Chapter 9

Profit Planning

Exercise 9-1 (20 minutes)

April

1.

May

June

Total

February sales:
$ 23,00
$230,000 10%..... $ 23,000
0
March sales:
$260,000 70%,
10%........................ 182,000 $ 26,000
208,000
April sales: $300,000
20%, 70%, 10%...
60,000 210,000 $ 30,000 300,000
May sales: $500,000
20%, 70%...........
100,000 350,000 450,000
June sales: $200,000
40,00
20%....................
40,000
0
$265,00
$420,00 $1,021,00
Total cash collections
0 $336,000
0
0
Observe that even though sales peak in May, cash collections
peak in June. This occurs because the bulk of the companys
customers pay in the month following sale. The lag in
collections that this creates is even more pronounced in some
companies. Indeed, it is not unusual for a company to have the
least cash available in the months when sales are greatest.
2. Accounts receivable at June 30:
From May sales: $500,000 10%................. $ 50,000
From June sales: $200,000 (70% + 10%)... 160,000
$210,00
Total accounts receivable at June 30.............
0

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Solutions Manual, Chapter 9

Exercise 9-2 (10 minutes)

Budgeted sales in units.......

Add desired ending
inventory*........................
Total needs..........................
Less beginning inventory....
Required production............

Quarte
April
May
June
r
215,00
50,000 75,000 90,000
0
7,500

9,000

8,000

8,000
223,00
57,500 84,000 98,000
0
5,000 7,500 9,000 5,000
218,00
52,500 76,500 89,000
0

*10% of the following months sales in units.

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Managerial Accounting, 13th Edition

Exercise 9-3 (15 minutes)

Year 2
Year 3
First
Second Third
Fourth
First
Required production in bottles.............. 60,000 90,000 150,000 100,000 70,000
Number of grams per bottle..................
3
3
3
3
3
Total production needsgrams............. 180,000 270,000 450,000 300,000 210,000
First

Second

Year 2
Third

Fourth

Production needsgrams (above)......... 180,000 270,000 450,000 300,000

Add desired ending inventorygrams...
54,000 90,000 60,000 42,000
Total needsgrams............................... 234,000 360,000 510,000 342,000
Less beginning inventorygrams.........
36,000 54,000 90,000 60,000
Raw materials to be purchasedgrams 198,000 306,000 420,000 282,000
Cost of raw materials to be purchased
at 150 roubles per kilogram................
29,700 45,900 63,000 42,300

Year
1,200,00
0
42,000
1,242,00
0
36,000
1,206,00
0
180,90
0

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Solutions Manual, Chapter 9

Exercise 9-4 (20 minutes)

1. Assuming that the direct labor workforce is adjusted each quarter, the direct labor
budget is:

Units to be produced................................
Direct labor time per unit (hours).............
Total direct labor-hours needed...............
Direct labor cost per hour.........................
Total direct labor cost..............................

1st
2nd
3rd
4th
Quarter Quarter Quarter Quarter
Year
8,000
6,500
7,000
7,500 29,000
0.35 0.35 0.35 0.35 0.35
2,800
2,275
2,450
2,625 10,150

$12.00 $12.00 $12.00 $12.00 $12.00

$ 33,60
$ 29,40 $ 31,50 $121,80
0 $ 27,300
0
0
0

2. Assuming that the direct labor workforce is not adjusted each quarter and that overtime
wages are paid, the direct labor budget is:

Units to be produced...............................
Direct labor time per unit (hours)............
Total direct labor-hours needed..............
Regular hours paid..................................
Overtime hours paid................................

1st
2nd
3rd
4th
Quarter Quarter Quarter Quarter
8,000
6,500
7,000
7,500
0.35 0.35 0.35 0.35
2,800
2,275
2,450
2,625
2,600
2,600
2,600
2,600
200
0
0
25

Year

Wages for regular hours (@ $12.00 per

$124,80
hour)..................................................... $31,200 $31,200 $31,200 $31,200
0
Overtime wages (@ 1.5 $12.00 per
hour).....................................................
3,600
0
0
450
4,050
Total direct labor cost............................. $34,800 $31,200 $31,200 $31,650 $128,85
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Managerial Accounting, 13th Edition

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Solutions Manual, Chapter 9

Exercise 9-5 (15 minutes)

1.

Yuvwell Corporation
Manufacturing Overhead Budget

Budgeted direct labor-hours........................

Variable overhead rate................................
Variable manufacturing overhead................
Fixed manufacturing overhead....................
Total manufacturing overhead.....................
Less depreciation.........................................
Cash disbursements for manufacturing
overhead...................................................

1st
2nd
3rd
4th
Quarte Quarte Quarte Quarte
r
r
r
r
Year
8,000 8,200 8,500 7,800 32,500

$3.25 $3.25 $3.25 $3.25 $3.25

$26,00 $26,65 $27,62 $25,35 $105,62
0
0
5
0
5
192,00
48,000 48,000 48,000 48,000
0
74,000 74,650 75,625 73,350 297,625
64,00
16,000 16,000 16,000 16,000
0
$58,00 $58,65 $59,62 $57,35 $233,62
0
0
5
0
5

Total budgeted manufacturing overhead for the

2.
year (a).................................................................
Total budgeted direct labor-hours for the year (b). .
Manufacturing overhead rate for the year (a) (b)

$297,625
32,500
$
9.16

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Managerial Accounting, 13th Edition

Exercise 9-6 (15 minutes)

Weller Company
Selling and Administrative Expense Budget
1st
2nd
Quarter Quarter
Budgeted unit sales.................................... 15,000 16,000
Variable selling and administrative

expense per unit.......................................

$2.50
$2.50
$ 37,50
$
Variable expense.........................................
0 40,000
Fixed selling and administrative expenses:
Advertising...............................................
8,000
8,000
Executive salaries..................................... 35,000 35,000
Insurance..................................................
5,000
Property taxes..........................................
8,000
20,00
20,00
Depreciation.............................................
0
0
68,00
71,00
Total fixed expense.....................................
0
0
Total selling and administrative expenses... 105,500 111,000
20,00
20,00
Less depreciation........................................
0
0
Cash disbursements for selling and
$ 85,50 $ 91,00
administrative expenses...........................
0
0

3rd
4th
Quarter Quarter
Year
14,000 13,000 58,000

$2.50
$2.50 $2.50
$
$ $145,00
35,000 32,500
0
8,000
35,000
5,000
20,00
0
68,00
0
103,000
20,00
0
$ 83,00
0

8,000 32,000
35,000 140,000
10,000
8,000
20,00
0 80,000
63,00
0 270,000
95,500 415,000
20,00
0 80,000
$ 75,50 $335,00
0
0

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Solutions Manual, Chapter 9

Exercise 9-7 (15 minutes)

Garden Depot
Cash Budget

Cash balance,
beginning..............
Total cash receipts. .
Total cash available.
Less total cash
disbursements.......
Excess (deficiency)
of cash available
over
disbursements.......
Financing:
Borrowings (at
beginnings of
quarters)*...........
Repayments (at
ends of quarters)
Interest.................

1st
Quarte
r
$ 20,00
0
180,00
0
200,00
0
260,00
0

2nd
Quarte
r
$ 10,00
0
330,00
0
340,00
0
230,00
0

(60,000 110,00
)
0

3rd
4th
Quarter Quarter
Year
$ 35,80 $ 25,80 $ 20,00
0
0
0
210,00
950,00
0 230,000
0
245,800 255,800 970,000
220,00
950,00
0 240,000
0
25,80
0

70,000

70,00
Total financing.........
0
Cash balance,
$ 10,00
ending...................
0

15,800

20,00
0

70,000
(70,000)
(70,000)
(4,200
(4,200
)
)
(74,200
(4,200
)
)
$ 35,80 $ 25,80
$ 15,80
0
0 $ 15,800
0

* Since the deficiency of cash available over disbursements is

$60,000, the company must borrow $70,000 to maintain the
desired ending cash balance of $10,000.

$70,000 3% 2 = $4,200.

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8

Managerial Accounting, 13th Edition

Exercise 9-8 (10 minutes)

Gig Harbor Boating
Budgeted Income Statement
Sales (460 units $1,950 per unit)...............
Cost of goods sold (460 units $1,575 per
unit)............................................................
Gross margin.................................................
Selling and administrative expenses*...........
Net operating income....................................
Interest expense...........................................
Net income....................................................

$897,00
0
724,500
172,500
139,500
33,000
14,000
$ 19,000

* (460 units $75 per unit) + $105,000 = $139,500.

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Solutions Manual, Chapter 9

Exercise 9-9 (15 minutes)

Mecca Copy
Budgeted Balance Sheet
Assets

Current assets:
Cash*............................................
Accounts receivable......................
Supplies inventory........................
Total current assets........................
Plant and equipment:
Equipment....................................
Accumulated depreciation............
Plant and equipment, net................
Total assets.....................................
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable.........................
Stockholders' equity:
Common stock..............................
Retained earnings#......................
Total stockholders' equity...............
Total liabilities and stockholders'
equity...........................................

$12,200
8,100
3,200
34,000
(16,000)

$23,500

18,000
$41,500

$ 1,800
$ 5,000
34,700

39,700
$41,500

* Plug figure.
Retained earnings, beginning
# balance.......................................
Add net income.............................
Deduct dividends..........................
Retained earnings, ending
balance.......................................

$28,000
11,500
39,500
4,800
$34,700

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10

Managerial Accounting, 13th Edition

Exercise 9-10 (20 minutes)

Cash balance, beginning.......................

Add collections from customers............
Total cash available...............................
Less disbursements:
Purchase of inventory.........................
Selling and administrative expenses...
Equipment purchases.........................
Dividends............................................
Total disbursements..............................
Excess (deficiency) of cash available
over disbursements............................
Financing:
Borrowings..........................................
Repayments (including interest).........
Total financing.......................................
Cash balance, ending............................

Quarter (000 omitted)

1
2
3
4
$6 *
$5
$5
$5
65
70
96 *
92
71 *
75
101
97
35 *
28
8*
2*
73

45
30
8
2
85

(2)*

(10)

7
0
7
$5

*
*
*
*
*

15 *
0
15
$5

48
30 *
10 *
2*
90

35 *
25
10
2*
72

11 *

25

0
(6)
(6)
$5

Year
$6
323 *
329
163
113 *
36 *
8
320
9

0
22
(17)* (23)
(17)
(1)
$8
$8

*Given.

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Solutions Manual, Chapter 9

11

Exercise 9-11 (30 minutes)

1.

Gaeber Industries
Production Budget

Budgeted unit sales...........

Add desired ending
inventory........................
Total units needed.............
Less beginning inventory. .
Required production..........

1st
Quarter
8,000
1,400

2nd
Quarter
7,000
1,200

3rd
Quarter
6,000
1,400

4th
Quarter
7,000
1,700

Year
28,000
1,700

9,400
1,600
7,800

8,200
1,400
6,800

7,400
1,200
6,200

8,700
1,400
7,300

29,700
1,600
28,100

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12

Managerial Accounting, 13th Edition

Exercise 9-11 (continued)

2.

Gaeber Industries
Direct Materials Budget

Required production.....................
Raw materials per unit.................
Production needs..........................
Add desired ending inventory.......
Total needs..................................
Less beginning inventory.............
Raw materials to be purchased....
Cost of raw materials to be
purchased at $4.00 per pound...

1st
Quarter
7,800
2
15,600
2,720
18,320
3,120
15,200

2nd
Quarter
6,800
2
13,600
2,480
16,080
2,720
13,360

3rd
Quarter
6,200
2
12,400
2,920
15,320
2,480
12,840

4th
Quarter
7,300
2
14,600
3,140
17,740
2,920
14,820

$60,800

$53,440

$51,360

$59,280 $224,880

Year
28,100
2
56,200
3,140
59,340
3,120
56,220

Schedule of Expected Cash Disbursements for Materials

Accounts payable, beginning
balance......................................
1st Quarter purchases..................
2nd Quarter purchases.................
3rd Quarter purchases.................
4th Quarter purchases.................
Total cash disbursements for
materials....................................

$14,820
45,600

$60,420

$15,200
40,080

$55,280

$13,360
38,520
$51,880

$ 14,820
60,800
53,440
$12,840
51,360
44,460
44,460
$57,300 $224,880

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Solutions Manual, Chapter 9

13

Exercise 9-12 (30 minutes)

1.

Jessi Corporation
Sales Budget
1st
2nd
3rd
4th
Quarter Quarter Quarter Quarter
Year
Budgeted unit sales...........
11,000
12,000
14,000
13,000
50,000
Selling price per unit......... $18.00 $18.00 $18.00 $18.00 $18.00
$198,00 $216,00 $252,00 $234,00 $900,00
Total sales.........................
0
0
0
0
0
Schedule of Expected Cash Collections
Accounts receivable,
beginning balance.......... $ 70,200
st
1 Quarter sales................ 128,700 $ 59,400
2nd Quarter sales...............
140,400 $ 64,800
rd
3 Quarter sales................
163,800 $ 75,600
th
4 Quarter sales................
152,100
$198,90 $199,80 $228,60 $227,70
Total cash collections........
0
0
0
0

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14

Managerial Accounting, 13th Edition

$ 70,200
188,100
205,200
239,400
152,100
$855,00
0

Exercise 9-12 (continued)

2.

Jessi Corporation
Production Budget

Budgeted unit sales...........

Add desired ending
inventory........................
Total units needed.............
Less beginning inventory. .
Required production..........

1st
Quarter
11,000

2nd
Quarter
12,000

3rd
Quarter
14,000

4th
Quarter
13,000

Year
50,000

1,800
12,800
1,650
11,150

2,100
14,100
1,800
12,300

1,950
15,950
2,100
13,850

1,850
14,850
1,950
12,900

1,850
51,850
1,650
50,200

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Solutions Manual, Chapter 9

15

Exercise 9-13 (30 minutes)

1.

Hareston Company
Direct Materials Budget
1st
2nd
3rd
4th
Quarter Quarter Quarter Quarter
7,000
8,000
6,000
5,000
2
2
2
2
14,000 16,000 12,000 10,000
1,600
1,200
1,000
1,500
15,600 17,200 13,000 11,500
1,400
1,600
1,200
1,000
14,200 15,600 11,800 10,500

Required production........................
Raw materials per unit....................
Production needs.............................
Add desired ending inventory..........
Total needs.....................................
Less beginning inventory................
Raw materials to be purchased.......
Cost of raw materials to be
purchased at $1.40 per pound...... $19,880 $21,840 $16,520 $14,700

Year
26,000
2
52,000
1,500
53,500
1,400
52,100
$72,940

Schedule of Expected Cash Disbursements for Materials

Accounts payable, beginning
balance......................................... $ 2,940
1st Quarter purchases..................... 15,904 $ 3,976
2nd Quarter purchases....................
17,472 $ 4,368
3rd Quarter purchases....................
13,216 $ 3,304
4th Quarter purchases....................
11,760
Total cash disbursements for
materials....................................... $18,844 $21,448 $17,584 $15,064

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16

Managerial Accounting, 13th Edition

$ 2,940
19,880
21,840
16,520
11,760
$72,940

Exercise 9-13 (continued)

2.

Hareston Company
Direct Labor Budget

Units to be produced....................
Direct labor time per unit (hours).
Total direct labor-hours needed. . .

1st
Quarter
7,000
0.60

2nd
Quarter
8,000
0.60

3rd
Quarter
6,000
0.60

4th
Quarter
5,000
0.60

Year
26,000
0.60

4,200
4,800
3,600
3,000
15,600
Direct labor cost per hour............. $14.00 $14.00 $14.00 $14.00 $14.00
Total direct labor cost.................. $ 58,800 $ 67,200 $ 50,400 $ 42,000 $218,400

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Solutions Manual, Chapter 9

17

Exercise 9-14 (30 minutes)

1.

Raredon Corporation
Direct Labor Budget

Units to be produced....................
Direct labor time per unit (hours).
Total direct labor-hours needed. . .
Direct labor cost per hour.............
Total direct labor cost..................
2.

1st
2nd
3rd
4th
Quarter
Quarter
Quarter
Quarter
Year
12,000
14,000
13,000
11,000
50,000
0.70
0.70
0.70
0.70
0.70
8,400
9,800
9,100
7,700
35,000
$10.50 $10.50 $10.50 $10.50 $10.50
$ 88,200 $102,900 $ 95,550 $ 80,850 $367,500

Raredon Corporation
Manufacturing Overhead Budget

Budgeted direct labor-hours.........

Variable overhead rate.................
Variable manufacturing overhead
Fixed manufacturing overhead.....
Total manufacturing overhead.....
Less depreciation.........................
Cash disbursements for
manufacturing overhead............

1st
Quarter
8,400
$1.50
$12,600
80,000
92,600
22,000

2nd
Quarter
9,800
$1.50
$14,700
80,000
94,700
22,000

3rd
Quarter
9,100
$1.50
$13,650
80,000
93,650
22,000

4th
Quarter
7,700
$1.50
$11,550
80,000
91,550
22,000

$70,600

$72,700

$71,650

$69,550 $284,500

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18

Managerial Accounting, 13th Edition

Year
35,000
$1.50
$ 52,500
320,000
372,500
88,000