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
Unit sales 7,000 8,000 9,200 9,900
Unit selling price $ 10 $ 10 $ 10 $ 10
Total sales Revenue $ 70,000 $ 80,000 $ 92,000 $ 99,000

Req. 1

Cash Collections
January February March Quarter
Cash sales $24,000 $27,600 $29,700 $81,300
Credit sales $ 49,000 $ 56,000 $ 64,400 $ 169,400
Total cash collections $73,000 $83,600 $94,100 $250,700

Req. 2

Production Budget
January February March Quarter
Unit sales 8,000 9,200 9,900 27,100
Plus: Desired ending inventory 2,300 2,475 2,425 2,425

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Total needed 10,300 11,675 12,325 29,525

Less: Beginning inventory (2,000) (2,300) (2,475) (2,000)
Units to produce 8,300 9,375 9,850 27,525

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
Qnty(pounds) needed for production 16,600 18,750 19,700 55,050
Plus: Desired ending inventory of DM 1,875 1,970 1880 1,880
Total quantity (pounds) needed 18,475 20,720 21,580 56,930
Less: Beginning inventory of DM (1,660) (1,875) (1,970) (1,660)
Quantity (pounds) to purchase 16,815 18,845 19,610 55,270
X Cost per pound 2 2 2 2
Total cost of DM purchases $33,630 $37,690 $39,220 $110,540

April May
Unit sales 9,700 8,500
Plus: Desired ending inventory 2,125
Total needed 11,825
Less: Beginning inventory (2,425)
Units to produce 9,400
X pounds of DM needed per unit 2
Qnty(pounds) needed for production 18,800

Req. 4

Schedule of Expected Cash Disbursements—Material Purchases

January February March Quarter
December purchases (from AP) $42,400 $42,400
January purchases $6,726 $26,904 $33,630
February purchases $7,538 $30,152 $37,690
March purchases $7,844 $7,844
Total cash payments for DM purchases $49,126 $34,442 $37,996 $121,564

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Req. 5

Schedule of Expected Cash Disbursements—Conversion Costs

January February March Quarter
Variable conversion costs $9,960 $11,250 $11,820 $33,030
Rent (fixed) $5,000 $5,000 $5,000 $15,000
Other fixed MOH 3000 3000 3000 $9,000
Total payments for conversion costs $17,960 $19,250 $19,820 $57,030

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

Req. 7
Combined Cash Budget
January February March Quarter
Cash balance, beginning $4,500 $4,414 $4,122 $4,500
Add cash collections 73,000 83,600 94,100 250,700
Total cash available 77,500 88,014 98,222 255,200
Less cash payments:
Direct material purchases (49,126) (34,442) (37,996) (121,564)
Conversion costs (17,960) (19,250) (19,820) (57,030)
Operating expenses (9,000) (10,200) (10,900) (30,100)
Equipment purchases (5,000) (12,000) (16,000) (33,000)
Tax payment (10,000) (10,000)
Total cash payments (81,086) (85,892) (84,716) (251,694)
Ending cash balance before financing (3,586) 2,122 13,506 3,506
Financing:
Borrowings 8,000 2,000 10,000
Repayments (9,000) (9,000)
Interest payments (280) (280)
Total financing 8,000 2,000 (9,280) 720
Ending cash balance $4,414 $4,122 $4,226 $4,226

Total interest $280

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Req. 8

Budgeted Manufacturing Cost per Unit

Direct materials cost per unit $4.00
Conversion cost per unit $1.20
Fixed manufacturing overhead per unit $0.80
Budgeted cost of manufacturing ea. Unit $6.00

Req. 9

Silverman Manufacturing
Budgeted Income Statement
For the Quarter Ended March 31
Sales $ 271,000
Cost of goods sold (162,600)
Gross profit 108,400
Operating expenses (30,100)
Depreciation (4,800)
Operating income 73,500
Less interest expense (280)
Less provision for income taxes (21,966)
Net income $51,254

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April May
9,700 8,500
$ 10 $ 10
$ 97,000 $ 85,000

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