Introduction to Management Accounting Solutions Manual

Problems: Set A

(60 min.) P 9-59A

P9-59A Comprehensive budgeting problem (Learning Objectives 2 & 3)

Requirements
1. Prepare a schedule of cash collections for January, February, and March, and for the quarter
in total.
2. Prepare a production budget.
3. Prepare a direct materials budget.
4. Prepare a cash payments budget for the direct material purchases from Requirement 3.
5. Prepare a cash payments budget for conversion costs.
6. Prepare a cash payments budget for operating expenses.
7. Prepare a combined cash budget.
8. Calculate the budgeted manufacturing cost per unit.
9. Prepare a budgeted income statement for the quarter ending March 31.
Solution:
Given
Sales Budget
December January February March April May
Unit sales 7,000 8,000 9,200 9,900 9,700 8,500
Unit selling price $ 10 $ 10 $ 10 $ 10 $ 10 $ 10
Total sales Revenue $ 70,000 $ 80,000 $ 92,000 $ 99,000 $ 97,000 $ 85,000

Req. 1
Cash Collections
January February March Quarter
Cash Sales (30%) $24,000 $27,600 $29,700 $81,300
Credit Sales (70%) $ 49,000 $ 56,000 $ 64,400 $ 169,400
Total Cash Collections $73,000 $83,600 $94,100 $250,700

Req. 2
Production Budget
January February March Quarter
Unit Sales* 8,000 9,200 9,900 27,100
Plus: Desired ending inventory 2,300 2,475 2,425 2,425
Total Needed 10,300 11,675 12,325 29,525
Less: Beginning inventory 2,000 2,300 2,475 2,000
Units to produce 8,300 9,375 9,850 27,525

Req. 3

Direct Materials Budget

January February March Quarter
Units to be produced 8,300 9,375 9,850 27,525
x Pounds of DM needed per unit 2 2 2 2
Quantity (pounds) needed for production 16,600 18,750 19,700 55,050
Plus: Desired ending inventory of DM 1,875 1,970 1,625 1,625
Total quantity (pounds) needed 18,475 20,720 21,325 56,675
Less: Beginning inventory of DM 1,660 1,875 1,970 1,660
Quantity (pounds)to purchase 16,815 18,845 19,355 55,015
x Cost per pound 2 2 2 2
Total cost of DM purchases $33,630 $37,690 $38,710 $110,030

April May
Unit Sales 9,700 8,500
Desired end inventory (10%) 850
Total needed 10,550
Beginning inventory 2,425
Units to produce 8,125
DM needed per unit 2
Dm need for production 16,250
20% of DM

Req. 4
Schedule of Expected Cash DisbursementsMaterial Purchases
January February March Quarter
December purchases (From Accounts Payable) $42,400 $42,400
January purchases $6,726 $5,381 $12,107
February purchases $7,538 $30,152 $37,690
March purchases $6,030.40 $6,030
Total cash payments for direct material
purchases $49,126 $12,919 $36,182 $98,227

Chapter 9: The Master Budget and Responsibility Accounting 1

Introduction to Management Accounting Solutions Manual

Req. 5

Schedule of Expected Cash DisbursementsConversion Costs

January February March Quarter
Variable conversion costs $9,960 $11,250 $11,820 $33,030
Rent (fixed) $5,000 $5,000 $5,000 $15,000
Other fixed MOH $ 3,000 $ 3,000 $ 3,000 $9,000
Total payments for conversion costs $17,960 $19,250 $19,820 $57,030

Req. 6

Schedule of Expected Cash Disbursements -- Operating Expenses

January February March Quarter
Variable operating expenses $ 8,000 $ 9,200 $ 9,900 $ 27,100
Fixed operating expenses $ 1,000 $ 1,000 $ 1,000 $ 3,000
Total payments for operating expenses $ 9,000 $ 10,200 $ 10,900 $ 30,100

Req. 7
Combined Cash Budget
January February March Quarter
Cash balance, beginning $4,500 $4,414 $26,645 $4,500
Add cash collections 73,000 83,600 94,100 250,700
Total cash available 77,500 88,014 120,745 255,200
Less cash payments
Direct material purchases 49,126 12,919 36,182 98,227
Conversion costs 17,960 19,250 19,820 57,030
Operating expenses 9,000 10,200 10,900 30,100
Equipment purchases 5,000 12,000 16,000 33,000
Tax payment 10,000 10,000
Total cash payments 81,086 64,369 82,902 228,357
Ending cash balance before financing -3,586 23,645 37,843 26,843
Financing:
Borrowings 8,000 3,000 11,000
Repayments -9,000 -9,000
Interest Payments -280 -280
Total financing 8,000 3,000 -9,280 1,720
Ending Cash balance $4,414 $26,645 $28,563 $28,563

Total interest $280

Req. 8

Budgeted Manufacturing Cost per Unit

Direct material cost per unit: 2 lbs. each x $2
per lb. $4.00
Conceversion cost per unit: $1.20 each $1.20
Fixed manufacturing overhead per unit:
$0.80 each $0.70
Budgeted cost of manufacturing each unit $5.90

Req. 9

Silverman Manufacturing
Budgeted Income Statement
For the Quarter Ended March 31
Sales $ 271,000
Cost of goods sold* -159,890
Gross profit 111,110
Operating expenses 30,100
Depreciation -4,800
Operating income 85,810
Less interest expense -280
Less provision for income taxes 26,023
Net income $59,507

Chapter 9: The Master Budget and Responsibility Accounting 2