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
Pounds of DM needed per unit 2 2 2 2
Quantity needed for production 16,600 18,750 19,700 55,050
Plus: Desired ending Inventory of DM 1,875 1,970 3,250 3,250
Total quantity of DM needed 18,475 20,720 22,950 62,145
Less: Beginning inventory of DM 3,320 1,875 1,970 3,320
Quantity of DM to Purchase 15,155 18,845 20,980 58,825
Multiply by: Cost per pound 2 2 2 2
Total Cost of DM purchases $30,310 $37,690 $41,960 $117,650

April May
Unit Sales 9,700 8,500
Desired Ending Inventory (10%) 850
Total Needed 10,550
Beginning inventory 2,425
Units to produce 8,125
DM needed per Unit 2
DM needed for production 16,250
20% of DM

Req. 4

Schedule of Expected Cash DisbursementsMaterial Purchases

January February March Quarter
December purchases (from Accounts
Payable) $42,400 $42,400
January purchases $6,062 $24,248 $30,310
February purchases $7,538 $30,152 $37,690
March purchases $8,392 $8,392
Total cash payments for direct materials $48,462 $31,786 $38,544 $118,792

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Req. 5

Schedule of Expected Cash DisbursementsConversion Costs

January February March Quarter
Variable Manufacturing Overhead Costs $9,960 $11,250 $11,820 $33,030
Rent (fixed) $5,000 $5,000 $5,000 $15,000
Other Manufacturing Overhead (fixed) 3000 3000 3000 $9,000
Cash Payments for MOH $17,960 $19,250 $19,820 $57,030

Req. 6

Schedule of Expected Cash Disbursements -- Operating Expenses

January February March Quarter
Variable Operating Expenses 8300 9375 9850 $27,525
Fixed Operating Expenses $1,000 $1,000 $1,000 $3,000
Cash Payments for Operating Expenses $9,300 $10,375 $10,850 $30,525

Req. 7
Combined Cash Budget
January February March Quarter
Cash Balance, beginning $4,500 $4,778 $4,967 $4,500
Plus: Cash Collections 73,000 83,600 94,100 250,700
Total Cash Available 77,500 88,378 99,067 255,200
Less Cash Payments:
DM Purchases 48,462 31,786 38,544 118,792
Conversion Costs 17,960 19,250 19,820 57,030
Operating Expensees 9,300 10,375 10,850 30,525
Equipment Purchases 5,000 12,000 16,000 33,000
Tax Payment 10,000 10,000
Total Cash Payments 80,722 83,411 85,214 249,347
Ending Cash before Financing -3,222 4,967 13,853 5,853
Financing:
Borrowings 8,000 0 0 8,000
Repayments -8,000 -8,000
Interest Payments -240 -240
Ending Cash Balance 8,000 0 -8,240 -240
$4,778 $4,967 $5,613 $5,613

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 Manufactoring Overhead $1.00
Budgeted Cost of Manufactoring each Unit $6.20

Req. 9

Silverman Manufacturing
Budgeted Income Statement
For the Quarter Ended March 31
Sales $271,000
Cost of Goods Sold -178,560
Gross Profit 449,560
Operating Expense 30,525
Depreciation -4,800
Operating Income 423,835
Less Interest Expense -240
Less Provision for Income Taxes 127,079
Net Income $296,757

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

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