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Exercise B1: K, a retailer, provides the following data for years N0 and N1:

December 31 December 31
N0 N1
Cash 200.000
Trade accounts receivable 84.000 78.000
Merchandise inventory 150.000 140.000
Accounts payable -
merchandise 95.000 98.000

Budgeted sales for N1 are 1.200.000€ and Sales for N0 were 1.100.000€. Cash sales

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average 20 percent of total sales each year. Cost of goods sold for N1 is estimated to

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be 840.000€.

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Budgeted N1 variable operating expenses are 120.000€. They vary in proportion to
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sales and are paid 50 percent in the year incurred and 50 percent the following year.
Unpaid variable expenses are not included in accounts payable above.
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Fixed operating expenses, including 35.000€ depreciation and 5.000€ uncollectible

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accounts expense, total 100.000€ per year. Such expenses involving cash payments
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are paid 80 percent in the year incurred and 20 percent the following year. Unpaid
fixed expenses are not included in accounts payable above.
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Prepare a cash budget for N1 with supporting computations on cash collections from
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credit sales and cash disbursements for purchases of merchandise and operating
expenses (Shim, 1998).
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Cash Budget
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Beginning balance 200.000

Collections (a) 1.201.000
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Total 1.401.000
Disbursements:
Purchases of merchandise (b) 827.000
Operating expenses (c ) 175.000
Total disbursements 1.002.000
Ending balance 399.000

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a)
Trade accounts receivable, December 31, N0, collected in N1 84.000
Budgeted N1 cash sales (1.200.000 * 20%) 240.000
Budgeted N1 charge sales (1.200.000 *80%) 960.000
(-) Uncollectible accounts expense 5.000
Trade accounts receivable, December 31, N1 78.000 83.000
Cash collected in N1 1.201.000

b)
Cash disbursements for purchases of merchandise:
Cost of goods sold, N 840.000
Inventory, December 31, N1 140.000
Cost of goods available for sale 980000
(-) Inventory, December 31, N0 150.000

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Purchases, N1 830.000

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Increase in accounts payable -merchandise 3.000

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Cash disbursed in 19B for purchases of merchandise 827.000

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c)
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Cash disbursements for operating expenses:
Variable operating expenses:
N1 expenses of 120.000, 50% paid in N1 60.000
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N0 expenses of 110.000 50% paid in N1 55.000

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115.000
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Fixed operating expenses:

Total for each year 100.000
(-) Depreciation and uncollectible accounts expense 40000
Fixed operating expenses involving cash payments each year 60.000
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N0 paid in N1 (60,000 * 20%) 12.000

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N1 paid in N1 (60.000 * 80%) 48.000 60.000

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Cash disbursed in N1 for variable and fixed operating expenses 175.000

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Budgeting Exercises
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Exercise B2: The R Company marks up all merchandise at 25 percent of gross

purchase price. All purchases are made on account with terms of deducting 1% of
the net amount within 10 days of the invoice date. The payment is due 60 days after
the invoice date. Purchase discounts, which are recorded as miscellaneous income,
are always taken. Normally, 60 percent of each month’s purchases are paid for in the
month of purchase, while the other 40 percent are paid during the first 10 days of
the first month after purchase. Inventories of merchandise at the end of each month
are kept at 30 percent of the next month’s projected cost of goods sold. Terms for
sales on account are 2% of discount within 10 days of the invoice date. The collection
is due 30 days after the invoice date. Cash sales are not subject to discount. Fifty

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percent of each month’s sales on account are collected during the month of sale, 45

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percent are collected in the succeeding month, and the remainder are usually

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uncollectible. Seventy percent of the collections in the month of sale are subject to

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discount, while 10 percent of the collections in the succeeding month are subject to
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discount. Projected sales data for selected months follow (Fetyko & Christensen,
1977):
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Sales
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Total
(€) Account - Gross Cash Sales Sales
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December 1.900.000 400.000 2.300.000

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January 1.500.000 250.000 1.750.000

February 1.700.000 350.000 2.050.000
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March 1.600.000 300.000 1.900.000

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Calculate:
a) Projected gross purchases for January and Projected inventory at the end of
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December.
b) Projected payments to suppliers during February.
c) Projected sales discounts to be taken by customers making remittances and
total collections from customers during February.

Budgeting Exercises
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a)
Ending inventory, January 31:
30% of February cost of goods sold
30% x (February sales / 1,25)
30% x (2.050.000/1,25 492.000
(+) Planned sales at cost during January
1.750.000 / 1,25 1.400.000
Total needs 1.892.000
(-) Ending inventory, December 31:
30% of January cost of goods sold
30% x (1.400.000) 420.000
Gross purchase for January 1.472.000

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aC s
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Budgeting Exercises
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b)
Endind inventory, February 28
30% of March cost of goods sold
30% x (1.520.000) 456.000
(+) Planned sales at cost, February
2.050.000/1,25 1.640.000
Total needs 2.096.000
(-) Ending inventory, January 31:
(from paragraph a)) 492.000
Gross purchase for February 1.604.000

Total February payments to suppliers

From January purchases:
99% x 40% x 1.472.000 582.912

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From February purchases:
99% x 60% x 1.604.000 952.776

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Total February payments 1.535.688

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c)
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January sales on account, 1.500.000
45% of sales collected in February
0,45 x 1.500.000 = 675.000
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10% subject to discount

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0,1 x 675.000 = 67.500

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2% discount taken in February

0,02 x 67.500 1.350
February sales on account, 1.700.000
50% of sales collected in February
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0,5 x 1.700.000 = 850.000

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70% subject to discount

0,7 x 850.000 = 595.000
2% discount taken in February
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0,02 x 595.000 11.900

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Total discounts taken in February 13.250

February cash sales 350.000

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Collections on February sales on account

50% of sales collected in February less discounts
850.000 - 11.900 838.100
Collections on January sales on account
45% of sales collected in February less discounts
675.000 - 1.350 673.650
Total February cash collections 1.861.750

Budgeting Exercises
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 6

Exercise B3: Landon Awards Co. budgeted production of 47.000 brass plaques in
2010. Brass sheet is required to produce a brass plaque. Assume 96 square inches
of brass sheet are required for each brass plaque. The estimated January 1, 2010,
brass sheet inventory is 240.000 square inches. The desired December 31, 2010,
brass sheet inventory is 200.000 square inches and brass sheet costs 0.12€ per
square inch. Each plaque requires engraving. 12 minutes are required to engrave
each plaque and the engraving labor costs are 11€ per hour. Assume the estimated
inventories on January 1, 2010, for finished goods and work in process were 54.000
and 47.000, respectively and the desired inventories on December 31, 2010, for
finished goods and work in process were 50.000 and 49.000, respectively. Factory

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overhead was budgeted for 126.000€. Prepare a cost of goods sold budget (Warren

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et al., 2008).

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Squares inches rq for prod.
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Brass sheet (47.000*96 sq. In.) 4.512.000
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Desired ending inventory 200.000
Total needs 4.712.000
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Estimated beginning inventory 240.000

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Total purchases 4.472.000

Unit price 0,12
Direct Materials to be purchased 536.640
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Hours required for engraving

Brass plaque (47.000*12m) 564.000 m
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convert m to h 9.400 h
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Hourly rate 11 €/h

Total Direct Labor Cost 103.400
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Finished good inventory (beginning) 54.000

Work in process inventory (beginning) 47.000
Direct Materials
Direct Materials Inventory (beg) 28.800
(240.000*0,12)
(+) Direct Materials Purchased 536.640
Cost of DM available for use 565.440
(-) Direct Materials Inventory (end)
(200.000*0,12) 24.000

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Cost of DM placed in production 541.440

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Direct Labor Cost 103.400

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Factory Overhead rs e 126.000
Total Manufacturing Costs 770.840
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Total Work in Process during period 817.840
(-) Work in process inventory (end) 49.000
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Cost of goods manufactured 768.840

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Cost of finished goods for sale 822.840

(-) Finished good inventory (end) 50.000
Cost of goods sold 772.840
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References
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Fetyko, D. F., & Christensen, E. L. (1977). CPA review: problems and solutions:
Wadsworth Pub. Co.
Shim, J. K. (1998). Schaum's Guideline of Managerial Accounting: McGraw-Hill
Education.
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Warren, C., Reeve, J., & Duchac, J. (2008). Financial & Managerial Accounting:
Cengage Learning.

Budgeting Exercises
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