CHAPTER 8

THE MASTER BUDGET

19. 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter Total
A 600,000 300,000 640,000 460,000
$17 $16 $14 $12
$10,200,000 $ 4,800,000 $ 8,960,000 $5,520,000 $29,480,000
B 400,000 700,000 250,000 650,000
$17 $16 $14 $12
$ 6,800,000 $11,200,000 $ 3,500,000 $7,800,000 $29,300,000
C 530,000 480,000 800,000 190,000
$17 $16 $14 $12
$ 9,010,000 $ 7,680,000 $11,200,000 $2,280,000 $30,170,000
The most financially beneficial scenario would be C; however, given the large
discrepancies in sales quantities per quarter, Pataky Company may not be able
to smooth production activities over the year. There would need to be a large
inventory build-up for the third quarter, which would increase the costs of non-
value-added costs of moving and storing units. The extreme decline in fourth
quarter sales might result in layoffs, if other value-added activities could not be
developed for direct labor employees.
Scenario A might actually be a better situation because of the less dramatic ad-
justments between quarters.

20. January February March

Budgeted sales 102,400 96,000 128,000
Ending inventory (5%) 4,800 6,400 7,680
Total required 107,200 102,400 135,680
Beginning inventory (7,000) (4,800) (6,400)
Budgeted production 100,200 97,600 129,280

21. QUARTER Total

st nd
1 2 3rd 4 th

Sales 1,080,000 1,360,000 980,000 1,100,000 4,520,000

EI (10%) 136,000 98,000 110,000 120,000 120,000
Total 1,216,000 1,458,000 1,090,000 1,220,000 4,640,000
BI (94,500) (136,000) (98,000) (110,000) (94,500)
Production 1,121,500 1,322,000 992,000 1,110,000 4,545,500

22. a. January February March April

Sales 300 700 1,000 900
EI 1,700 1,900 1,300 700
Total units needed 2,000 2,600 2,300 1,600
BI (1,000) (1,700) (1,900) (1,300)
Units produced 1,000 900 400 300

223
2013 Cengage Learning. All Rights Reserved. May not be scanned, copied, duplicated, or posted to a publicly
accessible website, in whole or in part.
224 Chapter 8

b. February March April

Units produced 900 400 300
Pounds of RM per unit 3 3 3
RM needed for production 2,700 1,200 900
EI 1,350 600 450
Pounds of RM needed 4,050 1,800 1,350
Pounds of RM in BI (1,500) (1,350) (600)
Pounds of RM to purchase 2,550 450 750
Cost per pound $2.00 $2.30 $2.40
Cost of RM purchases $ 5,100 $ 1,035 $ 1,800
c. February March April
Units produced 900 400 300
DLHs per unit 10 10 10
Total hours 9,000 4,000 3,000
Cost per DLH $12 $12 $12
Cost of DL $108,000 $48,000 $36,000

23. Sales of gowns 325,000

EI of gowns 15,800
Total 340,800
BI of gowns (21,000)
Production 319,800

319,800 2.5 yards = 799,500 yards

Yards needed for production 799,500
Ending inventory 4,550
Total 804,050
Beginning inventory (5,000)
Yards to purchase 799,050
Divided by yards in bolt 15
Necessary bolts 53,270

24. a. and b. Sales (feet) 190,000

EI 10,000
Total 200,000
BI (12,250)
Production 187,750

Concrete Gravel
Production in feet 187,750 187,750
Pounds per foot 4 7.5
Pounds for production 751,000 1,408,125
EI 34,300 46,250
Total pounds needed 785,300 1,454,375
2013 Cengage Learning. All Rights Reserved. May not be scanned, copied, duplicated, or posted to a publicly
accessible website, in whole or in part.
Chapter 8 225

BI (41,000) (32,650)
Purchase (pounds) 744,300 1,421,725
Cost per pound $0.10 $0.04
Total cost $ 74,430 $ 56,869

25. a. Boxes Trays

Production budget
Units of sales 42,000 30,000
Units desired in ending inv. 1,800 650
Units needed 43,800 30,650
Units in beginning inv. (1,200) (800)
Budgeted production 42,600 29,850
b. Purchases budgetMaterial A
Pounds needed for production:
(42,600 2) + (29,850 1) = (85,200 + 29,850) 115,050
Desired ending inventory 1,500
Total requirements 116,550
Less beginning inventory (1,780)
Pounds to be purchased 114,770
Cost per pound $0.05
Total cost of Material A purchases $5,738.50
Purchases budgetMaterial B
Pounds needed for production:
(42,600 1.5) + (29,850 0.8) = (63,900 + 23,880) 87,780
Desired ending inventory 1,400
Total requirements 89,180
Less beginning inventory (5,000)
Pounds to be purchased 84,180
Cost per pound $0.07
Total cost of Material B purchases $5,892.60
Material purchases:
Material A 114,770 lbs. $ 5,738.50
Material B 84,180 lbs. 5,892.60
Total $11,631.10
c. Direct labor budget
Required hours: Boxes (42,600 0.3) 12,780
Trays (29,850 0.2) 5,970
Total DLHs 18,750
Average DL wage rate $9.50
Total DL cost $178,125
d. Boxes Trays Total
Activity base (DLHs) 12,780 5,970
Multiplied by OH rate $1.60 $1.60
Overhead applied $20,448 $9,552 $30,000

2013 Cengage Learning. All Rights Reserved. May not be scanned, copied, duplicated, or posted to a publicly
accessible website, in whole or in part.
226 Chapter 8

26. Cost of goods sold $600,000

Ending inventory 84,000
Beginning inventory (60,000)
Budgeted purchases $624,000
Monthly purchases: $624,000 12 = $52,000
Payment for current year purchases ($52,000 11) $572,000
Beginning A/P balance 40,000
Total cash payments for purchases in 2014 $612,000

27. Sept. Oct. Nov.

Aug. credit sales (60% $78,000 80%) $37,440
Sept. cash sales (40% $80,000) 32,000
Sept. credit sales (60% $80,000 20%) 9,600
Sept. credit sales (60% $80,000 80%) $38,400
Oct. cash sales (40% $95,000) 38,000
Oct. credit sales (60% $95,000 20%) 11,400
Oct. credit sales (60% $95,000 80%) $45,600
Nov. cash sales (40% $91,000) 36,400
Nov. credit sales (60% $91,000 20%) 10,920
Total collections $79,040 $87,800 $92,920

28. a. January February March

Nov. sales (30% $83,000) $24,900
Dec. sales (30% $76,000) 22,800
Dec. sales (30% $76,000) $22,800
Jan. sales (40% $79,000 99%) 31,284
Jan. sales (30% $79,000) 23,700
Jan. sales (30% $79,000) $23,700
Feb. sales (40% $88,000 99%) 34,848
Feb. sales (30% $88,000) 26,400
Mar. sales (40% $59,000 99%) 23,364
Total collections $78,984 $81,348 $73,464
b. Feb. sales to be collected in April (30% $88,000) $26,400
March sales to be collected in April (30% $59,000) 17,700
March sales to be collected in May (30% $59,000) 17,700
Total A/R balance at March 31 $61,800

29. a. October collections:

From A/R balance $11,000
From October billings ($100,000 0.15) 15,000
Total October collections $26,000
November collections:
From October billings ($100,000 0.55) $55,000
From November billings ($65,000 0.15) 9,750
Total November collections $64,750
2013 Cengage Learning. All Rights Reserved. May not be scanned, copied, duplicated, or posted to a publicly
accessible website, in whole or in part.
Chapter 8 227

December collections:
From October billings ($100,000 0.30) $30,000
From November billings ($65,000 0.55) 35,750
From December billings ($15,000 0.15) 2,250
Total December collections $68,000

b. October collections $ 26,000

Less October business costs (22,500)
Remainder 10/31 $ 3,500
November collections 64,750
Total $ 68,250
Less November business costs (22,500)
Remainder 11/30 $ 45,750
Yes, Irby could pay the $45,000 for the trip at the end of November.
c. If Irby pays for the trip and if everything works out exactly as planned, she
would have $750 of cash on hand in the business. This is an exceptionally
small cushion and she should probably not make such a large cash ex-
penditure at the end of November.
Remainder 11/30 $ 45,750
December collections 68,000
Total $113,750
Less December business costs (22,500)
Remainder 12/31 $ 91,250
However, if Irby has good credit, she could borrow the $45,000 to pay for
the trip at the end of November and pay the money back at the end of De-
cember when she has a substantial cash balance. If she can borrow at 12%,
she would incur 1% per month for interestor $450 ($45,000 0.01) until
the end of December. By paying for the trip in November, shed be saving
$5,000 and spending $450saving a total of $4,550.

35. July August Sept. Total

Beginning cash balance $ 7,400 $ 7,200 $ 7,200 $ 7,400
Cash receipts 16,400 20,200 33,800 70,400
Total cash available $23,800 $27,400 $41,000 $ 77,800
Cash disbursements:
Payments on account $ 2,600 $ 7,800 $11,400 $ 21,800
Wage expenses 10,000 12,200 12,400 34,600
Overhead costs 8,000 9,200 8,800 26,000
Total disbursements $20,600 $29,200 $32,600 $ 82,400
Cash excess (inadequacy) $ 3,200 $ (1,800) $ 8,400 $ (4,600)
Minimum cash balance (7,000) (7,000) (7,000) (7,000)
Cash available (needed) $ (3,800) $ (8,800) $ 1,400 $(11,600)
Financing:
Borrowings (repayments) $ 4,000 $ 9,000 $ (1,000) $ 12,000
Sell (acquire) investments 0 0 0 0
Receive (pay) interest 0 0 (20) (20)
2013 Cengage Learning. All Rights Reserved. May not be scanned, copied, duplicated, or posted to a publicly
accessible website, in whole or in part.
228 Chapter 8

Ending cash balance $ 7,200 $ 7,200 $ 7,380 $ 7,380

36. a. CGS = $2,000,000 + (0.65 $8,000,000) = $7,200,000

b. CGS ($800,000 0.75) $600,000
Increase in Inventory 20,000
Decrease in Accounts Payable 45,000
Total cash payment for inventories $665,000

c. y = $250,000 + $17.50X
y = $250,000 + ($17.50 7,500)
y = $250,000 + $131,250 = $381,250 total overhead
Cash overhead cost = $381,250 $95,000 = $286,250
d. Beginning cash balance $ 15,000
Cash collections 470,500
Total cash available $ 485,500
Disbursements:
Payoff of note payable $ 52,500
Interest on note payable 4,700
Purchase of computer system 17,900
Operating costs and inventory purchases 193,500
Direct labor wages 110,000
Overhead costs 106,400
Selling and administrative costs 94,800 (579,800)
Cash deficiency $ (94,300)
Borrowings needed 100,000
Ending cash balance $ 5,700
(December 11, 2003), p. A14.

2013 Cengage Learning. All Rights Reserved. May not be scanned, copied, duplicated, or posted to a publicly
accessible website, in whole or in part.