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
Unit sales $ 7,000 $ 8,000 $ 9,200 $ 9,900
Unit selling price $ 10 $ 10 $ 10 $ 10
Total sales Revenue $ 70,000 $ 80,000 $ 92,000 $ 99,000

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

Chapter 9: The Master Budget and Responsibility Accounting 1

Introduction to Management Accounting Solutions Manual

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 $ 1,880 $ 1,880
Total quanity (pounds) needed $ 18,475 $ 20,720 $ 21,580 $ 56,930
Less: Beginning inventory of DM $ 1,660 $ 1,875 $ 1,970 $ 1,660
Quantity (pounds) to purcahse $ 16,815 $ 18,845 $ 19,610 $ 55,270
X Cost per pound $ 2 $ 2 $ 2 $ 2
Total cost of DM purcahses $ 33,630 $ 37,690 $ 39,220 $ 110,540

April May
Unit sales $ 9,700 $ 8,500
Desired end inventory (25%) $ 2,125
Total needed $ 11,825
Beginning inventory $ 2,425
Units to produce $ 9,400
DM needed per unit $ 2
DM needed for production $ 18,800
10% of DM

Req. 4

Schedule of Expected Cash Disbursements—Material Purchases

January February March Quarter
December purchases (from Accounts Payable) $ 42,400 $ 42,400
January purchases $ 6,726 $ 26,904 $ 33,630
February purchases $ 7,538 $ 30,152 $ 37,690
March purchases
Total cash payments for direct material $ 7,844 $ 7,844
purchases $ 49,126 $ 34,442 $ 37,996 $ 121,564

Chapter 9: The Master Budget and Responsibility Accounting 2

Introduction to Management Accounting Solutions Manual

Req. 5

Schedule of Expected Cash Disbursements—Conversion 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 $ 4,122 $ 4,500
Add cash collections $ 73,000 $ 83,600 $ 94,100 $ 250,700
Total cash available $ 77,500 $ 88,014 $ 98,222 $ 255,200
Less cash payments:
Direct material purchases $ 49,126 $ 34,442 $ 37,996 $ 121,564
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 $ 85,892 $ 84,716 $ 251,694
Ending cash balance before financing $ (3,586) $ 2,122 $ 13,506 $ 3,506
Financing:
Borrowings $ 8,000 $ 2,000 $ 10,000
Repayments $ (9,000) $ (9,000)
Interest Payments $ (280) $ (280)
Total financing $ 8,000 $ 2,000 $ (9,280) $ 720
Cash balance, ending $ 4,414 $ 4,122 $ 4,226 $ 4,226

Total interest $ 280

Chapter 9: The Master Budget and Responsibility Accounting 3

Introduction to Management Accounting Solutions Manual

Req. 8

Budgeted Manufacturing Cost per Unit

Direct materials cost per unit $ 4
Conversion costs per unit $ 1
Fixed anufacturing overhead per unit $ 1
Budgeted cost of manufacturing each unit $ 6

Req. 9

Silverman Manufacturing
Budgeted Income Statement
For the Quarter Ended March 31
Sales $ 271,000
Cost of goods sold $ (162,600)
Gross profit $ 108,400
Operating expenses $ 30,100
Depreciation $ 4,800
Operating income $ 73,500
Less interest expense $ (280)
Less provision for income taxes $ 21,966
Net income $ 51,254

Chapter 9: The Master Budget and Responsibility Accounting 4

 Introduction to Management Accounting Solutions Manual

60 min.) P 9-59A

April May
$ 9,700 $ 8,500
$ 10 $ 10
$ 97,000 $ 85,000

Chapter 9: The Master Budget and Responsibility Accounting 5