PROBLEM APPLICATION 5 CHAPTER 22 MASTER BUDGETS, 115 POINTS. Use blue ink and present your handwritten solutions in good form (pdf or jpg file, proper underlines and double underlines, dollar signs when appropriate, correct spellings) in the answer sheets provided after the problems. Do not forget to put the headings for all the different budgets. S22-3 Preparing an operating budget-sales budget Brown Company manufactures luggage sets. Brown sells its luggage sets to department stores. Brown expects to sell 1,700 luggage sets for $180 each in January and 2,050 luggage sets for $180 each in February. All sales are cash only. Prepare the sales budget for January and February. SOLUTION Total January February Budgeted sets to be sold Sales price per set Total sales S22-4 Preparing an operating budget-production budget Bailey Company expects to sell 1,500 units of finished product in January and 1,750 units in February. The company has 180 units on hand on January 1 and desires to have an 80% of the next month's sales. March sales are expected to be 1,820 units. Prepare Bailey's production budget for January and February. ending inventory equal to SOLUTION January February Total Budgeted units to be sold Plus: Desired units in ending inventory () Total units needed Less: Units in beginning inventory Budgeted units to be produced (a) in ending Desired units inventory Next month's 80% sales January February: S22-5 Preparing an operating budget-direet materials budget Bell expects to produce 1,800 units in January and 2,I55 units in February. The company budgets 3 pounds per unit of direct materials at a cost of $10 per pound. Indirect materials are insignificant and not considered for budgeting purposes. The balance in the Raw Materials Inventory account (all direct materials) on January 1 is 4,5950 pounds. Bell desires the ending balance in Raw Materials Inventory to be 20% of the next month's direct materials needed for production. Desired ending balance for February is 4,860 pounds. Prepare Bell's direct materials budget for January and February SOLUTION Total February January Budgeted units to be produced Direct materials per unit Direct materials needed for production Plus: Desired direct materials in ending inventory (pounds) Total direct materials needed Less: Direct materials in beginning inventory (pounds) Budgeted purchases of direct materials Direct materials cost per pound Budgeted cost of direct materials purchases (a) S22-6 Preparing an operating budget-direct labor budget Baker Company expects to produce 2,050 units in January and 1,994 units in February. Baker budgets five direct labor hours per unit. Direct labor costs average $9 per hour. Prepare Baker's direct labor budget for January and February SOLUTION Total February January Budgeted units to be produced Direct labor hours per unit Direct labor hours needed for production Direct labor cost per hour Budgeted direct labor cost 22-7 Preparing an operating budget-manufacturing overhead budget Bennett Company expects to produce 2,030 units in January that will require 8,120 hours of direct labor and 2,210 units in February that will reauire 8.840 hours of direct labor. Bennett budgets $10 per unit for variable manufacturing overhead; $2,100 per month for depreciation; and $78,460 per month for other fixed manufacturing overhead costs, Prepare Bennett's manufacturing overhead budget for January and February, including the predetermined overhead allocation rate using direct labor hours as the allocation base. SOLUTION Total February January Budgeted units to be produced Variable overhead cost per unit Budgeted variable overhead Budgeted fixed overhead: Depreciation Other fixed overhead Total budgeted fixed overhead Budgeted manufacturing overhead costs Direct labor hours Predetermined overhead allocation rate (S Direct labor hours) S22-8 Preparing an operating budget-cost of goods sold budget Butler Company expects to sell 1,650 units in January and 1,550 units in February. The company expects to incur the following product costs: $ 85 Direct materials cost per unit 60 Direct labor cost per unit 55 Manufacturing overhead cost per unit The beginning balance in Finished Goods Inventory is 250 units at $200 each for a total of$50,000. Butler uses FIFO inventory costing method. Prepare the cost of goods sold budget for Butler for January and February. SOLUTION Manufacturing cost per unit in January and February: Direct materials cost per unit Direct labor cost per unit Manufacturing overhead cost per unit Total projected manufacturing cost per unit February Total January Beginning inventory, Units produced and sold at $200 units each (1,400 units in Jan.; 1,550 units in Feb.) Total budgeted cost of goods sold S22-9 Preparing a financial budget-schedule of cash receipts Berry expects total sales of $359,000 in January and $405,000 in February, Assume that Berry's sales are collected as follows: 80% in the month of the sale 10% in the month after the sale 6% two months after the sales 4% never collected November sales totaled $350,000, and December sales were $325,000. Prepare a schedule of cash receipts from customers for January and February. Round answers to the nearest dollar. SOLUTION Schedule of Cash Receipts from Customers Total February January Total sales February January Cash Receipts from Customers: Nov. sales-$350,000, 6 % collected in Jan. Dec. sales-$325,000, 10 % collected in Jan. Dec. sales -$325,000, 6% collected in Feb. Jan. sales-$359,000, 80% collected in Jan. Jan. sales-$359,000, 10 % collected in Feb. Feb. sales-$405,000, 80% collected in Feb. Total cash receipts from customers Jan. sales-$359,000, 6 % collected in Mar. Feb. sales-$405,000, 10% collected in Mar. Feb. sales-$405,000, 6% collected in Apr. Net Accounts Receivable balance, February 28: $ S22-10 Preparing a financial budget-schedule of cash payments Banes Company budgeted direct materials purchases of $191,990 in January and S138,610 in February, Assume Barnes pays for direct materials purchases 60% in the month of purchase and 40% in the month after purchase. The Accounts Payable balance on January 1 is $75,000. Prepare a schedule of cash payments for purchases for January and February. Round to the nearest dollar. SOLUTION Schedule of Cash Payment for Purchases Total February January Total direct materials purchases February January Cash Payments Direct Materials: Accounts Payable balance, January 1 January-Direct materials purchases (60%) January-Direct materials purchases (40%) February -Direct materials purchases (60%) Total payments for direct materials Accounts Payable balance, February 28: $ of February's direct materials purchases) le S22-11 Preparing a financial budget-cash budget Learning Objective 4 Booth has $12,500 in cash on hand on January 1 and has collected the following budget data: February ic al January $ 568,000 $ 529,000 Sales 502,200 443,000 Cash receipts from customers 160,284 180,624 Cash payments for direct materials purchases 113,348 135,010 Direct labor costs Manufacturing overhead costs (includes depreciation of $900 per month) 53,922 55,058 Assume rect labor costs and manufacturing overhead costs are paid in the month incurred. Additionally, assume Booth has cash payments for selling and administrative expenses including salaries of $40,000 per month plus commissions that are 1 % of sales, all paid in the month of sale. The company requires a minimum cash balance of $20,000. Prepare a cash budget for January and February, Round to the nearest dollar. Will Booth need to borrow cash by the end of February? 2) The following company are some of the components included in the master budget of a merchandising Budgeted balance sheet a. b. Sales budget Capital expenditures budget C. d. Budgeted income statement Cash budget e. f. Inventory, purchases, and cost of goods sold budget Selling and administrative expense budget g. List the items, by using the letters only, of the master budget in order of preparation. SOLUTION I BOOTH COMPANY Cash Budget For the Two Months Ended February 28 February Total January Beginning cash balance Cash receipts Cash available Cash payments: Purchases of direct materials Direct labor Manufacturing overheada) Selling and administrative expenses(b) Total cash payments Ending cash balance before financing Minimum cash balance desired Projected cash excess (deficiency) Financing: Borrowing Principal repayments Total effects of financing Ending cash balance Booth will (a Manufacturing overhead costs, less depreciation of $900 per month Cash payments for S&A expenses (b (1% x sales) $40,000 + X January: February: SOLUTION 2 Order of preparation (just use the letters)