Chapter 8 Budget Exercise

Budgeting Assumptions All months Feb Sales Budget and cash collections Budgeted sales in units Selling price per unit Percentage of sales collected in the month of sale Percentage of sales collected in the month after sale Uncollectible 24,000 24,50 20,000 22,500 23 $38.00 38.00 38.00 S 38.00 38.00 S 38.00 55.00% 45 00% Accounts Receivable balance at Sept 30 Production Budget # of units on hand at June 30th S 24,000 3 Percentage of next month's sales in ending finished goods inv 1596 1,500 Direct Material Budget Pounds of material required per unit Material cost per pound %age of next month's production needs in ending inventory Desired ending balance inventory in lbs on Dec 31 12 S 1.2 20% S 57,780 %age of purchases paid in the month purchased 40.00% 60 00% 2 3 %age of purchases paid in the month after purchase Pounds of material on hand at Sept 30 Sept 30 Accounts Payable balance 10,000 S 120,000 25 26 Direct labor budget 2 9 Hours required per unit 0.16 S 18.00 60 Direct labor cost per hour no layoff policy, all employees paid 40 hours per week Minimum hours the Workforce will be paid per month 32 3,700 Manufacturing Overhead budget 35 ariable manufacturing Fixed manufacturing overhead per month Depreciation per month included in amount above turing overhead per direct labor hour S 19.00 S 52,210 15,000 39 Selling & Administrative Expense Budget Variable selling& administrative expense per unit Fixed selling & administrative expense per month Depreciation per month included in amount above S 2.00 S 60,000 S 7,000 43 Cash Budget Minimum cash budget Equipment purchases 45 S 40,000 - 174,429 S 50,000 S $ 8,000 15% Simple interest rate (annual) October 1 Cash Balance Borrow on first day of month it is needed Pay interest and principle on last day of month that have the money Borrow in increments of $1,000 S 99,740 The company prior to preparing its budgeted financial statements: reported the following account balances Common Stock Retained Earnings Equipment Prior Year $150,000 S 200,000 S 312,102 250,000 59 Assumptions Budgets additional calculations Financial Statements TOTAL manufacturing overhead cost Budgeted direct labor hours worked Predetermined overhead rate for the vear SELLING& ADMINISTRATIVE EXPENSE BUDGET Budgeted unit sales Variable S&A expense per case Total variable expenses Fixed Selling & Administrative expenses Total Selling & Administrative expenses Less: noncash expenses (depreciation) Cash disbursement for S&A expenses Oct Nov 70 CASH BUDGET Beginning cash balance 73 Add: Cash Collections Total Cash Available 76 Less: Cash disbursements Materials Direct Labor Manufacturing Overhead Selling & Administrative Equipment purchases Total disbursements Excess (deficiency) Financing Borrowing (borrow on first day of month) Repayment (repay on last day of month able) Interest (not paid back until loan paid off) Total financing Ending cash balance Record Repayments and interest as negative amounts 113 116 Assumptions Budgets additional calculations F Financial Statements D E 2 Ending Finished Goods Inventory absorption costing basis For the 3 months ended September 30 Item Quantity Costs Total Production Cost per case: Direct materials Direct labor Manufacturing overhead Unit product cost per pound per hour Reminder. Apply MOH by using a POHR 12 Budgeted finished goods inventory Ending finished goods inventory in units Unit Product Cost See Production Budget units 16 Ending finished goods inventory in dollars Add to Balance Sheet Manufacturing overhead is allocated based on direct labor hours 20 21 Accounts Receivable on 9/30 See assumptions See sales budget See cash collection budget add all above Sales on Account 3 LESS Cash Collected Accounts Receivable on 12/31 25 26 Company Budgeted Income Statement For the 3 months ended December 31 Sales Cost of goods sold Gross Margin Selling and administrative expenses Net Operating Income nterest expense Net Income See sales budget Cost per unit (see additional calcuations) TIMES # of units sold in quarter see budget (remember to include depreciation expense) see cash budget 12 Company Budgeted Balance Sheet December 31, 2018 Assets Cash Accounts Receivable Raw materials inventory Finished good inventory Land Equipment See cash budget See calculation Direct Material Budgeted in pounds on Dec 31 TIMES cost per pound Units in Ending balance of production budget TIMES cost per unit See assumptions Balance before quarter plus 2 new purchases 19 20 21 23 Total Assets 25 Liabilities & Stockholders Equity 27 28 29 Accounts Payable Common Stock Retained earnings December! purchases of materials TIMES 60% See assumptions Beginning Balance Retained Earning + Net Income AssetsLiabiiies Stockholders' Equity Dividends Total liabilities & stockholders' equity 31 32