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Budgeting - Exercises - Part 2

The document outlines the budgeting process for ABT, a concrete block manufacturer, including the preparation of ending finished goods inventory, cost of goods sold, marketing, and administrative expense budgets. It details the calculations for cash receipts and payments, as well as the budgeted income statement and balance sheet for the upcoming year. Additionally, it discusses potential impacts of changes in inventory and equipment sales on administrative expenses.

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miusdiarie
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15 views5 pages

Budgeting - Exercises - Part 2

The document outlines the budgeting process for ABT, a concrete block manufacturer, including the preparation of ending finished goods inventory, cost of goods sold, marketing, and administrative expense budgets. It details the calculations for cash receipts and payments, as well as the budgeted income statement and balance sheet for the upcoming year. Additionally, it discusses potential impacts of changes in inventory and equipment sales on administrative expenses.

Uploaded by

miusdiarie
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
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Ending Finished Goods Inventory Budget

ABT makes concrete blocks. Previous problem shows that each unit (block) requires 26 pounds of
raw materials costing $0.01 per pound. Therefore, each unit has budgeted direct materials cost of
$0.26. Previous problem shows the budgeted direct labor hours per unit (0.015 hour) and wage
rate ($14 per direct labor hour). It also shows the budgeted variable overhead per unit ($8 × 0.015
direct labor hour) and total fixed overhead for the year ($1,280,000). Recall from previous problem
that 16,000,000 units were expected to be produced during the year and that 100,000 units were
budgeted for ending finished goods inventory.

1. Prepare an ending finished goods inventory budget for ABT for the year.
2. What if the ending inventory of blocks increased to 120,000? How would that affect the
ending finished goods inventory budget?

Cost of Goods Sold Budget


In addition, with the previous details, ABT also provided the information that beginning finished
goods inventory is $55,000.
Cost of Goods Sold = Beginning Inventory + Total Manufacturing Cost – Ending Inventory
Marketing Expense Budget
ABT's only variable marketing expense is a $0.05 commission per unit (block) sold. Fixed marketing
expenses for each quarter include the following:

Advertising expense is $10,000 in Quarters 1, 3, and 4. However, at the beginning of the summer
building season, ABT increases advertising; in Quarter 2, advertising expense is $15,000.
1. Construct a marketing expense budget for the ABT concrete block line for the coming year.
Show total amounts by quarter and in total for the year.

Administrative Expense Budget


ABT has no variable administrative expense. Fixed administrative expenses for each quarter
include the following:

The administrative expense budget is prepared to help managers understand the expected
costs of running the company for the coming year. The total administrative expense will be
used later in preparing the budgeted income statement.

1. Construct an administrative expense budget for the ABT concrete block line for the
coming year. Show total amounts by quarter and in total for the year.
2. What if ABT sold equipment with quarterly depreciation of $1,000 (and did not replace
it) at the beginning of Quarter 3? How would that affect quarterly administrative
expense? Total administrative expense for the year?
Budgeted Income Statement
Prepare the income statement using the previous computations. Interest expense amounted to
P54,000.
Preparing the Financial Budget
The Cash Budget

Cash Receipts

Recall from previous problem that in 20x1 ABT sales are Quarter 1, $1,400,000;
Quarter 2, $4,200,000; Quarter 3, $4,800,000; and Quarter 4, $1,600,000. In
ABT's experience, 50 percent of sales are paid in cash. Of the sales on account, 70
percent are collected in the quarter of sale; the remaining 30 percent are
collected in the quarter following the sale. Total sales for the fourth quarter of
20x0 totaled $2,000,000.
1. Calculate cash sales expected in each quarter of 20x1.
2. Construct a cash receipts budget including an accounts receivable aging
schedule for ABT, Inc., for each quarter of the coming year.
Cash Budget

The information needed to prepare the cash budget comes from previous
problem and from the following information.
1. ABT requires a $100,000 minimum cash balance for the end of each
quarter. On December 31, 20x0, the cash balance was $120,000.
2. Money can be borrowed and repaid in multiples of $100,000. Interest is 12
percent per year. Interest payments are made only for the amount of the
principal being repaid. All borrowing takes place at the beginning of a
quarter, and all repayment takes place at the end of a quarter.
3. All materials are purchased on account; 80 percent of purchases are paid
for in the quarter of purchase. The remaining 20 percent are paid in the
following quarter. The purchases for the fourth quarter of 20x0 were
$500,000.
4. Budgeted depreciation is $200,000 per quarter for overhead, $5,000 for
marketing expense, and $12,000 for administrative expense. (Remember
that depreciation is not a cash expense and must be deleted from total
expenses before the cash budget is prepared.)
5. The capital budget for 20x1 revealed plans to purchase additional
equipment for $600,000 in the first quarter. The acquisition will be
financed with operating cash, supplementing it with short-term loans as
necessary.
6. Corporate income taxes of $20,700 will be paid at the end of the fourth
quarter.

Requirement:

1. Calculate cash payments for purchases expected in each quarter of 20x1.


2. Prepare a cash budget for ABT, Inc., for each quarter of the coming year.
Budgeted Balance Sheet

The balance sheet for the beginning of the year is given below. This balance sheet
is necessary in preparing the end-of-the-year budgeted balance sheet.

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