Introduction to Management Accounting Solutions Manual

Problems: Set A
P9-54A Comprehensive budgeting problem (Learning Objectives 2 & 3)
Solution:
Given

Sales Budget
December January February March April May
Unit sales* 5,067 5,340 5,940 5,520 5,700 5,160
Unit selling price $ 15 $ 15 $ 15 $ 15 $ 15 $ 15
Total sales Revenue $ 76,000 $ 80,100 $ 89,100 $ 82,800 $ 85,500 $ 77,400
*Hint: Unit sales = Sales in dollars ÷ Selling price per unit

Req. 1

Cash Collections Budget

January February March Quarter
Cash Sales (30%) $24,030 $ 26,730 $24,840 $75,600
Credit sales (70%) $ 53,200 $ 56,070 $ 62,370 $ 171,640
Total collections $ 77,230 $ 82,800 $87,210 $247,240

Req. 2

Production Budget
January February March Quarter
Unit sales 5,340 5,940 5,520 $16,800
Plus: Desired ending inventory (10%) 594 552 570 570
Total needed 5,934 6,492 6,090 17,370
Lesss: Beginning inventory 534 594 552 534
Units to produce 5,400 5,898 5,538 16,836

Req. 3

Direct Materials Budget

January February March Quarter
Units to be produced 5,400 5,898 5,538 16,836
Multiply by: Quantity of DM needed per unit 2 2 2 2
Quantity of DM needed for production 10,800 11,796 11,076 33,672
Plus: Desired ending inventory of DM (20%) 2,359 2,215 2,258 2,258
Total quantity of DM needed 13,159 14,011 13,334 35,930
Less: Beginning inventory of DM 2,160 2,359 2,215 2,160
Quantity of DM to purchase 10,999 11,652 11,119 33,770
Multiply by: Cost per pound $ 1.50 $ 1.50 $ 1.50 $ 1.50
Total cost of DM purchases $16,499 $17,478 $16,679 $50,656

April May
Unit Sales 5,700 5,160
Plus: Desired End Inventory (25%) 516
Total Needed 6,216
Less: Beginning Inventory 570
Units to produce 5,646
DM needed per unit 2
Quantity of DM needed for production 11,292

Req. 4

Cash Payments for Direct Material Purchases Budget

January February March Quarter
December purchases (From AP) $43,000 $43,000
January purchases $3,300 $13,199 $16,499
February purchases $3,496 $13,982 $59,499
March purchases $3,336 $3,336
Total disbursements $46,300 $16,695 $17,318 $80,313

a
33,630 x 20%
e
39,220 x 20%
Req. 5

Cash Payments for Direct Labor Costs

January February March Quarter
Direct Labor $2,106 $2,301 $2,160 $6,566

Chapter 9: The Master Budget and Responsibility Accounting 1

Introduction to Management Accounting Solutions Manual

Req. 6

Cash Payments for Manufacturing Overhead Budget

January February March Quarter
Rent (fixed) $6,500 $6,500 $6,500 $19,500
Other MOH (fixed) $2,900 $2,900 $2,900 $8,700
Variable manufacturing overhead $ 7,560 $ 8,257 $ 7,753 $ 23,570
Total disbursements $16,960 $17,657 $17,153 $51,770

Req. 7

Cash Payments for Operating Expenses Budget

January February March Quarter
Variable operating expenses $ 6,408 $ 7,128 $ 6,624 $ 20,160
Fixed operating expenses $ 1,400 $ 1,400 $ 1,400 $ 4,200
Total disbursements $ 7,808 $ 8,528 $ 8,024 $ 24,360

* Hint: Units sold x Variable operating expenses per unit sold ($1.25)

Req. 8
Combined Cash Budget
January February March Quarter
Cash balance, beginning $4,460 $4,716 $19,935 $4,460
Plus: cash collections (req. 1) 77,230 82,800 87,210 247,240
Total cash available 81,690 87,516 107,145 251,700
Less cash payments:
DM purchases (req. 4) 46,300 16,695 17,318 80,313
Direct labor (req. 5) 2,106 2,301 2,160 6,567
MOH costs (req 6) 16,960 17,657 17,153 51,770
Operating expenses (req 7) 7,808 8,528 8,024 24,360
Tax payment 10,800 10,800
Equipment purchases 5800 11,600 15800 33,200
Total cash payments 78,974 67,581 60,455 207,010
Ending cash before financing 2,716 19,935 46,690 44,690
Financing:
Borrowings 2,000 2,000
Repayments -2000 -2,000
Interest -75 -75
Total financing 2,000 2,075 -75
Cash balance, ending $4,716 $19,935 $44,616 $44,616

Req. 9

Budgeted Manufacturing Cost per Unit

Direct materials cost per unit $3.00
Direct labor cost per unit $0.39
Variable MOH cost per unit $1.40
Fixed MOH per unit (given in problem) $0.80
Cost of manufacturing each unit $5.59

Req. 10

Damon Manufacturing
Budgeted Income Statement
For the Quarter Ended March 31
Sales $ 252,000
Cost of goods sold 93,912
Gross profit 158,088
Operating expenses 24,360
Depreciation expense 4,400
Operating income 129,328
Less: interest expense 75
Less: provision for income tax @ 30% 38,723
Net income $90,530

Chapter 9: The Master Budget and Responsibility Accounting 2