Comprehensive: Master Budgets, Variances, Performance Evaluation	13
Sudsy Days sold 7000 Soap jugs in 2019, and its actual operating income was as follows:
Sudsy Days
Balance Sheet
December 31, 2019
Net Sales Revenue				$ 630,000
Cost of Goods Sold:
Variable				$ 94,890
Fixed				36,540	131,430
Gross Profit					498,570
Selling & Admin Expenses:
Variable				12,600
Fixed				61,400	74,000
Operating Income				424,570
Other income and (Expenses):
Interest Expense				(425)
Income Before Income Taxes			424,145
Income Tax Expense				22,000
Net Income					$ 402,145
2a. Complete a flexible budget performance report through operating income for 2019. Show product costs separately from selling and administrative costs. To simplify the calculations due to sets in beginning inventory having a different cost than those produced and sold in 2019, assume the following product costs:
		Variable	Fixed	Total
Static Budget	84,240	38,340	122,580
Flexible Budget	93,940	38,340	132,280
2b.	What was the effect on Sudsy's operating income of selling 0 jugs more than the static budget level of sales?
2c.	Explain why the flexible budget performance report provides more useful information to Sudsy's managers than the static budget performance report. What insights can Sudsy's managers draw from this performance report?
*Note that you will need to refer to information from Req1 to complete this problem.

2a. Prepare a flexible budget performance report through operating income for 2019. Show product costs separately from selling and administrative costs. To simplify the calculations due to sets in beginning inventory having a different cost than those produced and sold in 2019.

Sudsy Days Soap Company

Flexible Budget Performance Report

For the Year Ended December 31, 2019

Budget Amounts per unit

Actual Results

Flexible Budget Variance

Flexible Budget

Sales Volume Variance

Static Budget

Units

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Net Sales Revenue

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Variable Costs:

Product Costs

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S&A Costs

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Contribution Margin

Fixed Costs:

Product Costs

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S&A Costs

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Operating Income

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Flexible Budget Variance

Sales Vol. Variance

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Static Budget Variance

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2b. What was the effect on Sudsy's operating income of selling 0 jugs more than the static budget level of sales?

2c. Explain why the flexible budget performance report provides more useful information to Sudsy's managers than the static budget performance report. What insights can Sudsy's managers draw from this performance report?

Here is the information from requirement #1 that this problem refers to:

Comprehensive: Master Budgets, Variances, Performance Evaluation
As you know from the previous problem, Sudsy Days manufactures white label soaps that other companies customize with their own logo. Sudsy Days is planning for the upcoming year by developing a master budget by quarters. Using the balance sheet and additional information below you will need to: a. Prepare Sudsy's operating budget and cash budget for the year by quarter. Required schedules and budgets include: a. Sales budget b. Production budget c. Direct materials budget d. Direct labor budget e. Manufacturing overhead budget f. Cost of goods sold budget g. Selling and administrative expense budget h. Schedule of cash receipts i. Schedule of cash payments j. Cash budget b. Prepare Sudsy Days annual financial budget, including: a. Budgeted Income Statement b. Budgeted Balance Sheet **Note that manufacturing overhead costs are allocated based on DL hours.
	Sudsy Days
	Balance Sheet
	December 31, 2018
	Assets
	Current Assets:
	Cash			$ 58,000
	A/R			22,000
	Raw Materials Inventory		1,200
	Finished Goods Inventory		5,400
	Total Current Assets			$ 86,600
	Plant Property & Equipment:
	Equipment			142,000
	Less: Accumulated Depreciation		(47,000)	95,000
	Total Assets				181,600
	Liabilities
	Current Liabilities:
	Accounts Payable			$ 8,000
	Stockholders' Equity
	Common Stock, no par		$ 120,000
	Retained Earnings		53,600
	Total stockholders' equity			173,600
	Total Liabilities and Stockholders' Equity		$ 181,600
Additional Information
a.	Budgeted sales are 1,400 soap jugs for the first quarter and are expected to increase by 150 jugs per quarter. Cash sales are expected to make up 30% of total sales, the remainder will be on account. The expected sales price per soap jug is $90.
b.	Finished goods inventory on December 31, 2018, consists of 200 soap jugs at $27 each.
c.	Desired ending finished goods inventory is 40% of the next quarter's sales; first-quarter sales for 2020 are expected to be 2,000 soap jugs; FIFO inventory costing is used.
d.	Raw Materials Inventory on December 31, 2018, consists of 600 gallons of the required components used to manufacture the soap.
e.	Direct materials requirements are 3 gallons of material per soap jug. The cost of each gallon is $2.
f.	Desired ending Raw Materials Inventory is 10% of the next quarter's direct materials needed for production; desired ending inventory for December 31, 2019, is 600 gallons; indirect materials are insignificant and not considered for budgeting purposes.
g.	Each soap jug requires 0.30 hours of direct labor; direct labor costs average $12 per hour.
h.	Variable manufacturing overhead is $$3.60 per soap jug.
i.	Fixed manufacturing overhead includes $7,000 per quarter in depreciation and $2,585 per quarter for other costs, such as utilities, insurance, and property taxes.
j.	Fixed selling and administrative expenses include $11,000 per quarter for salaries; $1,500 per quarter for rent; $1,350 per quarter for insurance; and $1,500 per quarter for depreciation.
k.	Variable selling and administrative expenses include supplies at 2% of sales.
l.	Capital expenditures include $45,000 for new manufacturing equipment to be purchased and paid in the first quarter.
m.	Cash receipts for sales on account are 40% in the quarter of the sale and 60% in the quarter following the sale; December 31, 2018, Accounts Receivable is received in the first quarter of 2019; uncollectible accounts are considered insignificant and not considered for budgeting purposes.
n.	Direct materials purchases are paid 90% in the quarter purchased and 10% in the following quarter; December 31, 2018, Accounts Payable is paid in the first quarter of 2019.
o.	Direct labor, manufacturing overhead, and selling and administrative costs are paid in the quarter incurred.
p.	Income tax expense is projected at $3,500 per quarter and is paid in the quarter incurred.
q.	Sudsy desires to maintain a minimum cash balance of $55,000 and borrows from the local bank as needed in increments of $1,000 at the beginning of the quarter; principal repayments are made at the beginning of the quarter when excess funds are available and in increments of $1,000; interest is 10% per year and paid at the beginning of the quarter based on the amount outstanding from the previous quarter.

a.a Sales Budget
Sudsy Days
Sales Budget
For the Year Ended December 31, 2019
			Q1		Q2		Q3		Q4		Total
	Budgeted soap jugs to be sold	1,400.00	*	1,550	##	1,700	##	1,850	##	6,500
	Sales Price per soap jug		90.00	##	90.00	##	90.00	##	90.00	##	90.00
	Total Sales		$ 126,000	##	$ 139,500	##	$ 153,000	##	$ 166,500	##	$ 585,000
a.b Production Budget
Sudsy Days
Production Budget
For the Year Ended December 31, 2019
			Q1		Q2		Q3		Q4		Total
	Budgeted soap jugs to be sold	1,400	*	1,550	##	1,700	##	1,850	##	6,500
	Plus: Desired soap jugs in ending inventory	620	##	680	##	740	##	800	##	800
	Total soap jugs needed		2,020	##	2,230	##	2,440	##	2,650	##	7,300
	Less: soap jugs in beginning inventory	200	*	620	##	680	##	740	##	200
	Budgeted soap jugs to be produced	1,820	##	1,610	##	1,760	##	1,910	##	7,100
a.c Direct Materials Budget
Sudsy Days
Direct Materials Budget
For the Year Ended December 31, 2019
			Q1		Q2		Q3		Q4		Total
	Budgeted soap jugs to be produced	1,820	##	1,610	##	1,760	##	1,910	##	7,100
	Direct materials per soap jug		3.00	*	3.00	*	3.00	*	3.00	*	3.00
	Direct materials needed for production	5,460	##	4,830	##	5,280	##	5,730	##	21,300
	Plus: Desired DM in end inventory	483	##	528	##	573	##	600	*	600
	Total DM needed		5,943	##	5,358	##	5,853	##	6,330	##	21,900
	Less: DM in beg. Inv		600	*	483	##	528	##	573	##	600
	Budgeted purchases of DM		5,343	##	4,875	##	5,325	##	5,757	##	21,300
	DM cost per item		2	*	2	*	2	*	2	*	2
	Budgeted purchases of DM		$ 10,686	##	$ 9,750	##	$ 10,650	##	$ 11,514	##	$ 42,600
a.d Direct Labor Budget
Sudsy Days
Direct Labor Budget
For the Year Ended December 31, 2019
			Q1		Q2		Q3		Q4		Total
	Budgeted soap jugs to be produced	1,820	##	1,610	##	1,760	##	1,910	##	7,100
	Direct Labor hours per soap jug	0.300	*	0.300	*	0.300	*	0.300	*	0.300
	Direct Labor hours needed for production	546	##	483	##	528	##	573	##	2130
	Direct Labor cost per hour		12	*	12	*	12	*	12	*	12
	Budgeted direct labor cost		$ 6,552	##	$ 5,796	##	$ 6,336	##	$ 6,876	##	$ 25,560
a.e Manufacturing Overhead Budget
Sudsy Days
Manufacturing Overhead Budget
For the Year Ended December 31, 2019
			Q1		Q2		Q3		Q4		Total
	Budgeted soap jugs to be produced	1,820	##	1,610	##	1,760	##	1,910	##	7,100
	Variable OH cost per soap jug	3.60	*	3.60	*	3.60	*	3.60	*	3.60
	Budgeted variable overhead		$ 6,552	##	$ 5,796	##	$ 6,336	##	$ 6,876	##	$ 25,560
	Budgeted Fixed OH
	Depreciation		7,000	*	7,000	*	7,000	*	7,000	*	28,000
	Utilities, Insurance, prop tax		2,585	*	2,585	*	2,585	*	2,585	*	10,340
	Total budgeted fixed OH		9,585	##	9,585	##	9,585	##	9,585	##	38,340
	Budgeted manufacturing OH costs	16,137	##	15,381	##	15,921	##	16,461	##	63,900
	DL Hours		546	##	483	##	528	##	573	##	2130
	Predetermined OH allocation rate per DL hour								$ 63,900
a.f Cost of Goods Sold Budget
Calculations for COGS Budget
	DM cost per soap jug				$ 6.00	##
	DL Cost per soap jug				3.60	##
	MOH cost per soap jug				9.00	##
	Total projected manufacturing cost per soap jug		$ 18.60	##
Sudsy Days
Cost of Goods Sold Budget
For the Year Ended December 31, 2019
			Q1		Q2		Q3		Q4		Total
	Beg. Inventory,		$ 5,400	##							$ 5,400
	soap jugs produced & sold		22,320	##	28,830	##	31,620	##	34,410	##	117,180
	Total Budgeted cost of goods sold	$ 27,720	##	$ 28,830	##	$ 31,620	##	$ 34,410	##	$ 122,580
a.g Selling & Admin Budget
Sudsy Days
Selling & Administrative Expense Budget
For the Year Ended December 31, 2019
			Q1		Q2		Q3		Q4		Total
	Salaries Expense		$ 2,520	*	$ 2,790	*	$ 3,060	*	$ 3,330	*	$ 11,700
	Rent Expense		11,000	*	11,000	*	11,000	*	11,000	*	44,000
	Insurance Expense		1,500	*	1,500	*	1,500	*	1,500	*	6,000
	Depreciation Expense		1,350	*	1,350	*	1,350	*	1,350	*	5,400
	Supplies Expense		1,500	*	1,500	*	1,500	*	1,500	*	6,000
	Total Budgeted S&A Expense		$ 17,870	##	$ 18,140	##	$ 18,410	##	$ 18,680	##	$ 73,100
a.h Schedule of Cash Receipts
Schedule of Cash Receipts from Customers
			Q1		Q2		Q3		Q4		Total
	Total Sales		$ 126,000	##	$ 139,500	##	$ 153,000	##	$ 166,500	##	$ 585,000
	Cash Receipts from Customers:
	A/R Balance, December 31 2018	22,000	##		##		##		##
	Q1 Cash Sales		37,800	##		##		##		##
	Q1 Credit Sales, Collected in Q1	35,280	##		##		##		##
	Q1 Credit Sales, Collected in Q2		##	52,920	##		##		##
	Q2 Cash Sales			##	41,850	##		##		##
	Q2 Credit Sales, Collected in Q2		##	39,060	##		##		##
	Q2 Credit Sales, Collected in Q3		##		##	58,590	##		##
	Q3 Cash Sales			##		##	45,900	##		##
	Q3 Credit Sales, Collected in Q3		##		##	42,840	##		##
	Q3 Credit Sales, Collected in Q4		##		##		##	64,260	##
	Q4 Cash Sales			##		##		##	49,950	##
	Q4 Credit Sales, Collected in Q4		##		##		##	46,620	##
	Total Cash receipts from customers	$ 95,080	##	$ 133,830	##	$ 147,330	##	$ 160,830	##	$ 537,070
a.i Schedule of Cash Payments
	Schedule of Cash Payments
			Q1		Q2		Q3		Q4		Total
	Total DM Purchases		$ 10,686	##	$ 9,750	##	$ 10,650	##	$ 11,514	##	$ 42,600
Cash Payments		Q1		Q2		Q3		Q4		Total
	Direct Materials:
	Accounts Payable Balance, 12/31/2018	$ 8,000	##		##		##		##
	Q1 purchases, paid in Q1		9,617	##		##		##		##
	Q1 purchases, paid in Q2			##	1,069	##		##		##
	Q2 purchases, paid in Q2			##	8,775	##		##		##
	Q2 purchases, paid in Q3			##		##	975	##		##
	Q3 Purchases paid in Q3			##		##	9,585	##		##
	Q3 Purchases paid in Q4			##		##		##	1,065	##
	Q4 Purchases, paid in Q4			##		##		##	10,363	##
	Total Payments for DM		17,617	##	9,844	##	10,560	##	11,428	##	49,449
	Direct Labor:
	Total Payments for DL		6,552	##	5,796	##	6,336	##	6,876	##	25,560
	Manufacturing Overhead:
	Variable MOH		6,552	##	5,796	##	6,336	##	6,876	##	25,560
	Utilities, Ins, Prop Taxes		2,585	##	2,585	##	2,585	##	2,585	##	10,340
	Total payments for MOH		9,137	##	8,381	##	8,921	##	9,461	##	35,900
	S&A Expenses:
	Salaries Expense		11,000	##	11,000	##	11,000	##	11,000	##	44,000
	Rent Expense		1,500	##	1,500	##	1,500	##	1,500	##	6,000
	Insurance Expense		1,350	##	1,350	##	1,350	##	1,350	##	5,400
	Supplies Expense		2,520	##	2,790	##	3,060	##	3,330	##	11,700
	Total Payments for S&A expenses	16,370	##	16,640	##	16,910	##	17,180	##	67,100
	Income Taxes:
	Total payments for income taxes	3,500	##	3,500	##	3,500	##	3,500	##	14,000
	Capital Expenditures:
	Total Payments for Cap. Expenditures	45,000	##	0	##	0	##	0	##	45,000
	Total Cash payments (before interest)	$ 98,176	##	$ 44,161	##	$ 46,227	##	$ 48,445	##	$ 237,009
a.j Cash Budget
Sudsy Days
Cash Budget
For the Year Ended December 31, 2019
			Q1		Q2		Q3		Q4		Total
	Beg. Cash Balance		$ 58,000	##	$ 55,904	*	$ 144,548	##	$ 245,651	##	$ 58,000
	Cash receipts		95,080	##	133,830	##	147,330	##	160,830	##	537,070
	cash available		153,080	##	189,734	*	291,878	##	406,481	##	595,070
	Cash payments:			##		##		##		##
	Purchases of DM		17,617	*	9,844	*	10,560	##	11,428	*	49,449
	DL		6,552	##	5,796	##	6,336	##	6,876	##	25,560
	MOH		9,137	##	8,381	##	8,921	##	9,461	##	35,900
	S&A Exp		16,370	##	16,640	##	16,910	##	17,180	##	67,100
	Income taxes		3,500	##	3,500	##	3,500	##	3,500	##	14,000
	Capital Expenditures		45,000	##	-	##	-	##	-	##	45,000
	Interest Expense		-	##	25	##	-	##	-	##	25
	Total cash payments		98,176	*	44,186	*	46,227	##	48,445	*	237,034
	Ending cash balance before financing	54,904	*	145,548	##	245,651	##	358,036	*	358,036
	minimum cash balance desired	55,000	*	55,000	*	55,000	*	55,000	*	55,000
	Projected cash excess (deficiency)	(96)	*	90,548	##	190,651	##	303,036	*	303,036
	Financing:			##		##		##		##
	Borrowing		1,000	##		##		##		##
	Principal repayments		-	##	(1,000)	##	-	##	-	##	(1,000)
	Total effects of financing		1,000	##	(1,000)	##	-	##	-	##	-
	Ending Cash Balance		$ 55,904	*	$ 144,548	##	$ 245,651	##	$ 358,036	*	$ 358,036
b.a Budgeted Income Statement
Sudsy Days
Budgeted Income Statement
For the Year Ended December 31, 2019
	Net Sales Revenue				$ 585,000	##
	Cost of Goods Sold				122,580	##
	Gross Profit				462,420	##
	Selling & Admin Expenses				73,100	##
	Operating Income				389,320	##
	Interest Expense				25	*
	Income Before Income Taxes				389,295	##
	Income Tax Expense				14,000	##
	Net Income				$ 375,295	##
b.b Budgeted Balance Sheet
Sudsy Days
Budgeted Income Statement
For the Year Ended December 31, 2019
Assets
Current Assets:
Cash				$ 358,036	*
Accounts Receivable				69,930	##
Raw Materials Inventory				1,200	##
Finished Goods Inventory				14,880	##
Total Current Assets						$ 444,046	*
Plant Property, and Equipment:
Equipment				187,000	##
Less: Accumulated Depreciation				81,000	*	106,000	##
Total Assets						$ 550,046	*
Liabilities
Current Liabilities:
Accounts Payable						$ 1,151	##
Stockholders' Equity
Common Stock				$ 120,000	##
Retained Earnings				428,895	##
Total Stockholders' Equity						548,895	##
Total Liabilities and Stockholders' Equity					$ 550,046	*