CHAPTER 6

MASTER BUDGET AND RESPONSIBILITY ACCOUNTING

6-1
a.
b.
c.
d.

The budgeting cycle includes the following elements:

Planning the performance of the company as a whole as well as planning the performance
of its subunits. Management agrees on what is expected.
Providing a frame of reference, a set of specific expectations against which actual results
can be compared.
Investigating variations from plans. If necessary, corrective action follows investigation.
Planning again, in light of feedback and changed conditions.

6-2
The master budget expresses managements operating and financial plans for a specified
period (usually a fiscal year) and includes a set of budgeted financial statements. It is the initial
plan of what the company intends to accomplish in the period.
6-3
Strategy, plans, and budgets are interrelated and affect one another. Strategy specifies
how an organization matches its own capabilities with the opportunities in the marketplace to
accomplish its objectives. Strategic analysis underlies both long-run and short-run planning. In
turn, these plans lead to the formulation of budgets. Budgets provide feedback to managers about
the likely effects of their strategic plans. Managers use this feedback to revise their strategic
plans.
6-4
We agree that budgeted performance is a better criterion than past performance for
judging managers, because inefficiencies included in past results can be detected and eliminated
in budgeting. Also, future conditions may be expected to differ from the past, and these can also
be factored into budgets.
6-5
Production and marketing traditionally have operated as relatively independent business
functions. Budgets can assist in reducing conflicts between these two functions in two ways.
Consider a beverage company such as Coca-Cola or Pepsi-Cola:
Communication. Marketing could share information about seasonal demand with
production.
Coordination. Production could ensure that output is sufficient to meet, for example,
high seasonal demand in the summer.
6-6
In many organizations, budgets impel managers to plan. Without budgets, managers drift
from crisis to crisis. Research also shows that budgets can motivate managers to meet targets and
improve their performance. Thus, many top managers believe that budgets meet the cost-benefit
test.
6-7
A rolling budget, also called a continuous budget, is a budget or plan that is always
available for a specified future period, by continually adding a period (month, quarter, or year) to
the period that just ended. A four-quarter rolling budget for 2009 is superseded by a four-quarter
rolling budget for April 2009 to March 2010, and so on.

6-1

6-8

The steps in preparing an operating budget are as follows:

1. Prepare the revenues budget
2. Prepare the production budget (in units)
3. Prepare the direct material usage budget and direct material purchases budget
4. Prepare the direct manufacturing labor budget
5. Prepare the manufacturing overhead budget
6. Prepare the ending inventories budget
7. Prepare the cost of goods sold budget
8. Prepare the nonmanufacturing costs budget
9. Prepare the budgeted income statement

6-9
The sales forecast is typically the cornerstone for budgeting, because production (and,
hence, costs) and inventory levels generally depend on the forecasted level of sales.
6-10 Sensitivity analysis adds an extra dimension to budgeting. It enables managers to
examine how budgeted amounts change with changes in the underlying assumptions. This assists
managers in monitoring those assumptions that are most critical to a company in attaining its
budget and allows them to make timely adjustments to plans when appropriate.
6-11 Kaizen budgeting explicitly incorporates continuous improvement anticipated during the
budget period into the budget numbers.
6-12 Nonoutput-based cost drivers can be incorporated into budgeting by the use of activitybased budgeting (ABB). ABB focuses on the budgeted cost of activities necessary to produce
and sell products and services. Nonoutput-based cost drivers, such as the number of part
numbers, number of batches, and number of new products can be used with ABB.
6-13 The choice of the type of responsibility center determines what the manager is
accountable for and thereby affects the managers behavior. For example, if a revenue center is
chosen, the manager will focus on revenues, not on costs or investments. The choice of a
responsibility center type guides the variables to be included in the budgeting exercise.
6-14 Budgeting in multinational companies may involve budgeting in several different foreign
currencies. Further, management accountants must translate operating performance into a single
currency for reporting to shareholders, by budgeting for exchange rates. Managers and
accountants must understand the factors that impact exchange rates, and where possible, plan
financial strategies to limit the downside of unexpected unfavorable moves in currency
valuations. In developing budgets for operations in different countries, they must also have good
understanding of political, legal and economic issues in those countries.
6-15 No. Cash budgets and operating income budgets must be prepared simultaneously. In
preparing their operating income budgets, companies want to avoid unnecessary idle cash and
unexpected cash deficiencies. The cash budget, unlike the operating income budget, highlights
periods of idle cash and periods of cash shortage, and it allows the accountant to plan cost
effective ways of either using excess cash or raising cash from outside to achieve the companys
operating income goals.

6-2

EXERCISES
6-28
Solution
Direct materials purchases budget
Direct materials to be used in production (bottles)
Add target ending direct materials inventory (bottles)

15,00,000
50,000

Total requirements (bottles)

Deduct beginning direct materials inventory (bottles)

15,50,000
20,000

Direct materials to be purchased (bottles)

15,30,000

6-29
Solution
Budgeting material purchases
Production Budget
Budgeted sales
Add target ending finished goods inventory
Total requirements
Deduct beginning finished goods inventory
Units to be produced

Finished Goods (units)

4,20,000
2,40,000
6,60,000
2,20,000
4,40,000
Direct Materials (in gallons)
13,20,000
11,00,000
24,20,000
9,00,000
15,20,000

Direct materials needed for production (4,40,000 3)

Add target ending direct materials inventory
Total requirements
Deduct beginning direct materials inventory
Direct materials to be purchased
6-30
Solution
1. Revenue budget
80,00,000 motorcycles Rs 40,000

Rs 3,20,00,00,00,000

2. Production budget
Budgeted sales (units)
Add target ending finished goods inventory
Total requirements
Deduct beginning finished goods inventory
Units to be produced

80,00,000
10,00,000
90,00,000
12,00,000
78,00,000

3. Purchase budget
Direct materials to be used in production, (78,00,000 2)
Add target ending direct materials inventory
Total requirements
Deduct beginning direct materials inventory
Direct materials to be purchased (units)
Cost per wheel in rupee
Direct materials purchase cost in rupee

1,56,00,000
3,00,000
1,59,00,000
2,00,000
1,57,00,000
(X) 1,600
Rs 25,12,00,00,000

6-31
Solution
Budgeted sales (units)
Add target ending finished goods inventorya (units)
Total requirements (units)
Deduct beginning finished goods inventory (units)
Units to be produced

January
1,00,000
1,60,000
2,60,000
1,60,000
1,00,000

February
1,20,000
1,25,000
2,45,000
1,60,000
85,000

March
80,000
1,35,000
2,15,000
1,25,000
90,000

Quarter
3,00,000
1,35,000
4,35,000
1,60,000
2,75,000

Direct manufacturing labor-hours (DMLH) per unit

Total hours of direct manufacturing labor time needed
Direct manufacturing labor costs
Wages (Rs 10 per DMLH)
Pension contributions (Re 0.50 per DMLH)
Workers compensation insurance (10.15 per DMLH)
Employee medical insurance (Re 0.40 per DMLH)
Social security tax (employees share)
(Rs 10 0.075 = Re 0.75 per DMLH)
Total direct manufacturing labor costs
a

X2
2,00,000

X2
1,70,000

X 1.5
1,35,000

5,05,000

Rs 20,00,000
1,00,000
30,000
80,000

Rs 17,00,000
85,000
25,500
68,000

Rs 13,50,000
67,500
20,250
54,000

Rs 50,50,000
2,52,500
75,750
2,02,000

1,50,000
23,60,000

1,27,500
20,06,000

1,01,250
15,93,000

3,78,750
59,59,000

100% of the first following months sales plus 50% of the second following months sales.

Note that the employee Social Security tax of 7.5% is irrelevant. Such taxes are withheld from employees wages and paid to the government by the employer on behalf of the employees; therefore, the 7.5% amounts are not additional costs to the employer.
6-32
Solution
Budget schedules for a manufacturer.
a. Revenues Budget
Units sold
Selling price
Budgeted revenues

Executive Line
740
Rs
1,020
Rs 7,54,800

Chairman Line
390
Rs
1,600
Rs 6,24,000

Total

Rs 13,78,800

b. Production Budget in Units

Executive Line
740
30
770
20
750

Budgeted unit sales

Add budgeted ending fin. goods inventory
Total requirements
Deduct beginning fin. goods. inventory
Budgeted production

Chairman Line
390
15
405
5
400

c. Direct Materials Usage Budget (units):

Oak

Red Oak

Oak Legs

Red Oak Legs

Executive Line:
1. Budgeted input per f.g. unit
2. Budgeted production
3. Budgeted usage (1 2)

16
750
12,000

4
750
3,000

Chairman Line:
4. Budgeted input per f.g. unit
5. Budgeted production
6. Budgeted usage (4 5)
7. Total direct materials usage (3 + 6)

12,000

25
400
10,000
10,000

3,000

4
400
1,600
1,600

320
Rs 18

150
Rs 23

100
Rs 11

40
Rs 17

Rs 5,760

Rs 3,450

Rs 1,100

Rs 680

11,680
Rs 20

9,850
Rs 25

2,900
Rs 12

1,560
Rs 18

Rs 2,33,600
Rs 2,39,360

Rs 2,46,250
Rs 2,49,700

Rs 34,800
Rs 35,900

Rs 28,080
Rs 28,760

Direct Materials Cost Budget

8. Beginning inventory
9. Unit price (FIFO)
10. Cost of DM used from beginning inventory
(8 9)
11. Materials to be used from purchases
(7 8)
12. Cost of DM in March
13. Cost of DM purchased and used in March
(11 12)
14. Direct materials to be used (10 + 13)

Total

Rs 10,990

Rs 5,42,730
Rs 5,53,720

Direct Materials Purchases Budget:

Oak
12,000
192
12,192
320
11,872
Rs 20
Rs 2,37,440

Budgeted usage (from line 7)

Add target ending inventory
Total requirements
Deduct beginning inventory
Total DM purchases
Purchase price (March)
Total purchases
d. Direct manufacturing labor budget
Output Units Produced
Executive Line
Chairman Line

750
400

Red Oak
10,000
200
10,200
150
10,050
Rs 25
Rs 2,51,250

DirectManu. LaborHours per Output Unit

3
5
4,250

Oak Legs
3,000
80
3,080
100
2,980
Rs 12
Rs 35,760
Total Hours

Red Oak Legs

Total
1,600
44
1,644
40
1,604
Rs 18
Rs 28,872
Rs 5,53,322
Hourly Rate

2,250
2,000

e. Manufacturing overhead budget

Variable manufacturing overhead costs (4,250 Rs 35)
Fixed manufacturing overhead costs
Total manufacturing overhead costs

Rs 30
Rs 30

Total
Rs 67,500
60,000
Rs 1,27,500

Rs 1,48,750
42,500
Rs 1,91,250

Total manufacturing overhead cost per hour

Rs 1,91,250/4,250 = Rs 45 per direct manufacturing labor-hour
Fixed manufacturing overhead cost per hour
Rs 42,500/4,250 = Rs 10 per direct manufacturing labor-hour
f.

Computation of unit costs of ending inventory of finished goods:

Executive Line
Direct materials
Oak top (Rs 20 16, 0)
Red oak (Rs 25 0, 25)
Oak legs (Rs 12 4, 0)
Red oak legs (Rs 18 0, 4)
Direct manufacturing labor (Rs 30 3, 5)
Manufacturing overhead
Variable (Rs 35 3, 5)
Fixed (Rs 10 3, 5)
Total manufacturing cost

Chairman Line

Rs 320
0
48
0
90

Rs 0
625
0
72
150

105
30
Rs 593

175
50
Rs 1,072

Ending Inventories Budget

Cost per Unit

Units

Total

Direct Materials
Oak top
Red oak top
Oak legs
Red oak legs

Rs 20
25
12
18

192
200
80
44

Rs 3,840
5,000
960
792
10,592

Finished Goods
Executive
Chairman

593
1,072

30
15

17,790
16,080
33,870

Total
g. Cost of goods sold budget
Budgeted finished goods inventory, March 1, 2012 (Rs 10,480 + Rs 4,850)
Direct materials used (from Dir. materials cost budget)
Direct manufacturing labor (Dir. manuf. labor budget)
Manufacturing overhead (Manuf. overhead budget)
Cost of goods manufactured

Rs 44,462
Rs 15,330
Rs 5,53,720
1,27,500
1,91,250
8,72,470

Cost of goods available for sale

Deduct ending finished goods inventory, March 31, 2012 (Inventories budget)
Cost of goods sold

8,87,800
33,870
Rs 8,53,930

2. Areas where continuous improvement might be incorporated into the budgeting process:
(a) Direct materials. Either an improvement in usage or price could be budgeted. For example, the budgeted usage amounts could be related
to the maximum improvement (current usage minimum possible usage) of 1 square foot for either desk:
Executive: 16 square feet 15 square feet minimum = 1 square foot
Chairman: 25 square feet 24 square feet minimum = 1 square foot
Thus, a 1% reduction target per month could be:
Executive: 15 square feet + (0.99 1) = 15.99
Chairman: 24 square feet + (0.99 1) = 24.99
Some students suggested the 1% be applied to the 16 and 25 square-foot amounts. This can be done so long as after several improvement cycles, the budgeted amount is not less than the minimum desk requirements.
(b) Direct manufacturing labor. The budgeted usage of 3 hours/5 hours could be continuously revised on a monthly basis. Similarly, the manufacturing labor cost per hour of Rs 30 could be continuously revised down. The former appears more feasible than the latter.
(c) Variable manufacturing overhead. By budgeting more efficient use of the allocation base, a signal is given for continuous improvement. A
second approach is to budget continuous improvement in the budgeted variable overhead cost per unit of the allocation base.
(d) Fixed manufacturing overhead. The approach here is to budget for reductions in the year-to-year amounts of fixed overhead. If these costs
are appropriately classified as fixed, then they are more difficult to adjust down on a monthly basis.
6-33
Solution
Responsibility of purchasing agent.
The time lost in the plant should be charged to the purchasing department. The plant manager probably should not be asked to underwrite
a loss due to failure of delivery over which he had no supervision. Although the purchasing agent may feel that he has done everything he possibly could, he must realize that, in the whole organization, he is the one who is in the best position to evaluate the situation. He receives an
assignment. He may accept it or reject it. But if he accepts, he must perform. If he fails, the damage is evaluated. Everybody makes mistakes.
The important point is to avoid making too many mistakes and also to understand fully that the extensive control reflected in responsibility accounting is the necessary balance to the great freedom of action that individual executives are given.
Discussions of this problem have again and again revealed a tendency among students (and among accountants and managers) to fix the
blameas if the variances arising from a responsibility accounting system should pinpoint misbehavior and provide answers. The point is that
no accounting system or variances can provide answers. However, variances can lead to questions. In this case, in deciding where the penalty
should be assigned, the student might inquire who should be askednot who should be blamed.
Classroom discussions have also raised the following diverse points:
(a) Is the railroad company liable?
(b) Costs of idle time are usually routinely charged to the production department. Should the information system be fine-tuned to reallocate
such costs to the purchasing department?
(c) How will the purchasing managers behave in the future regarding willingness to take risks?
The text emphasizes the following: Beware of overemphasis on controllability. For example, a time-honored theme of management is that
responsibility should not be given without accompanying authority. Such a guide is a useful first step, but responsibility accounting is more farreaching. The basic focus should be on information or knowledge, not on control. The key question is: Who is the best informed? Put another
way, Who is the person who can tell us the most about the specific item, regardless of ability to exert personal control?
6-34
Solution
Activity-based budgeting.
a. Machining
Indirect materials [Rs 0 + (Rs 10/hour 10,000 hours)]
Indirect labor [Rs 20,000 + (Rs 15/hour 10,000 hours)]
Utilities [Rs 0 + (Rs 5/hour 10,000 hours)]

Rs 1,00,000
1,70,000
50,000
Rs 3,20,000

b.

c.

Setups and quality assurance

Indirect materials [Rs 0 + Rs 1,000/run 40 runs]
Indirect labor [Rs 0 + Rs 1,200/run 40 runs]
Inspection [Rs 80,000 + (Rs 2,000/run 40 runs)]

40,000
48,000
1,60,000
Rs 2,48,000

Procurement
Indirect materials [Rs 0 + (Rs 4/order 15,000 orders)]
Indirect labor [Rs 45,000 + Rs 0]

d.

Design
Engineering hours [Rs 75,000 + (Rs 50/hour 100 hours)]

e.

Material handling
Indirect materials [Rs 0 + (Rs 2/sq. ft. 100,000 sq. ft.)]
Indirect labor (Rs 30,000 + Rs 0)

Rs 60,000
45,000
Rs 1,05,000
Rs 80,000
Rs 2,00,000
30,000
Rs 2,30,000

6-35
Solution
Comprehensive operating budget, budgeted balance sheet.
1. Schedule 1: Revenues Budget
For the Year Ended December 31, 2012
Units
Snowboards
1,000
2.

Selling Price
Rs 1,000

Schedule 2: Production Budget (in Units)

For the Year Ended December 31, 2012
Snowboards
1,000
200
1,200
100
1,100

Budgeted unit sales (Schedule 1)

Add target ending finished goods inventory
Total requirements
Deduct beginning finished goods inventory
Units to be produced
3.

Total Revenues
Rs 10,00,000

Schedule 3A: Direct Materials Usage Budget

For the Year Ended December 31, 2012
Wood
Physical Units Budget
Wood: 1,100 5.00 b.f.
Fiberglass: 1,100 6.00 yards
To be used in production
Cost Budget
Available from beginning inventory
Wood: 2,000 b.f. Rs 56
Fiberglass: 1,000 b.f. 9.60
To be used from purchases this period
Wood: (5,500 2,000) Rs 60
Fiberglass: (6,600 1,000) Rs 10
Total cost of direct materials to be used

Fiberglass

Total

5,500
5,500

6,600
6,600

Rs 1,12,000
Rs 9,600
2,10,000
Rs 3,22,000

56,000
Rs 65,600

Rs 3,87,600

Fiberglass

Total

Schedule 3B: Direct Materials Purchases Budget

For the Year Ended December 31, 2012
Wood
Physical Units Budget
Production usage (from Schedule 3A)
Add target ending inventory

5,500
1,500

6,600
2,000

Total requirements
Deduct beginning inventory
Purchases
Cost Budget
Wood: 5,000 Rs 60
Fiberglass: 7,600 Rs 10
Purchases
4. Schedule 4: Direct Manufacturing Labor Budget
For the Year Ended December 31, 2012
Cost Driver
Labor Category
Units
Manufacturing Labor
1,100
5.

7,000
2,000
5,000
Rs 3,00,000

Rs 76,000
Rs 76,000

Rs 3,00,000

DML Hours per

Driver Unit
5.00

Total Hours
5,500

Wage Rate
Rs 25.00

Rs 3,76,000

Total
Rs 1,37,500

Schedule 5: Manufacturing Overhead Budget

For the Year Ended December 31, 2012
At Budgeted Level of 5,500 Direct Manufacturing Labor-Hours
Rs 77,000
1,32,000
Rs 2,09,000

Variable manufacturing overhead costs (Rs 14 5,500)

Fixed manufacturing overhead costs
Total manufacturing overhead costs
6.
7.
8.

8,600
1,000
7,600

Budgeted manufacturing overhead rate:

= Rs 38 per hour
Budgeted manufacturing overhead cost per output unit:
= Rs 190 per output unit
Schedule 6A: Computation of Unit Costs of Manufacturing Finished Goods in 2012
Cost per Unit of Inputa
Direct materials
Wood
Rs 60
Fiberglass
10
Direct manufacturing labor
25
Total manufacturing overhead

Inputsb

Total

5.00
6.00
5.00

Rs 300
60
125
190
Rs 675

Units

Cost per Unit

Total

1,500
2,000

Rs 60
10

Rs 90,000
20,000

675

1,35,000
Rs 2,45,000

cost is per board foot, yard or per hour

inputs is the amount of each input per board

9.

Schedule 6B: Ending Inventories Budget

December 31, 2012
Direct materials
Wood
Fiberglass
Finished goods
Snowboards
Total Ending Inventory

200

10. Schedule 7: Cost of Goods Sold Budget

For the Year Ended December 31, 2012
From Schedule
Beginning finished goods inventory
January 1, 2012, Rs 647.60 100
Direct materials used
Direct manufacturing labor
Manufacturing overhead
Cost of goods manufactured
Cost of goods available for sale
Deduct ending finished goods inventory, December 31, 2012
Cost of goods sold

Given
3A
4
5

6B

Total
Rs 64,760
Rs 3,87,600
137,500
2,09,000
7,34,100
7,98,860
1,35,000
Rs 6,63,860

11.

Budgeted Income Statement of J. K Wood Company

For the Year Ended December 31, 2012
Revenues
Cost of goods sold
Gross margin
Operating costs
Variable marketing costs (Rs 2,500 30)
Fixed nonmanufacturing costs

Schedule 1
Schedule 7

Rs 10,00,000
6,63,860
3,36,140
Rs 75,000
60,000

Operating income

1,35,000
Rs 2,01,140

6-36
Solution
Comprehensive Budget
1. Schedule A: Budgeted Monthly Cash Receipts
Item
Total sales
Credit sales (25%)
Cash sales (75%)
Receipts:
Cash sales
Collections on accounts receivable
Total

December
Rs 40,000*
10,000*
30,000

January
Rs 48,000*
12,000*
36,000

February
Rs 60,000*
15,000
45,000

March
Rs 80,000*
20,000
60,000

36,000*
10,000*
46,000*

45,000*
12,000
57,000*

60,000
15,000
75,000

February
Rs 56,000
1,120
54,880

March
Rs 25,200
504
24,696

4th Quarter
Rs 123,200
2,464
120,736

February
Rs 9,000
3,000
2,400
14,400

March
Rs 12,000
4,000
3,200
19,200

4th Quarter
Rs 28,200
9,400
7,520
45,120

January
Rs 41,160*
11,520*
600*

February
Rs 54,880
14,400
400

March
Rs 24,696
19,200

4th Quarter
Rs 120,736
45,120
1,000

53,280*

69,680

43,896

166,856

January
Rs 46,000*
53,280*

February
Rs 57,000
69,680

March
Rs 75,000
43,896
31,104

4th Quarter
Rs 178,000
166,856
11,144

7,280*

12,680

*Given.

2. Schedule B: Budgeted Monthly Cash Disbursements for Purchases

Item
January
Purchases
Rs 42,000*
Deduct 2% cash discount
840*
Disbursements
41,160*
*Given. Note that purchases are 70.0% of next months sales given a gross margin of 30%.

3. Schedule C: Budgeted Monthly Cash Disbursements for Operating Costs

Item
January
Salaries and wages (15% of sales)
Rs 7,200*
Rent (5% of sales)
2,400*
Other cash operating costs (4% of sales)
1,920*
Total
11,520*
*Given.

4. Schedule D: Budgeted Total Monthly Cash Disbursements

Item
Purchases
Cash operating costs
Light fixtures
Total
*Given.

5. Schedule E: Budgeted Cash Receipts and Disbursements

Item
Receipts
Disbursements
Net cash increase
Net cash decrease
*Given

6. Schedule F: Financing Required

Item
Beginning cash balance
Net cash increase
Net cash decrease
Cash position before borrowing (a)
Minimum cash balance required
Excess (Deficiency)
Borrowing required (b)
Interest payments (c)
Borrowing repaid (d)
Ending cash balance (a + b c d)
*Given.
Interest computation:
Rs 4,000 @ 18% for 3 months
Rs 12,000 @ 18% for 2 months
Total interest expense

January
Rs 12,000*

February
Rs 8,720*

7,280*
4,720*
8,000*
(3,280)*
4,000*

12,680
(3,960)
8,000
(11,960)
12,000

8,720*

March
Rs 8,040
31,104

4th Quarter
Rs 12,000
11,144

39,144
8,000
31,144

23,144
8,000
15,144
16,000
540
16,000
22,604

540
16,000
22,604

8,040

= Rs 180
=
360
Rs 540

7. Short-term, self-liquidating financing is best. The schedules clearly demonstrate the mechanics of a self-liquidating loan. The need for
such a loan arises because of the seasonal nature of many businesses. When sales soar, the payroll and suppliers must be paid in cash.
The basic source of cash is proceeds from sales. However, the credit extended to customers creates a lag between the sale and the collection of cash. When the cash is collected, it, in turn, may be used to repay the loan. The amount of the loan and the timing of the repayment are heavily dependent on the credit terms that pertain to both the purchasing and selling functions of the business.
8.

Retail Stationery Store

Budgeted Income Statement
For the Quarter Ending March 31, 2012
RevenuesSchedule A
Cost of goods sold (70% of sales)
Gross margin
Operating costs
Salaries and wagesSchedule C
RentSchedule C
Other cash operating costsSchedule C
Depreciation (Rs 1,000 3 months)
Operating income
Deduct interest expense Schedule F
Add purchase discounts Schedule B
Net income (before taxes)

Rs 1,88,000
1,31,600*
56,400
Rs 28,200
9,400
7,520
3,000

*Note: Ending inventory and proof of cost of goods sold:

Inventory, December 31
Add purchasesSchedule B
Deduct inventory, March 31:
Basic inventory
March purchasesSchedule B
Cost of goods sold

Rs 63,600
1,23,200
30,000
25,200

48,120
8,280
540
2,464
Rs 10,204

Rs 1,86,800

55,200
Rs 1,31,600

Retail Stationery Store

Budgeted Balance Sheet
March 31, 2012
Assets:
Current assets:
CashSchedule F
Accounts receivable
December credit salesSchedule A
Inventory (see Note above)
Total current assets

Rs 22,604
20,000
55,200
97,804

Equipment and fixtures:

Equipmentnet (Rs 100,000 Rs 3,000 depreciation)
FixturesSchedule D
Total

Rs 97,000
1,000

Liabilities and Owners Equity:

Liabilities
Owners equity
Total
*Owners equity, December 31: Rs 12,000 + Rs 63,600 + Rs 10,000 + Rs 100,000 (Given)
Net income, quarter ended December 31
Owners equity, December 31

98,000
Rs 1,95,804
None
Rs 1,95,804*
Rs 1,95,804

Rs 1,85,600
10,204
Rs 1,95,804

9. All of the transactions have been simplifiedfor example, no bad debts are considered. Also, many businesses face wide fluctuation of
cash flows within a month. For example, perhaps customer receipts lag and are bunched together near the end of a month, and disbursements are due evenly throughout the month, or are bunched near the beginning of the month. Cash needs would then need to be evaluated on a weekly and, perhaps, daily basis rather than on a monthly basis.