Concept explainers
Comprehensive Budget Plan
Brighton, Inc., manufactures kitchen tiles. The company recently expanded, and the controller believes that it will need to borrow cash to continue operations. It began negotiating for a one-month bank loan of $500,000 starting May 1. The bank would charge interest at the rate of 1 percent per month and require the company to repay interest and principal on May 31. In considering the loan, the bank requested a
The following information is available:
- The company budgeted sales at 600,000 units per month in April, June, and July and at 450,000 units in May. The selling price is $4 per unit.
- The inventory of finished goods on April 1 was 120,000 units. The finished goods inventory at the end of each month equals 20 percent of sales anticipated for the following month. There is no work in process.
- The inventory of raw materials on April 1 was 57,000 pounds. At the end of each month, the raw materials inventory equals no less than 40 percent of production requirements for the following month. The company purchases materials in quantities of 62,500 pounds per shipment.
- Selling expenses are 10 percent of gross sales. Administrative expenses, which include depreciation of $2,500 per month on office furniture and fixtures, total $165,000 per month.
- The manufacturing budget for tiles, based on normal production of 500,000 units per month, follows:
Required
- a. Prepare schedules computing inventory budgets by months for:
- 1. Production in units for April, May, and June.
- 2. Raw materials purchases in pounds for April and May.
- b. Prepare a projected income statement for May. Cost of goods sold should equal the variable
manufacturing cost per unit times the number of units sold plus the total fixed manufacturing cost budgeted for the period. Assume cash discounts of 1 percent andbad debt expense of 0.5 percent.
a.
Prepare schedules computing inventory budgets by months for:
1. Production in units for April, May and June.
2. Raw materials purchases in pounds for April and May.
Answer to Problem 61P
The estimated level of production is 570,000, 480,000 and 600,000 for April, May and June. The estimated level of purchase is $133,500 and $78,000 for April and May.
Explanation of Solution
1.
Budgeted production:
Budgeted production is the total number of goods that need to be produced to attain the targeted sales for the budgeted period. It is calculated by adjusting the beginning and closing inventory.
Calculate the production in units for April, May and June:
Company B Budgeted Production statement For the month end 31 June (in units) | |||
Particulars | April | May | June |
Estimated sales | 600,000 | 450,000 | 600,000 |
Add: closing stock required (1) | 90,000 | 120,000 | 120,000 |
Total requirement of units | 690,000 | 570,000 | 720,000 |
Less: opening stock | 120,000 | 90,000 | 120,000 |
Estimated level of production | 570,000 | 480,000 | 600,000 |
Table: (1)
Thus, the estimated level of production is 570,000, 480,000 and 600,000 for April, May and June.
Working note 1:
Calculate the closing stock required:
Particulars |
Sales (a) |
% of sales (b) |
Closing stock |
April | 450,000 | 20% | 90,000 |
May | 600,000 | 20% | 120,000 |
June | 600,000 | 20% | 120,000 |
Table: (2)
2.
Budgeted purchase:
Budgeted purchase is the total amount of goods that is needed to purchase in order to attain the targeted sales. It is calculated by adjusting the inventory.
Calculate the budgeted purchase of raw material for April and May:
Company B Budgeted Purchase Statement For the month end 30 May | ||
Particulars | April | May |
Estimated level of production (2) | $142,500 | $120,000 |
Add: closing stock required (3) | $48,000 | $60,000 |
Total requirement of units | $190,500 | $180,000 |
Less: opening stock | $57,000 | $102,000 (4) |
Estimated level of purchase | $133,500 | $78,000 |
Table: (3)
Thus, the estimated level of purchase is $133,500 and $78,000 for April and May.
Working note 2:
Calculate the estimated level of production ($):
Particulars |
Total units (a) |
Rate per unit (b) |
Amount |
April | 570,000 | $0.25 | $142,500 |
May | 480,000 | $0.25 | $120,000 |
June | 600,000 | 0.25 | $150,000 |
Table: (4)
Working note 3:
Calculate the closing stock required:
Month |
Production for next month ($) (a) |
% requirement (b) |
Amount |
April | $120,000 (2) | 40% | $48,000 |
May | $150,000 (2) | 40% | $60,000 |
Table: (5)
Working note 4:
Calculate the opening stock for May:
Closing stock of April will be the opening stock of May so the value can be found out with the calculation of closing stock of April.
b.
Prepare a projected income statement for May. Cost of goods sold should equal the variable manufacturing cost per unit times the number of units sold plus the total fixed manufacturing cost budgeted for the period.
Answer to Problem 61P
The net profit for the month of May is $33,000.
Explanation of Solution
Projected income statement:
Projected income statement is a statement that shows the total income and expenses of the budgeted period. The last year’s income statement is used and some estimates are made for the items that may change in the budgeted period.
Projected income statement for Company B:
Company B Projected Income Statement For the month of May | ||
Particulars | Amount | Total amount |
Net Sales revenue (a) (5) | $1,773,000 | |
Less: cost of goods sold: | ||
Variable cost of sales (7) | $990,000 | |
Fixed cost of sales | $400,000 | |
Total cost of goods sold (b) | $1,390,000 | |
Gross profit | $383,000 | |
Less: expenses: | ||
Selling expenses (8) | $180,000 | |
Administrative expenses | $165,000 | |
Interest expenses (9) | $5,000 | |
Total expenses (f) | $350,000 | |
Net profit | $33,000 |
Table: (6)
Thus, the net profit for the month of May is $33,000.
Working note 5:
Calculate the sales revenue:
Particulars | Amount | Total amount |
Sales revenue | $1,800,000 | |
Less: cash discount | $18,000 | |
Less: estimated bad debts (6) | $9,000 | $27,000 |
Net sales | $1,773,000 |
Table: (7)
Working note 6:
Calculate the estimated bed debts:
Working note 7:
Calculate variable cost:
Working note 8:
Calculate the selling expenses:
Working note 9:
Calculate the interest expense:
Want to see more full solutions like this?
Chapter 13 Solutions
Fundamentals Of Cost Accounting (6th Edition)
- Review the completed master budget and answer the following questions: Is Ranger Industries expecting to earn a profit during the next quarter? If so, how much? Does the company need to borrow cash during the quarter? Can it make any repayments? Explain. (Carefully review rows 74 through 80.)arrow_forwardCash budget The controller of Bridgeport Housewares Inc. instructs you to prepare a monthly cash budget for the next three months. You are presented with the following budget information: The company expects to sell about 10% of its merchandise for cash. Of sales on account, 70% are expected to be collected in the month following the sale and the remainder the following month (second month following sale). Depreciation, insurance, and property tax expense represent 50,000 of the estimated monthly manufacturing costs. The annual insurance premium is paid in January, and the annual property taxes are paid in December. Of the remainder of the manufacturing costs, 80% are expected to be paid in the month in which they are incurred and the balance in the following month. Current assets as of September 1 include cash of 40,000, marketable securities of 75,000, and accounts receivable of 300,000 (60,000 from July sales and 240,000 from August sales). Sales on account for July and August were 200,000 and 240,000, respectively. Current liabilities as of September 1 include 40,000 of accounts payable incurred in August for manufacturing costs. All selling and administrative expenses are paid in cash in the period they are incurred. An estimated income tax payment of 55,000 will be made in October. Bridgeports regular quarterly dividend of 25,000 is expected to be declared in October and paid in November. Management desires to maintain a minimum cash balance of 50,000. Instructions Prepare a monthly cash budget and supporting schedules for September, October, and November. On the basis of the cash budget prepared in part (1), what recommendation should be made to the controller?arrow_forwardRelevant data from the Poster Companys operating budgets are: Additional data: Capital assets were sold in January for $10,000 and $4,500 in May. Dividends of $4,500 were paid in February. The beginning cash balance was $60,359 and a required minimum cash balance is $59,000. Use this information to prepare a cash budget for the first two quarters of the yeararrow_forward
- Garden Depot is a retailer that is preparing its budget for the upcoming fiscal year. Managementhas prepared the following summary of its budgeted cash flows: (picture) The company’s beginning cash balance for the upcoming fiscal year will be $20,000. The company requires a minimum cash balance of $10,000 and may borrow any amount needed from a local bank at a quarterly interest rate of 3%. The company may borrow any amount at the beginning of any quarter and may repay its loans, or any part of its loans, at the end of any quarter. Interest payments are due on any principal at the time it is repaid. For simplicity, assume that interest is not compounded. Required: Prepare the company’s cash budget for the upcoming fiscal yeararrow_forwardPreparing a financial budget—schedule of cash receipts and schedule of cash payments Agua Cool is a distributor of bottled water. For each of the items, compute the amount of cash receipts or payments Agua Cool will budget for September. The solution to one item may depend on the answer to an earlier item. Management expects to sell equipment that cost $14,000 at a gain of $7,000. Accumulated depreciation on this equipment is $55,000. Management expects to sell 7,100 cases of water in August and 9,000 cases in September. Each case sells for $14. Cash sales average 20% of total sales, and credit sales make up the rest. Three-fourths of credit sales are collected in the month of the sale, with the balance collected the following month. The company pays rent and property taxes of $4,500 each month. Commissions and other selling expenses average 30% of sales. Agua Cool pays one—half of commissions and other selling expenses in the month incurred, with the balance paid the following month.arrow_forwardTune Printing Supply of Baltimore has applied for a loan. Its bank has requested a budgeted income statement for April 2024 and budgeted balance sheet at April 30, 2024. The March 31, 2024, balance sheet follows: As Tune Printing Supply's controller, you have assembled the following additional information: a. April dividends of $6,000 were declared and paid. b. April capital expenditures of $16,200 budgeted for cash purchase of equipment. c. April depreciation expense, $500. d. Cost of goods sold, 45% of sales. e. Desired ending inventory for April is $22,800. f. April selling and administrative expenses include salaries of $32,000, 30% of which will be paid in cash and the remainder paid next month. g. Additional April selling and administrative expenses also include miscellaneous expenses of 15% of sales, all paid in April. h. April budgeted sales, $86,000, 50% collected in April and 50% in May. i. April cash payments of…arrow_forward
- Printing Supply of Baltimore has applied for a loan. Its bank has requested a budgeted income statement for April 2024 and budgeted balance sheet at April 30, 2024. The March 31, 2024, balance sheet follows: As Tune Printing Supply's controller, you have assembled the following additional information: a. April dividends of $6,000 were declared and paid. b. April capital expenditures of $16,200 budgeted for cash purchase of equipment. c. April depreciation expense, $500. d. Cost of goods sold, 45% of sales. e. Desired ending inventory for April is $22,800. f. April selling and administrative expenses include salaries of $32,000, 30% of which will be paid in cash and the remainder paid next month. g. Additional April selling and administrative expenses also include miscellaneous expenses of 15% of sales, all paid in April. h. April budgeted sales, $86,000, 50% collected in April and 50% in May. i. April…arrow_forwardPrinting Supply of Baltimore has applied for a loan. Its bank has requested a budgeted income statement for April 2024 and budgeted balance sheet at April 30, 2024. The March 31, 2024, balance sheet follows: As Tune Printing Supply's controller, you have assembled the following additional information: a. April dividends of $6,000 were declared and paid. b. April capital expenditures of $16,200 budgeted for cash purchase of equipment. c. April depreciation expense, $500. d. Cost of goods sold, 45% of sales. e. Desired ending inventory for April is $22,800. f. April selling and administrative expenses include salaries of $32,000, 30% of which will be paid in cash and the remainder paid next month. g. Additional April selling and administrative expenses also include miscellaneous expenses of 15% of sales, all paid in April. h. April budgeted sales, $86,000, 50% collected in April and 50% in May. i. April…arrow_forwardBudgeting Production, Direct Materials and Income Statement Lane Products manufactures a popular kitchen utensil. The company recently expanded, and the controller believes that it will need to borrow cash to continue operations. It opened negotiations with the local bank for a one-month loan of $42,000 starting March 1. The bank would charge interest at the rate of 0.5 percent per month and require the company to repay interest and principal on March 31. In considering the loan, the bank requested a projected income statement and cash budget for March. The following information is available: • The company budgeted sales at 13,000 units per month in February, April, and May and at 10,000 units in March. The selling price is $61 per unit. • The company offers a 2 percent discount for cash sales. The company's experience is that bad debts average 1 percent of credit sales. • The inventory of finished goods on February 1 was 2,500 units. The desired finished goods inventory at the end of…arrow_forward
- Use the information below to answer question 1 to 22. The financial controller of BOE Ltd. is gathering data to prepare a cash budget for the second quarter of 2018. The following information is available. a) Sales for the first six months of the year are as follows: January February March 23,000 30,000 50,000 57,000 60,000 56,000 April Мay June a) 40% of all sales are cash sales. b) Of credit sales, 50% are collected in the month of sales and the remaining 50% collected the following month. c) The cost of raw materials equals 35% of each month's sales. 50% of raw materials are paid for in the month of purchase. The remaining 50% are paid in the following month. d) Wages total ¢5,500 per month and are paid for in the month incurred. e) Operating expenses per month totalled ¢16,800 of which ¢2,500 is depreciation and ¢300 is expiration of prepaid insurance premium (the annual premium of ¢3,600 paid in Jan 1). f) Dividend of ¢7,000 declared in March 31 will be paid on April 20. g) Old…arrow_forwardPreparing a financial budget—schedule of cash receipts and schedule of cash payments</b></p><p>Agua Cool is a distributor of bottled water. For each of the items, compute the number of cash receipts or payments Agua Cool will budget for September. The solution to one item may depend on the answer to an earlier item. Management expects to sell equipment that cost $14,000 at a gain of $7,000. Accumulated depreciation on this equipment is $55,000. Management expects to sell 7,100 cases of water in August and 9,000 cases in September. Each case sells for $14. Cash sales average 20% of total sales, and credit sales make up the rest. Three-fourths of credit sales are collected in the month of the sale, with the balance collected the following month. The company pays rent and property taxes of $4,500 each month. Commissions and other selling expenses average 30% of sales. Agua Cool pays one—half of the commissions and other selling expenses in the month incurred, with the…arrow_forwardGarden Depot is a retailer that is preparing its budget for the upcoming fiscal year. Management has prepared the following summary of its budgeted cash flows: Total cash receipts Total cash disbursements 1st Quarter $ 210,000 $ 281,000 The company's beginning cash balance for the upcoming fiscal year will be $26,000. The company requires a minimum cash balance of $10,000 and may borrow any amount needed from a local bank at a quarterly interest rate of 3%. The company may borrow any amount at the beginning of any quarter and may repay its loans, or any part of its loans, at the end of any quarter. Interest payments are due on any principal at the time it is repaid. For simplicity, assume that interest is not compounded. Beginning cash balance Total cash receipts Total cash available Total cash disbursements Excess (deficiency) of cash available over disbursements Financing: Borrowings Repayments Interest Required: Prepare the company's cash budget for the upcoming fiscal year.…arrow_forward
- Managerial AccountingAccountingISBN:9781337912020Author:Carl Warren, Ph.d. Cma William B. TaylerPublisher:South-Western College PubEBK CONTEMPORARY FINANCIAL MANAGEMENTFinanceISBN:9781337514835Author:MOYERPublisher:CENGAGE LEARNING - CONSIGNMENT
- Fundamentals Of Financial Management, Concise Edi...FinanceISBN:9781337902571Author:Eugene F. Brigham, Joel F. HoustonPublisher:Cengage LearningPrinciples of Accounting Volume 2AccountingISBN:9781947172609Author:OpenStaxPublisher:OpenStax CollegeExcel Applications for Accounting PrinciplesAccountingISBN:9781111581565Author:Gaylord N. SmithPublisher:Cengage Learning