500 42,000 Total needs ........................... 514,500 682,500 392,000 Less beginning merchandise inventory ............................ 84,000 94,500 52,500 Required inventory purchases . $430,500 $588,000 $339,500 *15% of the next month's budgeted cost of goods sold. b. Schedule of expected cash disbursements for merchandise purchases: Beginning accounts payable ............... April purchases ...... May purchases ....... June purchases ...... Total cash disbursements ..... April May June Quarter $126,000 215,250 $215,250 294,000 $ $294,000 169,750 126,000 430,500 588,000 169,750 $341,250 $509,250 $463,750 $1,314,250 © The McGraw-Hill Companies, Inc., 2021. All rights reserved. 52 Managerial Accounting, 17th Edition Problem 8-25 (continued) 3. Garden Sales, Inc. Cash Budget For the Quarter Ended June 30 Beginning cash balance ..... Add collections from customers ...................... Total cash available ........... Less cash disbursements: Purchases for inventory .. Selling expenses............. Administrative expenses . Land purchases .............. Dividends paid ............... Total cash disbursements Excess (deficiency) of cash available over disbursements ............... Financing: Borrowings .................... Repayments ................... Interest ($43,000 × 1% × 3) .... Total financing .................. Ending cash balance ......... April May June Quarter $ 52,000 $ 40,750 $ 83,500 $ 52,000 440,000 720,000 716,000 1,876,000 492,000 760,750 799,500 1,928,000 341,250 79,000 25,000 -- 49,000 494,250 509,250 120,000 32,000 16,000 -- 677,250 463,750 62,000 21,000 -- -- 546,750 1,314,250 261,000 78,000 16,000 49,000 1,718,250 (2,250) 83,500 252,750 209,750 43,000 0 0 0 43,000 0 (43,000) (43,000) 0 43,000 $ 40,750 0 (1,290) (1,290) 0 (44,290) (1,290) $ 83,500 $ 208,460 $ 208,460 4. Collecting accounts receivable sooner and reducing inventory levels reduces the company's borrowing from $180,000 to $43,000. It also reduces the company's interest expense from $4,900 to $1,290. © The McGraw-Hill Companies, Inc., 2021. All rights reserved. Solutions Manual, Chapter 8 53 Problem 8-26 (45 minutes) 1. a. The reasons that Marge Atkins and Pete Granger use budgetary slack include the following: · These employees are hedging against the unexpected (reducing uncertainty/risk). · The use of budgetary slack allows employees to exceed expectations and/or show consistent performance. This is particularly important when performance is evaluated on the basis of actual results versus budget. · Employees are able to blend personal and organizational goals through the use of budgetary slack as good performance generally leads to higher salaries, promotions, and bonuses. b. The use of budgetary slack can adversely affect Atkins and Granger by: · limiting the usefulness of the budget to motivate their employees to top performance. · affecting their ability to identify trouble spots and take appropriate corrective action. · reducing their credibility in the eyes of management. Also, the use of budgetary slack may affect management decisionmaking as the budgets will show lower contribution margins (lower sales, higher expenses). Decisions regarding the profitability of product lines, staffing levels, incentives, etc., could have an adverse effect on Atkins' and Granger's departments. © The McGraw-Hill Companies, Inc., 2021. All rights reserved. 54 Managerial Accounting, 17th Edition Problem 8-26 (continued) 2. The use of budgetary slack, particularly if it has a detrimental effect on the company, may be unethical. In assessing the situation, the specific standards contained in "Standards of Ethical Conduct for Management Accountants" that should be considered are listed below. Competence Clear reports using relevant and reliable information should be prepared. Confidentiality The standards of confidentiality do not apply in this situation. Integrity · Any activity that subverts the legitimate goals of the company should be avoided. · Favorable as well as unfavorable information should be communicated. Objectivity · Information should be fairly and objectively communicated. · All relevant information should be disclosed. (Unofficial CMA Solution) © The McGraw-Hill Companies, Inc., 2021. All rights reserved. Solutions Manual, Chapter 8 55 Problem 8-27 (45 minutes) 1. The expected cash collections are calculated as follows: April May June Total Cash sales .................... March credit sales collected .................... April credit sales collected: $40,000 × 20%, 80% ................. May credit sales collected: $44,000 × 20%, 80% ................. June credit sales collected: $52,000 × 20% .......................... Total cash collections .... $ 60,000 $ 66,000 $ 78,000 36,000 8,000 32,000 8,800 35,200 10,400 $104,000 $106,800 $123,600 $204,000 36,000 40,000 44,000 10,400 $334,400 2. The budgeted merchandise purchases are calculated as follows: April May June Total Cost of goods sold ........ Add: desired ending merchandise inventory* ................. Total needs .................. Less: beginning merchandise inventory Required purchases....... $ 60,000 $ 66,000 $ 78,000 43,000 49,000 52,000 103,000 115,000 130,000 40,000 43,000 49,000 $ 63,000 $ 72,000 $ 81,000 $204,000 52,000 256,000 40,000 $216,000 * April: $66,000 × 50% + $10,000 = $43,000 May: $78,000 × 50% + $10,000 = $49,000 June: $140,000 × 60% × 50% + $10,000 = $52,000 © The McGraw-Hill Companies, Inc., 2021. All rights reserved. 56 Managerial Accounting, 17th Edition Problem 8-27 (continued) 3. The budgeted cash disbursements for merchandise purchases are calculated as follows: April May June Total Cash purchases ............ March purchases paid ... April credit purchases paid: $63,000 × 90% . May credit purchases paid: $72,000 × 90% . Total cash disbursed...... $ 6,300 51,300 $57,600 $ 7,200 $ 8,100 $21,600 51,300 56,700 56,700 64,800 64,800 $63,900 $72,900 $194,400 4. The budgeted balance sheet is calculated as follows: Deacon Company Balance Sheet June 30 Assets Cash ($55,000 + $334,400 $194,400 $48,000) .......... Accounts receivable ($130,000 × 40% × 80%) ............... Inventory (see requirement 2)........................................ Buildings and equipment, (net) ($100,000 $3,000)........ Total assets................................................................... Liabilities and Stockholders' Equity Accounts payable ($81,000 $8,100) ............................. Common stock .............................................................. Retained earnings ($109,700 + $25,000 + $27,500 + $32,500) ....................................................................... Total liabilities and stockholders' equity ........................... $147,000 41,600 52,000 97,000 $337,600 $ 72,900 70,000 194,700 $337,600 © The McGraw-Hill Companies, Inc., 2021. All rights reserved. Solutions Manual, Chapter 8 57 Problem 8-28 (60 minutes) 1. a. Schedule of expected cash collections: Current year--Fourth quarter sales: $200,000 × 33% ........................ Next year--First quarter sales: $300,000 × 65% ........................ $300,000 × 33% ........................ Next year--Second quarter sales: $400,000 × 65% ........................ $400,000 × 33% ........................ Next year--Third quarter sales: $500,000 × 65% ........................ $500,000 × 33% ........................ Next year--Fourth quarter sales: $200,000 × 65% ........................ Total cash collections ..................... Next Year's Quarter First Second Third Fourth Total $ 66,000 $ 66,000 195,000 $ 99,000 195,000 99,000 260,000 $132,000 260,000 132,000 325,000 325,000 $165,000 165,000 130,000 130,000 $261,000 $359,000 $457,000 $295,000 $1,372,000 © The McGraw-Hill Companies, Inc., 2021. All rights reserved. 58 Managerial Accounting, 17th Edition Problem 8-28 (continued) 2. Schedule of expected cash disbursements for merchandise purchases for next year: Current year--Fourth quarter purchases: $126,000 × 20% ............................... Next year--First quarter purchases: $186,000 × 80% ............................... $186,000 × 20% ............................... Next year--Second quarter purchases: $246,000 × 80% ............................... $246,000 × 20% ............................... Next year--Third quarter purchases: $305,000 × 80% ............................... $305,000 × 20% ............................... Next year--Fourth quarter purchases: $126,000 × 80% ............................... Total cash disbursements ...................... Quarter First Second Third Fourth Total $ 25,200 $ 25,200 148,800 $ 37,200 148,800 37,200 196,800 $ 49,200 196,800 49,200 244,000 244,000 $ 61,000 61,000 100,800 100,800 $174,000 $234,000 $293,200 $161,800 $863,000 © The McGraw-Hill Companies, Inc., 2021. All rights reserved. Solutions Manual, Chapter 8 59 Problem 8-28 (continued) 3. Budgeted cash disbursements for selling and administrative expenses for next year: Budgeted sales in dollars .................. Variable selling and administrative expense rate ................................. Variable selling and administrative expense ........................................ Fixed selling and administrative expenses ....................................... Total selling and administrative expenses ....................................... Less depreciation.............................. Cash disbursements for selling and administrative expenses ................. Quarter First Second Third Fourth Year $300,000 $400,000 $500,000 $200,000 $1,400,000 × 15% × 15% × 15% × 15% × 15% $45,000 $ 60,000 $ 75,000 $30,000 $210,000 50,000 50,000 50,000 50,000 200,000 95,000 110,000 125,000 80,000 20,000 20,000 20,000 20,000 410,000 80,000 $75,000 $ 90,000 $105,000 $60,000 $330,000 © The McGraw-Hill Companies, Inc., 2021. All rights reserved. 60 Managerial Accounting, 17th Edition Problem 8-28 (continued) 4. Cash budget for next year: Beginning cash balance............. Add collections from customers . Total cash available................... Less cash disbursements: Merchandise purchases .......... Selling and administrative expenses (above) ................ Dividends .............................. Land ..................................... Total cash disbursements .......... Excess (deficiency) of cash available over disbursements .. Financing: Borrowings ............................ Repayments .......................... Interest ($48,000 × 2.5% × 3) ........ Total financing.......................... Ending cash balance ................. First $ 10,000 261,000 271,000 174,000 75,000 10,000 259,000 12,000 0 0 0 0 $ 12,000 Quarter Second Third $ 12,000 $ 10,000 359,000 457,000 371,000 467,000 Fourth $ 10,800 295,000 305,800 Year $ 10,000 1,372,000 1,382,000 234,000 293,200 161,800 863,000 90,000 10,000 75,000 409,000 105,000 10,000 48,000 456,200 60,000 10,000 231,800 330,000 40,000 123,000 1,356,000 (38,000) 10,800 74,000 26,000 48,000 0 0 0 48,000 0 (48,000) (48,000) 0 0 (3,600) (3,600) 48,000 0 (51,600) (3,600) $ 10,000 $ 10,800 $ 22,400 $ 22,400 © The McGraw-Hill Companies, Inc., 2021. All rights reserved. Solutions Manual, Chapter 8 61 Problem 8-29 (120 minutes) 1. Schedule of expected cash collections: April May Cash sales.................... $36,000 * $43,200 Credit sales1 ................. 20,000 * 24,000 Total collections ............ $56,000 * $67,200 140% of the preceding month's sales. * Given. June $54,000 28,800 $82,800 Quarter $133,200 72,800 $206,000 2. Merchandise purchases budget: April May June Quarter Budgeted cost of goods sold1 ........................... $45,000 * $ 54,000 * $67,500 $166,500 Add desired ending merchandise inventory2 ................... 43,200 * 54,000 28,800 * 28,800 Total needs .................... 88,200 * 108,000 96,300 195,300 Less beginning merchandise inventory . 36,000 * 43,200 54,000 36,000 Required purchases ........ $52,200 * $ 64,800 $42,300 $159,300 1For April sales: $60,000 sales × 75% cost ratio = $45,000. 2At April 30: $54,000 × 80% = $43,200. At June 30: July sales $48,000 × 75% cost ratio × 80% = $28,800. * Given. Schedule of expected cash disbursements--merchandise purchases March purchases ............ April purchases .............. May purchases ............... June purchases .............. Total disbursements........ April May June $21,750 * 26,100 * $26,100 * 32,400 $32,400 21,150 $47,850 * $58,500 $53,550 Quarter $ 21,750 * 52,200 * 64,800 21,150 $159,900 * Given. © The McGraw-Hill Companies, Inc., 2021. All rights reserved. 62 Managerial Accounting, 17th Edition Problem 8-29 (continued) 3. Cash budget: April Beginning cash balance . $ 8,000 * Add collections from customers .................. 56,000 * Total cash available ....... 64,000 * Less cash disbursements: For inventory .............. 47,850 * For expenses .............. 13,300 * For equipment ............ 1,500 * Total cash disbursements ............ 62,650 * Excess (deficiency) of cash available over disbursements ............ 1,350 * Financing: Borrowings ................. 3,000 Repayments ............... 0 Interest ($3,000 × 1% × 3 + $7,000 × 1% × 2) .................. 0 Total financing .............. 3,000 Ending cash balance ...... $ 4,350 * Given. May $ 4,350 67,200 71,550 58,500 15,460 0 73,960 (2,410) 7,000 0 0 7,000 $ 4,590 June Quarter $ 4,590 $ 8,000 82,800 206,000 87,390 214,000 53,550 159,900 18,700 47,460 0 1,500 72,250 208,860 15,140 5,140 0 10,000 (10,000) (10,000) (230) (230) (10,230) (230) $ 4,910 $ 4,910 © The McGraw-Hill Companies, Inc., 2021. All rights reserved. Solutions Manual, Chapter 8 63 Problem 8-29 (continued) 4. Shilow Company Income Statement For the Quarter Ended June 30 Sales ($60,000 + $72,000 + $90,000) ....... Cost of goods sold: Beginning inventory (Given).................... Add purchases (see requirement 2) ......... Goods available for sale .......................... Ending inventory (see requirement 2)...... Gross margin............................................ Selling and administrative expenses: Commissions (12% of sales) ................... Rent ($2,500 × 3) .................................. Depreciation ($900 × 3) ......................... Other expenses (6% of sales) ................. Net operating income................................ Interest expense (see requirement 3) ........ Net income .............................................. $222,000 $ 36,000 159,300 195,300 28,800 166,500 * 55,500 26,640 7,500 2,700 13,320 50,160 5,340 230 $ 5,110 * A simpler computation would be: $222,000 × 75% = $166,500. © The McGraw-Hill Companies, Inc., 2021. All rights reserved. 64 Managerial Accounting, 17th Edition Problem 8-29 (continued) 5. Shilow Company Balance Sheet June 30 Assets Current assets: Cash (see requirement 3) ............................................ $ 4,910 Accounts receivable ($90,000 × 40%) .......................... 36,000 Inventory (see requirement 2) ..................................... 28,800 Total current assets ....................................................... 69,710 Building and equipment--net ($120,000 + $1,500 $2,700) ..................................... 118,800 Total assets ................................................................... $188,510 Liabilities and Stockholders' Equity Accounts payable (Part 2: $42,300 × 50%) .. Stockholders' equity: Common stock (Given) ............................. $150,000 Retained earnings* .................................. 17,360 Total liabilities and stockholders' equity ........ $ 21,150 167,360 $188,510 * Beginning retained earnings ..................... $12,250 Add net income (see requirement 4)......... 5,110 Ending retained earnings ......................... $17,360 © The McGraw-Hill Companies, Inc., 2021. All rights reserved. Solutions Manual, Chapter 8 65 Problem 8-30 (60 minutes) 1. The estimated sales for the third quarter: Budgeted unit sales .... Selling price per unit ... Budgeted sales ........... July 30,000 × $12 $360,000 Month August 70,000 × $12 $840,000 September 50,000 × $12 $600,000 Quarter 150,000 × $12 $1,800,000 2. The expected cash collections from sales for the third quarter: Accounts receivable, June 30: $300,000 × 65% ..... July sales: $360,000 × 30%, 65% ....................... August sales: $840,000 × 30%, 65% ....................... September sales: $600,000 × 30% ..... Total cash collections .. $195,000 108,000 $303,000 $234,000 252,000 $486,000 $ 195,000 342,000 $546,000 798,000 180,000 180,000 $726,000 $1,515,000 3. The production budget (quantity of beach umbrellas) for July-October: Budgeted unit sales ............... Add desired units of ending finished goods inventory...... Total needs ........................... Less units of beginning finished goods inventory...... Required production in units... July 30,000 10,500 40,500 4,500 36,000 August September 70,000 50,000 7,500 3,000 77,500 53,000 10,500 7,500 67,000 45,500 October 20,000 1,500 21,500 3,000 18,500 © The McGraw-Hill Companies, Inc., 2021. All rights reserved. 66 Managerial Accounting, 17th Edition Problem 8-30 (continued) 4 and 5. The direct materials budget for the third quarter: Required production in units of finished goods .......................... Units of raw materials needed per unit of finished goods ................ Units of raw materials needed to meet production ....................... Add desired units of ending raw materials inventory*.................. Total units of raw materials needed ..................................... Less units of beginning raw materials inventory.................... Units of raw materials to be purchased ................................ Unit cost of raw materials............. Cost of raw materials to be purchased ................................ July August September 36,000 67,000 45,500 × 4 × 4 × 4 144,000 268,000 182,000 134,000 91,000 37,000 278,000 359,000 219,000 72,000 134,000 91,000 206,000 225,000 128,000 × $0.80 × $0.80 × $0.80 $164,800 $180,000 $102,400 * September 30: 18,500 units (October) × 4 feet per unit = 74,000 feet 74,000 feet × ½ = 37,000 feet Quarter 148,500 × 4 594,000 37,000 631,000 72,000 559,000 × $0.80 $447,200 © The McGraw-Hill Companies, Inc., 2021. All rights reserved. Solutions Manual, Chapter 8 67 Problem 8-30 (continued) 6. The expected cash disbursements for materials purchases for the third quarter: Accounts payable, June 30 ....................... July purchases: $164,800 × 50%, 50%. August purchases: $180,000 × 50%, 50%. September purchases: $102,400 × 50% ......... Total cash disbursements July August September Quarter $ 76,000 $ 76,000 82,400 $ 82,400 164,800 90,000 $ 90,000 180,000 51,200 51,200 $158,400 $172,400 $141,200 $472,000 © The McGraw-Hill Companies, Inc., 2021. All rights reserved. 68 Managerial Accounting, 17th Edition Problem 8-31 (120 minutes) 1. Schedule of expected cash collections: Cash sales.................... Credit sales .................. Total cash collections .... January February $ 80,000 * $120,000 224,000 * 320,000 $304,000 * $440,000 * Given. March $ 60,000 480,000 $540,000 Quarter $ 260,000 1,024,000 $1,284,000 2. a. Merchandise purchases budget: Budgeted cost of goods sold1 .......................... Add desired ending merchandise inventory2 ................... Total needs................. Less beginning merchandise inventory .................... Required purchases ....... January February March $240,000 * $360,000 * $180,000 90,000 * 45,000 30,000 330,000 * 405,000 210,000 60,000 * 90,000 45,000 $270,000 * $315,000 $165,000 Quarter $780,000 30,000 810,000 60,000 $750,000 1For January sales: $400,000 × 60% cost ratio = $240,000. 2At January 31: $360,000 × 25% = $90,000. At March 31: $200,000 April sales × 60% cost ratio × 25% = $30,000. * Given. b. Schedule of expected cash disbursements for merchandise purchases: December purchases ............ January purchases .. February purchases . March purchases ..... Total cash disbursements for purchases ............ * Given. January February March $ 93,000 * 135,000 * $135,000 * 157,500 $157,500 82,500 $228,000 * $292,500 $240,000 © The McGraw-Hill Companies, Inc., 2021. All rights reserved. Solutions Manual, Chapter 8 Quarter $ 93,000 * 270,000 * 315,000 82,500 $760,500 69 Problem 8-31 (continued) 3. Cash budget: Beginning cash balance ..... Add collections from customers ...................... Total cash available ........... Less cash disbursements: Inventory purchases ....... Selling and administrative expenses** ................. Equipment purchases ..... Cash dividends ............... Total cash disbursements .. Excess (deficiency) of cash available over disbursements ............... Financing: Borrowings .................... Repayments ................... Interest ($80,000 × 1% × 3) .... Total financing .................. Ending cash balance ......... January February $ 48,000 * $ 30,000 304,000 * 440,000 352,000 * 470,000 228,000 * 292,500 129,000 * 0 45,000 * 402,000 * 145,000 1,700 0 439,200 (50,000)* 30,800 80,000 0 0 0 0 80,000 $ 30,000 0 0 $ 30,800 March Quarter $ 30,800 $ 48,000 540,000 1,284,000 570,800 1,332,000 240,000 760,500 121,000 84,500 0 445,500 395,000 86,200 45,000 1,286,700 125,300 45,300 0 80,000 (80,000) (80,000) (2,400) (2,400) (82,400) (2,400) $ 42,900 $ 42,900 * Given. ** February: $27,000 + $70,000 + [$600,000 × (5% + 3%)] = $145,000. © The McGraw-Hill Companies, Inc., 2021. All rights reserved. 70 Managerial Accounting, 17th Edition Problem 8-31 (continued) 4. Income statement: Hillyard Company Income Statement For the Quarter Ended March 31 Sales ......................................................... Cost of goods sold: Beginning inventory (Given)...................... Add purchases (see requirement 2) ........... Goods available for sale ............................ Ending inventory (see requirement 2)........ Gross margin.............................................. Selling and administrative expenses: Salaries and wages ($27,000 × 3) ............. Advertising ($70,000 × 3)......................... Shipping (5% of sales) ............................. Depreciation (given)................................. Other expenses (3% of sales) ................... Net operating income.................................. Interest expense (see requirement 3) .......... Net income ................................................ $1,300,000 $ 60,000 750,000 810,000 30,000 780,000 * 520,000 81,000 210,000 65,000 42,000 39,000 437,000 83,000 2,400 $ 80,600 * A simpler computation would be: $1,300,000 x 60% = $780,000. © The McGraw-Hill Companies, Inc., 2021. All rights reserved. Solutions Manual, Chapter 8 71 Problem 8-31 (continued) 5. Balance sheet: Hillyard Company Balance Sheet March 31 Assets Current assets: Cash (see requirement 3) ............................................ Accounts receivable (80% × $300,000) ........................ Inventory (see requirement 2a).................................... Total current assets ....................................................... Buildings and equipment, net ($370,000 + $86,200 $42,000) ................................. Total assets ................................................................... $ 42,900 240,000 30,000 312,900 414,200 $727,100 Liabilities and Stockholders' Equity Current liabilities: Accounts payable (50% × $165,000)............. Stockholders' equity: Common stock ............................................. Retained earnings* ...................................... Total liabilities and stockholders' equity ............ $ 82,500 $500,000 144,600 644,600 $727,100 * Beginning retained earnings .................. Add net income.................................... Total .................................................... Deduct cash dividends .......................... Ending retained earnings ...................... $109,000 80,600 189,600 45,000 $144,600 © The McGraw-Hill Companies, Inc., 2021. All rights reserved. 72 Managerial Accounting, 17th Edition Case 8-32 (45 minutes) 1. The budgetary control system has several important shortcomings that reduce its effectiveness and may cause it to interfere with good performance. Some of the shortcomings are explained below. a. Lack of Coordinated Goals. Emory had been led to believe highquality output is the goal; it now appears low cost is the goal. Employees do not know what the goals are and thus cannot make decisions that further the goals. b. Influence of Uncontrollable Factors. Actual performance relative to budget is greatly influenced by uncontrollable factors (i.e., rush orders, lack of prompt maintenance). Thus, the variance reports serve little purpose for performance evaluation or for locating controllable factors to improve performance. As a result, the system does not encourage coordination among departments. c. The Short-Run Perspectives. Monthly evaluations and budget tightening on a monthly basis results in a very short-run perspective. This results in inappropriate decisions (i.e., inspect forklift trucks rather than repair inoperative equipment, fail to report supplies usage). d. System Does Not Motivate. The budgetary system appears to focus on performance evaluation even though most of the essential factors for that purpose are missing. The focus on evaluation and the weaknesses take away an important benefit of the budgetary system--employee motivation. 2. The improvements in the budgetary control system should correct the deficiencies described above. The system should: a. more clearly define the company's objectives. b. develop an accounting reporting system that better matches controllable factors with supervisor responsibility and authority. c. establish budgets for appropriate time periods that do not change monthly simply as a result of a change in the prior month's performance. The entire company from top management down should be educated in sound budgetary procedures. (Unofficial CMA Solution, adapted) © The McGraw-Hill Companies, Inc., 2021. All rights reserved. Solutions Manual, Chapter 8 73 Case 8-33 (120 minutes) 1. a. Sales budget: Budgeted unit sales ... Selling price per unit.. Total sales ................ April May June Quarter 65,000 100,000 50,000 215,000 × $10 × $10 × $10 × $10 $650,000 $1,000,000 $500,000 $2,150,000 b. Schedule of expected cash collections: February sales (10%) $ 26,000 March sales (70%, 10%) ........... 280,000 $ 40,000 April sales (20%, 70%, 10%) .. 130,000 455,000 May sales (20%, 70%) ........... 200,000 June sales (20%) ...... Total cash collections . $436,000 $695,000 $ 26,000 320,000 $ 65,000 650,000 700,000 900,000 100,000 100,000 $865,000 $1,996,000 c. Merchandise purchases budget: Budgeted unit sales ... 65,000 Add desired ending merchandise inventory ............... 40,000 Total needs ............... 105,000 Less beginning merchandise inventory ............... 26,000 Required purchases ... 79,000 Cost of purchases at $4 per unit ............. $316,000 100,000 50,000 215,000 20,000 120,000 12,000 62,000 12,000 227,000 40,000 80,000 20,000 42,000 26,000 201,000 $320,000 $168,000 $ 804,000 d. Budgeted cash disbursements for merchandise purchases: Accounts payable ....... April purchases .......... May purchases ........... June purchases .......... Total cash payments ... $100,000 158,000 $258,000 $ 100,000 $158,000 316,000 160,000 $160,000 320,000 84,000 84,000 $318,000 $244,000 $ 820,000 © The McGraw-Hill Companies, Inc., 2021. All rights reserved. 74 Managerial Accounting, 17th Edition Case 8-33 (continued) 2. Earrings Unlimited Cash Budget For the Three Months Ending June 30 Beginning cash balance ..... Add collections from customers ...................... Total cash available ........... Less cash disbursements: Merchandise purchases... Advertising .................... Rent .............................. Salaries ......................... Commissions (4% of sales) .......................... Utilities .......................... Equipment purchases ..... Dividends paid ............... Total cash disbursements .. Excess (deficiency) of cash available over disbursements ............... Financing: Borrowings .................... Repayments ................... Interest ($170,000 × 1% × 3 + $10,000 × 1% × 2) ..... Total financing .................. Ending cash balance ......... April May June Quarter $ 74,000 $ 50,000 $ 50,000 $ 74,000 436,000 695,000 865,000 1,996,000 510,000 745,000 915,000 2,070,000 258,000 200,000 18,000 106,000 318,000 200,000 18,000 106,000 244,000 200,000 18,000 106,000 820,000 600,000 54,000 318,000 26,000 7,000 0 15,000 630,000 40,000 7,000 16,000 0 705,000 20,000 7,000 40,000 0 635,000 86,000 21,000 56,000 15,000 1,970,000 (120,000) 170,000 0 40,000 280,000 100,000 10,000 0 180,000 0 (180,000) (180,000) 0 0 (5,300) (5,300) 170,000 10,000 (185,300) (5,300) $ 50,000 $ 50,000 $ 94,700 $ 94,700 © The McGraw-Hill Companies, Inc., 2021. All rights reserved. Solutions Manual, Chapter 8 75 Case 8-33 (continued) 3. Earrings Unlimited Budgeted Income Statement For the Three Months Ended June 30 Sales (see requirement 1a.) ...................... Variable expenses: Cost of goods sold (@ $4 per unit).......... Commissions @ 4% of sales ................... Contribution margin.................................. Fixed expenses: Advertising ($200,000 × 3)..................... Rent ($18,000 × 3) ................................ Salaries ($106,000 × 3) ......................... Utilities ($7,000 × 3) .............................. Insurance ($3,000 × 3) .......................... Depreciation ($14,000 × 3) .................... Net operating income ............................... Interest expense (see requirement 2) ........ Net income .............................................. $2,150,000 $860,000 86,000 946,000 1,204,000 600,000 54,000 318,000 21,000 9,000 42,000 1,044,000 160,000 5,300 $ 154,700 © The McGraw-Hill Companies, Inc., 2021. All rights reserved. 76 Managerial Accounting, 17th Edition Case 8-33 (continued) 4. Earrings Unlimited Budgeted Balance Sheet June 30 Assets Cash (see requirement 2)............................................... Accounts receivable (see below) ..................................... Inventory (12,000 units @ $4 per unit) ........................... Prepaid insurance ($21,000 $9,000)............................. Property and equipment, net ($950,000 + $56,000 $42,000) ................................. Total assets................................................................... $ 94,700 500,000 48,000 12,000 964,000 $1,618,700 Liabilities and Stockholders' Equity Accounts payable, purchases (50% × $168,000) ............. Dividends payable ......................................................... Common stock .............................................................. Retained earnings (see below) ....................................... Total liabilities and stockholders' equity ........................... $ 84,000 15,000 800,000 719,700 $1,618,700 Accounts receivable at June 30: 10% × May sales of $1,000,000 ............ $100,000 80% × June sales of $500,000 .............. 400,000 Total.................................................... $500,000 Retained earnings at June 30: Balance, March 31 ................................ $580,000 Add net income (see requirement 3) ...... 154,700 Total.................................................... 734,700 Less dividends declared ........................ 15,000 Balance, June 30 .................................. $719,700 © The McGraw-Hill Companies, Inc., 2021. All rights reserved. Solutions Manual, Chapter 8 77Word macOS Version 10.15.4 (Build 19E287) Quartz PDFContext