LT 10 Budget Hilton's Ex

Graduate School of Business
BUDGETING
Practice Exercises from Hiltons book
Lt 10
By
Anna Rowe
Anna.rowe@gsb.curtin.edu.au
CRICOS Provider Code 00301J
Sales Budget
Breakers,
Breakers, Inc.
Inc. is
is preparing
preparing budgets
budgets for
for the
the
quarter
quarter ending
ending June
June 30.
30.
Budgeted
Budgeted sales
sales for
for the
the next
next five
five months
months are:
are:
April
April
May
May
June
June
July
July
August
August
20,000
20,000 units
units
50,000
50,000 units
units
30,000
30,000 units
units
25,000
25,000 units
units
15,000
15,000 units.
units.
The
The selling
selling price
price is
is $10
$10 per
per unit.
unit.
Sales Budget
Budgeted
Budgeted
sales
sales (units)
(units)
Selling
Selling price
price
per
per unit
unit
Total
Total
Revenue
Revenue
$$
April
April
May
May
June
June
20,000
20,000
50,000
50,000
30,000
30,000
10
10
$$200,000
200,000
$$
10
10
$$500,000
500,000
$$
10
10
$$300,000
300,000
Quarter
Quarter
100,000
100,000
$$
10
10
$$1,000,000
1,000,000
Production Budget
Sales
Budget
ed
t
e
pl
m
o
C
Production
Budget
Production must be adequate to meet budgeted

sales and provide for sufficient ending inventory.
Production Budget
The
The management
management of
of Breakers,
Breakers, Inc.
Inc. wants
wants
ending
ending inventory
inventory to
to be
be equal
equal to
to 20%
20% of
of the
the
following
following months
months budgeted
budgeted sales
sales in
in units.
units.
On
On March
March 31,
31, 4,000
4,000 units
units were
were on
on hand.
hand.
Lets
Lets prepare
prepare the
the production
production budget.
budget.
Production Budget
Sales
Salesin
inunits
units
Add:
Add: desired
desired
end.
end. inventory
inventory
Total
Totalneeded
needed
Less:
Less: beg.
beg.
inventory
inventory
Units
Unitsto
tobe
be
started
started
April
April
20,000
20,000
From sales
budget
May
May
June
June
Quarter
Quarter
Production Budget
Sales
Salesin
inunits
units
Add:
Add: desired
desired
end.
end. inventory
inventory
Total
Totalneeded
needed
Less:
Less: beg.
beg.
inventory
inventory
Units
Unitsto
tobe
be
started
started
April
April
20,000
20,000
10,000
10,000
30,000
30,000
May
May
June
June
Quarter
Quarter
Production Budget
Sales
Salesin
inunits
units
Add:
Add: desired
desired
end.
end. inventory
inventory
Total
Totalneeded
needed
Less:
Less: beg.
beg.
inventory
inventory
Units
Unitsto
tobe
be
started
started
April
April
20,000
20,000
May
May
June
June
10,000
10,000
30,000
30,000
4,000
4,000
26,000
26,000
March 31
ending inventory
Quarter
Quarter
Production Budget
Sales
Salesin
inunits
units
Add:
Add: desired
desired
end.
end. inventory
inventory
Total
Totalneeded
needed
Less:
Less: beg.
beg.
inventory
inventory
Units
Unitsto
tobe
be
started
started
April
April
20,000
20,000
May
May
50,000
50,000
10,000
10,000
30,000
30,000
6,000
6,000
56,000
56,000
4,000
4,000
10,000
10,000
26,000
26,000
46,000
46,000
June
June
Quarter
Quarter
Production Budget
Sales
Salesin
inunits
units
Add:
Add: desired
desired
end.
end. inventory
inventory
Total
Totalneeded
needed
Less:
Less: beg.
beg.
inventory
inventory
Units
Unitsto
tobe
be
started
started
April
April
20,000
20,000
May
May
50,000
50,000
June
June
30,000
30,000
Quarter
Quarter
100,000
100,000
10,000
10,000
30,000
30,000
6,000
6,000
56,000
56,000
5,000
5,000
35,000
35,000
5,000
5,000
105,000
105,000
4,000
4,000
10,000
10,000
6,000
6,000
4,000
4,000
26,000
26,000
46,000
46,000
29,000
29,000
101,000
101,000
Direct-Material Budget
At
At Breakers,
Breakers, five
five pounds
pounds of
of material
material are
are
required
required per
per unit
unit of
of product.
product.
Management
Management wants
wants materials
materials on
on hand
hand at
at the
the
end
end of
of each
each month
month equal
equal to
to 10%
10% of
of the
the
following
following months
months production.
production.
On
On March
March 31,
31, 13,000
13,000 pounds
pounds of
of material
material are
are on
on
hand.
hand. Material
Material cost
cost $.40
$.40 per
per pound.
pound.
Lets
Lets prepare
prepare the
the direct
direct materials
materials budget.
budget.
From our
production
budget
10% of the following

months production
March 31
inventory
July
July Production
Production
Sales
Salesin
in units
units
Add:
Add:desired
desired ending
ending inventory
inventory
Total
Total units
unitsneeded
needed
Less:
Less:beginning
beginning inventory
inventory
Production
Production in
in units
units
25,000
25,000
3,000
3,000
28,000
28,000
5,000
5,000
23,000
23,000
June Ending Inventory

July production in units
23,000
Materials per unit
5
Total units needed
115,000
Inventory percentage
10%
June desired ending inventory
11,500
Direct-Labor Budget
At
At Breakers,
Breakers, each
each unit
unit of
of product
product requires
requires 0.1
0.1 hours
hours
of
of direct
direct labor.
labor.
The
The Company
Company has
has aa no
no layoff
layoff policy
policy so
so all
all
employees
employees will
will be
be paid
paid for
for 40
40 hours
hours of
of work
work each
each
week.
week.
In
In exchange
exchange for
for the
the no
no layoff
layoff policy,
policy, workers
workers agreed
agreed
to
to aa wage
wage rate
rate of
of $8
$8 per
per hour
hour regardless
regardless of
of the
the hours
hours
worked
worked (No
(No overtime
overtime pay).
pay).
For
For the
the next
next three
three months,
months, the
the direct
direct labor
labor workforce
workforce
will
will be
be paid
paid for
for aa minimum
minimum of
of 3,000
3,000 hours
hours per
per month.
month.
Lets
Lets prepare
prepare the
the direct
direct labor
labor budget.
budget.
Direct-Labor Budget
From our
production
budget
Direct-Labor Budget
Direct-Labor Budget
This is the greater of

labor hours required or
labor hours guaranteed.
Direct-Labor Budget
Overhead Budget
Here is Breakers Overhead Budget for the quarter.
Selling and Administrative Expense Budget

At
At Breakers,
Breakers, variable
variable selling
selling and
and
administrative
administrative expenses
expenses are
are $0.50
$0.50 per
per unit
unit
sold
sold..
Fixed
Fixed selling
selling and
and administrative
administrative expenses
expenses
are
are $70,000
$70,000 per
per month.
month.
The
The $70,000
$70,000 fixed
fixed expenses
expenses include
include
$10,000
$10,000 in
in depreciation
depreciation expense
expense that
that does
does
not
not require
require aa cash
cash outflows
outflows for
for the
the month.
month.
From our
Sales budget
Cash Receipts Budget
At
At Breakers,
Breakers, all
all sales
sales are
are on
on account.
account.
The
The companys
companys collection
collection pattern
pattern is:
is:
70%
70% collected
collected in
in the
the month
month of
of sale,
sale,
25%
25% collected
collected in
in the
the month
month following
following sale,
sale,
5%
5% is
is uncollected.
uncollected.
The
The March
March 31
31 accounts
accounts receivable
receivable
balance
balance of
of $30,000
$30,000 will
will be
be collected
collected in
in full.
full.
Cash Disbursement Budget

Breakers
Breakers pays
pays $0.40
$0.40 per
per pound
pound for
for its
its
materials.
materials.
One-half
One-half of
of aa months
months purchases
purchases are
are paid
paid for
for in
in
the
the month
month of
of purchase;
purchase; the
the other
other half
half is
is paid
paid in
in
the
the following
following month.
month.
No
No discounts
discounts are
are available.
available.
The
The March
March 31
31 accounts
accounts payable
payable balance
balance is
is
$12,000.
$12,000.
140,000 lbs. $.40/lb. = $56,000


Continued
Breakers:
Breakers:
Maintains
Maintains aa 12%
12% open
open line
line of
of credit
credit for
for $75,000.
$75,000.
Maintains
Maintains aa minimum
minimum cash
cash balance
balance of
of $30,000.
$30,000.
Borrows
Borrows and
and repays
repays loans
loans on
on the
the last
last day
day of
of the
the
month.
month.
Pays
Pays aa cash
cash dividend
dividend of
of $25,000
$25,000 in
inApril.
April.
Purchases
Purchases $143,700
$143,700 of
of equipment
equipment in
in May
May and
and
$48,300
$48,300 in
in June
June paid
paid in
in cash.
cash.
Has
Has an
an April
April 11 cash
cash balance
balance of
of $40,000
$40,000..

Continued
From our Cash

Receipts Budget

Continued
From our Cash

Disbursements
Budget

Continued
From our Direct

Labor Budget

Continued
From our
Overhead Budget

Continued
From our
Selling and Administrative
Expense Budget

Continued
To maintain a cash
balance of $30,000,
Breakers must borrow
$35,000 on its line of credit.

Financing and Repayment
Ending cash balance for April

is the beginning May balance.

Continued
Breakers must
borrow an
addition $13,800
to maintain a
cash balance
of $30,000.


Continued
At the end of June, Breakers
has enough cash to repay
the $48,800 loan plus interest
at 12%.


Continued

Budgeted Income Statement

Cash
Budget
m
o
C
pl
ed
t
e
Budgeted
Income
Statement
After we complete the cash budget, we can prepare

the budgeted income statement for Breakers.
Budgeted Ending Inventory

Manufacturing overhead is applied on the basis of direct labor
hours.
Production
Productioncosts
costsper
perunit
unit
Direct
Directmaterials
materials
Direct
Directlabor
labor
Manufacturing
Manufacturingoverhead
overhead
Quantity
Quantity
5.00
5.00 lbs.
lbs.
0.10
0.10 hrs.
hrs.
0.10
0.10 hrs.
hrs.
Budgeted
Budgetedfinished
finishedgoods
goodsinventory
inventory
Ending
Endinginventory
inventory in
inunits
units
Unit
Unitproduct
productcost
cost
Ending
Endingfinished
finishedgoods
goodsinventory
inventory
Cost
Cost
$$ 0.40
0.40
$$ 8.00
8.00
$$18.02
18.02
Total
Total
$$ 2.00
2.00
0.80
0.80
1.80
1.80
$$ 4.60
4.60
5,000
5,000
$$ 4.60
4.60
$$23,000
23,000
Total overhead $191,000

= $18.02 per hr.*
Total labor hours 10,600 hrs.
*rounded
Budgeted Income Statement

Breakers,
Breakers,Inc.
Inc.
Budgeted
BudgetedIncome
IncomeStatement
Statement
For
Forthe
theThree
ThreeMonths
MonthsEnded
EndedJune
June30
30
Revenue
Revenue(100,000
(100,000$10)
$10)
Cost
Costof
ofgoods
goodssold
sold(100,000
(100,000$4.60)
$4.60)
Gross
Grossmargin
margin
Operating
Operatingexpenses:
expenses:
Selling
Sellingand
andadmin.
admin.Expenses
Expenses
Interest
Interestexpense
expense
Total
Totaloperating
operatingexpenses
expenses
Net
Netincome
income
$$ 1,000,000
1,000,000
460,000
460,000
540,000
540,000
$$ 260,000
260,000
838
838
$$
260,838
260,838
279,162
279,162
Budgeted Balance Sheet

Breakers
Breakers reports
reports the
the following
following account
account
balances
balances on
on June
June 30
30 prior
prior to
to preparing
preparing its
its
budgeted
budgeted financial
financial statements:
statements:
Land
Land -- $50,000
$50,000
Building
Building (net)
(net) -- $148,000
$148,000
Common
Common stock
stock -- $200,000
$200,000
Retained
Retained earnings
earnings -- $46,400
$46,400
25%of June
sales of
$300,000
11,500 lbs. at
$.40 per lb.
5,000 units at
$4.60 per unit.
50% of June
purchases
of $56,800
Good Evening

LT 10 Budget Hilton's Ex

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Graduate School of Business

CRICOS Provider Code 00301J

Graduate School of Business

Graduate School of Business

CRICOS Provider Code 00301J

Graduate School of Business

Production must be adequate to meet budgeted

Graduate School of Business

CRICOS Provider Code 00301J

Graduate School of Business

Graduate School of Business

CRICOS Provider Code 00301J

Graduate School of Business

Graduate School of Business

CRICOS Provider Code 00301J

Graduate School of Business

CRICOS Provider Code 00301J

Graduate School of Business

Graduate School of Business

CRICOS Provider Code 00301J

Graduate School of Business

10% of the following

Graduate School of Business

Graduate School of Business

CRICOS Provider Code 00301J

Graduate School of Business

June Ending Inventory

CRICOS Provider Code 00301J

Graduate School of Business

Graduate School of Business

Graduate School of Business

CRICOS Provider Code 00301J

Graduate School of Business

This is the greater of

Graduate School of Business

CRICOS Provider Code 00301J

Graduate School of Business

CRICOS Provider Code 00301J

Graduate School of Business

Selling and Administrative Expense Budget

Graduate School of Business

Selling and Administrative Expense Budget

CRICOS Provider Code 00301J

Graduate School of Business

Selling and Administrative Expense Budget

CRICOS Provider Code 00301J

Graduate School of Business

Selling and Administrative Expense Budget

CRICOS Provider Code 00301J

Graduate School of Business

Cash Receipts Budget

CRICOS Provider Code 00301J

Graduate School of Business

Cash Receipts Budget

CRICOS Provider Code 00301J

Graduate School of Business

Cash Receipts Budget

CRICOS Provider Code 00301J

Graduate School of Business

Cash Disbursement Budget

Graduate School of Business

Cash Disbursement Budget

140,000 lbs. $.40/lb. = $56,000