Introduction to Management Accounting Solutions Manual

Problems: Set A

(60 min.) P 9-59A

P9-59A Comprehensive budgeting problem (Learning Objectives 2 & 3)

Requirements
1. Prepare a schedule of cash collections for January, February, and March, and for the quarter
in total.
2. Prepare a production budget.
3. Prepare a direct materials budget.
4. Prepare a cash payments budget for the direct material purchases from Requirement 3.
5. Prepare a cash payments budget for conversion costs.
6. Prepare a cash payments budget for operating expenses.
7. Prepare a combined cash budget.
8. Calculate the budgeted manufacturing cost per unit.
9. Prepare a budgeted income statement for the quarter ending March 31.
Solution:
Given

Sales Budget
December January February March April May
Unit sales 7,000 8,000 9,200 9,900 9,700 8,500
Unit selling price $ 10 $ 10 $ 10 $ 10 $ 10 $ 10
Total sales Revenue $ 70,000 $ 80,000 $ 92,000 $ 99,000 $ 97,000 $ 85,000

Req. 1

Cash Collections
January February March Quarter
Cash Sales (30%) $24,000 $27,600 $29,700 $81,300
Credit Sales (70%) $49,000 $56,000 $64,400 $169,400
Total Cash Collectons $73,000 $83,600 $94,100 $250,700

*All Credit Sales are collected in the month following the sale

Req. 2

Production Budget
January February March Quarter
Unit Sales 8000 9200 9900 27100
Desired Ending Inventory (25%) 2300 2475 2425 2425
Total Needed 10300 11675 12325 29525
Less: Beginning Inventory 2000 2300 2475 2000
Units to Produce 8300 9375 9850 27525

*Desired Ending Inventory = 25% of next months sales in units

Req. 3

Direct Materials Budget

January February March Quarter
Units to be Produced 8,300 9,375 9,850 27,525
x Pounds of DM Needed per Unit 2 2 2 2
Quantity (lbs) Needed for Production 16,600 18,750 19,700 55,050
Plus: Desired Ending Inventory of DM(10%) 1,875 1,970 1625 1,625
Total Quantity (lbs) Needed 18,475 20,720 21,325 56,675
Less: Beginning Inventory of DM 1,660 1,875 1,970 1,660
Quantity (lbs) to Purchase 16,815 18,845 19,355 55,015
x Cost per Pound 2 2 2 2
Total Cost of DM Purchases $33,630 $37,690 $38,710 $110,030

*Desired Ending Inventory of DM = 10% of next months production needs

April May
Unit Sales 9,700 8,500
Desired Ending Inventory (10% Next) 850
Total Needed 10,550
Beginning Inventory 2,425

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Introduction to Management Accounting Solutions Manual

Units to Produce 8,125

DM Needed per Unit 2
DM Needed for Production 16,250
20% of DM

Req. 4

Schedule of Expected Cash DisbursementsMaterial Purchases

January February March Quarter
December Purchases (From Accounts
Payable) $42,400 $42,400
January Purchases $6,726 $26,904 $33,630
February Purchases $7,538 $30,152 $37,690
March Purchases $7,742 $7,742
Total Cash Payments for DM Purchases $49,126 $34,442 $37,894 $121,462

* 20% Paid for in month of purchase / 80% month following purchase

A $33,630 * 20% January / $33,360 * 80% February

B $37,690 * 20% February / $37,360 * 80% March

c $38,710 * 20% March / $38,710 * 80% April

Req. 5

Schedule of Expected Cash DisbursementsConversion Costs

January February March Quarter
Rent (Fixed) $5,000 $5,000 $5,000 $15,000
Other MOH (Fixed) $3,000 $3,000 $3,000 $9,000
Variable Conversion Costs (DL + MOH) $9,960 $10,313 $10,835 $31,108
Total Payments for Conversion Costs $17,960 $18,313 $18,835 $55,108

* Variable Conversion Costs = $1.20 per unit

Req. 6

Schedule of Expected Cash Disbursements -- Operating Expenses

January February March Quarter
Variable Operating Expenses $8,000 $9,200 $9,900 $27,100
Fixed Operating Expenses $1,000 $1,000 $1,000 $3,000
Total Payments for Operating Expenses $9,000 $10,200 $10,900 $30,100
* Variable Operating Expenses = $1/Unit

Req. 7
Combined Cash Budget
January February March Quarter
Cash Balance, Beginning $4,500 $4,414 $4,060 $4,500
Add Cash Collections 73,000 83,600 94,100 250,700
Total Cash Available 77,500 88,014 98,160 255,200
Less Cash Payments:
DM Purchases 49,126 34,442 37,894 121,462
Conversion Costs 17,960 18,313 18,835 55,108
Operating Expenses 9,000 10,200 10,900 30,100
Equipment Purchases 5,000 12,000 16,000 33,000
Tax Payments 10,000 10,000
Total Cash Payments 81,086 84,955 83,629 249,670
Ending Cash Balance Before Financing -3,586 3,060 14,531 5,531
Financing:
Borrowings 8,000 1,000 9,000
Repayments -$9,000.00 -9,000
Interest Payments -$280.00 -280
Total Financing 8,000 1,000 -9,280 -280
Cash Balance, Ending $4,414 $4,060 $5,251 $5,251

Total interest $280

Req. 8

Budgeted Manufacturing Cost per Unit

Direct Materials (2 lbs each x $2 per lb) $4.00
Conversion Costs ($1.20 per unit) $1.20
Fixed MOH Per Unit ($0.80 per unit) $0.80

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Introduction to Management Accounting Solutions Manual

Cost of Manufacturing Each Unit $6.00

Req. 9

Silverman Manufacturing
Budgeted Income Statement
For the Quarter Ended March 31
Sales $271,000
Cost of Good Sold ($6 x units sold) -$162,600
Gross Profit $108,400
Operating Expenses -$30,100
Depreciation Expense -$4,800
Operating Income $73,500
Less: Interest Expense -$280
Less: Provision for Income Tax (30%) -$21,966
Net Income $51,254

Chapter 9: The Master Budget and Responsibility Accounting 3