COMPREHENSIVE BUDGETING

EXERCISES
1. Purchase Budget Merchandising Business
Gerdie Company has the following information:
Month Budgeted Sales
March $50,000
April 53,000
May 51,000
June 54,500
July 52,500
In addition, the gross profit rate is 40% and the desired inventory level is 30% of next month's cost of sales.
Required:
Prepare a purchases budget for April through June.

2. Production & Raw Materials Purchase Budget

Lubriderm Corporation has the following budgeted sales for the next six-month period:
June 90,000 August 210,000 October 180,000
July 120,000 September 150,000 November 120,000
There were 30,000 units of finished goods in inventory at the beginning of June. Plans are to have an inventory of finished products that equal
20% of the unit sales for the next month.
Five pounds of materials are required for each unit produced. Each pound of material costs $8. Inventory levels for materials are equal to 30%
of the needs for the next month. Materials inventory on June 1 was 15,000 pounds.
Required:
a. Prepare production budgets in units for July, August, and September.
b. Prepare a purchases budget in pounds for July, August, and September, and give total purchases in both pounds and dollars for each month.

3. Production and related schedules

The Jansen Company manufactures and sells two products: plastic boxes and plastic trays. Estimated needs for a unit of each are
Boxes Trays
Material A 2 pounds 1 pound
Material B 4 pounds 4 pounds
Direct labor 2 hours 2 hours

Overhead is applied on the basis of $2 per direct labor hour. The estimated sales by product for 2000 are:
Boxes Trays
Sales 42,000 24,000
The beginning inventories are expected to be as follows:
Material A 4,000 pounds
Material B 6,000 pounds
Boxes 1,000 units
Trays 500 units
The desired inventories are one month's production requirements, assuming constant sales throughout the year.

Prepare the following information:

A. Production schedule
B. Purchases budget in units
C. Direct labor budget in hours
D. Overhead to be charged to production

4. Cash Receipts & Cash Disbursements

The following are forecasts of sales and purchases for a company.
Sales Purchases
April $80,000 $30,000
May 90,000 40,000
June 85,000 30,000
All sales are on credit. Records show that 70 percent of the customers pay the month of the sale, 20 percent pay the month after the sale,
and the remaining 10 percent pay the second month after the sale. Purchases are all paid the following month at a 2 percent discount. Cash
disbursements for operating expenses in June were $5,000.
REQUIRED:
Prepare a schedule of cash receipts and disbursements for June.
5. Increase in Cash
Jackson Fabrics has prepared a forecast for May 2000. Some of the projected information follows:
Income after tax $260,000
Accrued Income Tax Expense 62,000
Increase in Accounts Receivable for month 41,000
Decrease in Accounts Payable for month 18,300
Depreciation Expense 71,200
Estimated Bad Debts Expense 13,100
Dividends declared 20,000
Using the above information, what is the companys projected increase in cash for May 2000?

6. Cash Budget & Financing Gap

Bagel Factory Inc. prepared cash estimates for the next four months. The following estimates were developed for certain items:
Item March April May June
Cash sales $10,000 $6,000 $8,000 $11,000
Credit sales 5,000 2,000 6,000 9,000
Payroll 2,000 1,500 2,500 3,000
Purchases 3,000 2,600 2,800 4,000
Other expenses 2,500 2,400 2,600 2,800
In February, credit sales totaled $9,000, and purchases totaled $5,000. January credit sales were $12,000. Accounts receivable collections
amount to 30% in the month after the sale and 60% in the second month after the sale; 10% of the receivables are never collected. Payroll and
other expenses are paid in the month incurred. Seventy-five percent of the purchases are paid in the month incurred, and the remainder are paid
in the following month. A $15,000 tax payment is due on June 15. The cash balance was $5,000 on March 1. The company wants a minimum
cash balance of $5,000 per month.

Required:
(1) Prepare a cash budget for the four-month period, March through June.
(2) List the amount of funds available for investing or required for borrowing in each month.

7. Cash budget
The January 31, 1999, balance sheet of Sara's Plaques follows:

Assets
Cash $12,000
Accounts Receivable (Net of Allowance for Uncollectibles of $1,440) 34,560
Inventory 52,400
Plant Assets (Net of Accumulated Depreciation of $60,000 36,000
Total Assets $134,960

Liabilities and Stockholders' Equity

Accounts Payable $70,200
Common Stock 90,000
Retained Earnings (Deficit) (25,240) 64,960
Total Liabilities & Stockholders Equity $134,960

Additional information about the company includes the following:

Expected sales for February and March are $120,000 and $130,000, respectively.
The collection pattern from the month of sale forward is 50%, 48%, and 2% uncollectible.
Cost of goods sold is 75% of sales.
Purchases each month are 55% of the current months sales and 45% of the next months projected sales. All purchases are paid for in full
in the month following purchase.
Other cash expenses each month are $21,500. The only noncash expense each month is $4,000 of depreciation.

Required:
a. What are budgeted cash collections for February 2000?
b. What will be the inventory balance at February 29, 2000?
c. What will be the projected balance in Retained Earnings at February 29, 2000?
d. If the company wishes to maintain a minimum cash balance of $8,000, how much will be available for investment or need to be borrowed
at the end of February 2000?
8. Budgeted Cost Of Goods Manufactured And Sold Statement
WKRP, Inc., with $50,000,000 of par stock outstanding, plans to budget earnings of 10%, before income tax, on this stock. The Marketing
Department budgets sales at $40,000,000. The budget director approves the sales budget and expenses as follows:
Marketing 20% of sales
Administrative 10% of sales
Labor is expected to be 50% of the total manufacturing cost; materials issued for the budgeted production will cost $12,500,000; therefore, any
savings in manufacturing cost will have to be in factory overhead. Inventories are to be as follows:
Beginning of Year End of Year
Finished goods $8,000,000 $10,000,000
Work in process 1,000,000 3,000,000
Materials 5,000,000 4,000,000
Required:
Prepare the budgeted cost of goods manufactured and sold statement, showing the budgeted purchases of materials and the adjustments for
inventories of materials, work in process, and finished goods.

9. Budgeted Income Statement

The management of Podunk Pottery Co. would like to earn 20% on its invested capital of $4,000,000. The company estimates sales of 100,000
pots during the coming year ending December 31. Sales commissions are paid at the rate of 10% of the sales price. Other expenses are as
follows:
Variable manufacturing expenses 30% of sales
Fixed manufacturing expenses $ 100,000
Fixed general and administrative expenses $ 25,000
Required:
(1) Compute the dollar amount of target net income.
(2) Prepare a budgeted income statement for the coming year.

10. Pro forma income statement

Bennett Novelty Wholesale Store has prepared the following budget information for May 2001:
Sales of $300,000. All sales are on account and a provision for bad debts is made monthly at 3 percent of sales.
Inventory was $70,000 on April 30 and an increase of $10,000 is planned for May.
All inventory is marked to sell at cost plus 50 percent.
Estimated cash disbursements for selling and administrative expenses for the month are $40,000.
Depreciation for May is projected at $5,000.
Prepare a pro forma income statement for Bennett Novelty Wholesale Store for May 2001.

11. Kaizen-Based Income Statement

Allscott Company is developing its budgets for 20x5 and, for the first time, will use the kaizen approach. The initial 20x5 income statement, based
on static data from 20x4, is as follows:
Sales (140,000 units) $420,000
Less: Cost of goods sold 280,000
Gross margin 140,000
Operating expenses (includes $28,000 of depreciation) 112,000
Net income $28,000
Selling prices for 20x5 are expected to increase by 8%, and sales volume in units will decrease by 10%. The cost of goods sold as estimated by
the kaizen approach will decline by 10% per unit. Other than depreciation, all other operating costs are expected to decline by 5%.
Required:
Prepare a kaizen-based budgeted income statement for 20x5.

12. Projected Income Statement and Balance Sheet

Russell Company has the following projected account balances for June 30, 20x3:
Accounts payable $40,000 Sales $800,000
Accounts receivable 100,000 Capital stock 400,000
Depreciation, factory 24,000 Retained earnings ?
Inventories (5/31 & 6/30) 180,000 Cash 56,000
Direct materials used 200,000 Equipment, net 240,000
Office salaries 80,000 Buildings, net 400,000
Insurance, factory 4,000 Utilities, factory 16,000
Plant wages 140,000 Selling expenses 60,000
Bonds payable 160,000 Maintenance, factory 28,000
Required:
a. Prepare a budgeted income statement for June 20x3.
b. Prepare a budgeted balance sheet as of June 30, 20x3.
13. Budget income statement and purchases budget (6-9)
Olson Sporting Goods has the following sales forecast for the first four months of 20X9.
January $70,000
February 70,000
March 90,000
April 80,000

Olsons cost of sales is 60% of sales. Fixed costs are $12,000 per month. Olson maintains inventory at 150% of the coming months budgeted
sales requirements and has $55,000 inventory at January 1.
Required:
1. Prepare a budgeted income statement for the first three months of 20X9, in total, not by month.
2. Prepare a purchase budget for the first three months of 20X9 b month.

14. Cash budget and pro forma balance sheet (continuation of 6-9)
Olson pays for its purchases 40% in the month of purchase, 60% in the following month. Olson collects 60% of its sales in the month of sale, 40% in
the following month. All fix costs require cash disbursements. Olsons balance sheet at December 31, 20X8 appears below.
Assets Equities
Cash $ 20,000 Accounts payable $ 18,000
Receivables 30,000
Inventory 55,000 Stockholders equity 87,000
Total $105,000 Total $105,000

Required:
1. Prepare a cash receipts budget for each of the first three months of 20X9 and for the quarter as a whole.
2. Prepare a cash disbursement budget for each of the first three months of 20X9 and for the quarter as a whole.
3. Prepare a cash budget for each of the first three months of 20X9 and for the quarter as a whole.
4. Prepare a pro forma balance sheet as of March 31, 20X9.

15. Budget for a manufacturer (6-15)

Odell Company manufactures a small cabinet for cassette tapes. Its sales budget for the first three months of 20X0 is as follows.
January $2,000 (50 units)
February $2,200 (55 units)
March $1,800 (45 units)
Variable manufacturing costs are $26 per unit, of which $12 is for materials. Odells fixed manufacturing costs are $150 per month, including $40 of
depreciation. Its only variable selling cost is a 15% sales commission. Fixed selling and administrative costs are $70 per month. Odell maintains
no inventory of finished cabinets.
Required:
Prepare a budgeted income statement for Odell for January.

16. Production budget for a manufacturer (continuation of 6-15)

Because Odell carries no inventory of finished cabinets, its production, in units, is the same as its sales. Odells $12-per unit materials cost is
for 4 pounds of materials at a price of $3 per pound.
Required:
Prepare a budget for production costs for January showing as much details as the facts permit.

17. Purchases budget for a manufacturer (continuation of 6-15 and 6-16)

Odells policy is to maintain an inventory of material at 20% of production in the upcoming month. At December 31, 20X9, Odell had 34 pounds
of material that cost $102.
Required:
Prepare a materials purchases budget for Odell for January, in units and dollars.

18. Understanding budgets

Following are Blaisdel Companys balance sheet at December 31, 20X0, and information regarding Blaisdels policies and past experiences.
Blaisdel Company
Balance Sheet at December 31,20X0
Assets Equities
Cash $ 33,000 Accounts payable $ 9,000
Receivables 31,000 Income taxes payable 8,000
Inventory 59,000 Common stocks 180,000
Fixed assets, net 102,000 Retained earnings 28,000
Total $225,000 Total $225,000
Additional information:
A. All sales are on credit and are collected 20% in the month of sale and 80% in the month after sale.
B. Budgeted sales for the first five months of 20X1 are $50,000, $60,000, $70,000, $66,000, and $65,000, respectively.
C. Inventory in maintained at budgeted sales requirements for the following two months.
D. Purchases are all on credit and are paid 80% in the month of purchase and 20% in the month after purchase.
E. Other variable cost are 20% of sales and are paid in the month incurred.
F. Fixed costs are $6,000 per month, including $1,000 of depreciation. Cash fixed costs are paid in the month incurred.
G. Blaisdels income tax rate is 25%, with taxes being paid in the month after they are accrued.
H. Cost of goods sold is expected to be 60% of sales.

Required:
1. What are budgeted cash receipts for January 20X1?
2. What is the budgeted inventory at January 31, 20X1?
3. What are budgeted purchases for January 20X1?
4. What is budgeted net income for January 20X1?
5. What is the budgeted cash balance at the end of January 20X1?
6. What are budgeted accounts receivable at February 28, 20X1?
7. What is the budgeted book value of fixed assets at March 31, 20X1?
8. What are budgeted accounts payable at March 31, 20X1?
9. If Blaisdel declared a cash dividend of $1,200 during January, payable in February, what balance would be reported for retained earnings in
a pro forma balance shet as of January 31, 20X1?
10. What amount would show as the liability for income taxes as of March 31, 20X1?

19. Comprehensive
Webster Company has the following sales budget.
January $200,000 March $300,000
February $240,000 April $360,000
Cost of sales is 70% of sales. Sales are collected 40% in the month of sale and 60% in the following month. Webster keeps inventory equal to
double the coming month's budgeted sales requirements. It pays for purchases 80% in the month of purchase and 20% in the month after
purchase. Inventory at the beginning of January is $190,000. Webster has monthly fixed costs of $30,000 including $6,000 depreciation.
Fixed costs requiring cash are paid as incurred.

Required:
a. Compute budgeted cash receipts in March.
b. Compute budgeted accounts receivable at the end of March.
c. Compute budgeted inventory at the end of February.
d. Compute budgeted purchases in February.
e. March purchases are $290,000. Compute budgeted cash payments in March to suppliers of goods.
f. Compute budgeted accounts payable for goods at the end of February.
g. Cash at the end of February is $45,000. Cash disbursements are not required for anything other than payments to suppliers and fixed
costs. Compute the budgeted cash balance at the end of March.
SOLUTIONS
1. April May June Total
Desired ending inventory $ 9,180 $ 9,810 $ 9,450 $ 9,450
Plus COGS 31,800 30,600 32,700 95,100
Total needed 40,980 40,410 42,150 104,550
Less beginning inventory 9,540 9,180 9,810 9,540
Total purchases $31,440 $31,230 $32,340 $ 95,010

2. a. July August September

Budgeted sales 120,000 210,000 150,000
Add: Required ending inventory 42,000 30,000 36,000
Total inventory requirements 162,000 240,000 186,000
Less: Beginning inventory 24,000 42,000 30,000
Budgeted production 138,000 198,000 156,000

b. July August September

Production in units 138,000 198,000 156,000
Targeted ending inventory in lbs.* 297,000 234,000 **252,000
Production needs in lbs.*** 690,000 990,000 780,000
Total requirements in lbs. 987,000 1,224,000 1,032,000
Less: Beginning inventory in lbs. ****207,000 297,000 234,000
Purchases needed in lbs. 780,000 927,000 798,000
Cost ($8 per lb.) x $8 x $8 x $8
Total material purchases $6,240,000 $7,416,000 $6,384,000

* 0.3 times next month's needs

** (180,000 + 24,000 - 36,000) times 5 lbs. x 0.3
*** 5 lbs. times units to be produced
**** (690,000 x .3) = 207,000 lbs.

3. a. Production budget Boxes Trays

Units of sales 42,000 24,000
Units desired in ending inv. 3,500 2,000
Units needed 45,500 26,000
Units in beginning inv. (1,000) (500)
Budgeted production 44,500 25,500

b. Purchases budget - Material A Total

Units needed for production (89,000 + 25,500) 114,500
Required ending inventory (annual units 12) 9,542
Total requirements 124,042
Less beginning inventory (4,000)
Pounds to be purchased 120,042

Purchases budget - Material B

Units needed for production (178,000 + 102,000) 280,000
Required ending inventory (annual units 12) 23,333
Total requirements 303,333
Less beginning inventory (6,000)
Pounds to be purchased 297,333

c. Direct labor budget

Required hours 89,000 51,000 140,000

d. Overhead budget
Activity base (hours) 89,000 51,000
Multiply by rate $2 $2
Overhead cost $178,000 $102,000 $280,000
4. Schedules of Cash Receipts and Disbursements for June
Cash Receipts:
From current month sale (June) (.7 85,000) $59,500
From 1 month prior sale (May) (.2 90,000) 18,000
From 2 month prior sale (April) (.1 80,000) 8,000
Total cash receipts $85,500

Cash Disbursements:
May purchases @ 98% (less discount) (.98 40,000) $39,200
Operating expenses 5,000
Total cash disbursements $44,200
Net increase in cash for June $41,300

5. Income after taxes $260,000

Accr. income tax expense (no cash involved) 62,000
Increase in A/R (collected less than sold) (41,000)
Decrease in A/P (paid for more than purch.) (18,300)
Depreciation (no cash involved) 71,200
Estimated bad debts (no cash involved) 13,100
Projected increase in cash $347,000

Note: The declaration of a dividend does not affect cash, nor does it affect net income for the period.

6. (1) Bagel Factory Inc.

Cash Budget
For March-June, 19--

March April May June

Receipts from:
Cash sales $10,000 $6,000 $8,000 $11,000
January credit sales (60% x $12,000) 7,200
February credit sales: 30% x $9,000 2,700
60% x $9,000 5,400
March credit sales 1,500 3,000
April credit sales 600 1,200
May credit sales 1,800
Total receipts $19,900 $12,900 $11,600 $14,000

Disbursements for:
Payroll $2,000 $1,500 $2,500 $3,000
Other expenses 2,500 2,400 2,600 2,800
February purchases (25% x $5,000) 1,250
March purchases 2,250 750
April purchases 1,950 650
May purchases 2,100 700
June purchases 3,000
Tax payment 15,000
Total disbursements $8,000 $6,600 $7,850 $24,500
Net increase (decrease) in cash $11,900 $6,300 $3,750 $(10,500)
Cash balances:
Beginning 5,000 5,000 5,000 5,000
Ending $16,900 $11,300 $8,750 $ (5,500)

(2)
Available for investing $11,900 $6,300 $3,750
Needed to borrow $10,500
$5,500 + $5,000 minimum cash balance
7. Cash Budget
a. (72,000* 0.48) + ($120,000 0.50) = $94,560
*January sales: ($34,560 + $1,440) 0.50 = $72,000

b. Beginning inventory $ 52,400

Purchases ($120,000 0.75 0.55) +($130,000 0.75 0.45) 93,375
Cost of Goods Sold ($120,000 0.75) (90,000)
Ending inventory $ 55,775

c. First, determine expected earnings for February:

Sales $120,000
CGS (90,000)
Gross margin $ 30,000
Operating expenses (25,500)
Net income $ 4,500

Retained earnings, beginning balance $(14,000)

Earnings 4,500
Ending balance $( 9,500)

d. Beginning balance $ 12,000

Cash collections 94,560
Cash available $106,560
Cash disbursements:
Accounts Payable $70,200
Other 21,500 91,700
Cash excess $ 14,860

Since there is a cash excess of $14,860, ($14,860 - $8,000) = $6,860 is available for investment.

8. WKRP, Inc.
Budgeted Cost of Goods Manufactured and Sold Statement
For Year Ending December 31, 19--

Materials:
Beginning inventory $5,000,000
Purchases 11,500,0005
Materials available for use $16,500,000
Less ending inventory 4,000,000
Cost of materials used $12,500,000
Labor 13,500,000
Factory overhead 1,000,0004
Total manufacturing cost $27,000,0003
Add beginning work in process inventory 1,000,000
$28,000,000
Deduct ending work in process inventory 3,000,000
Cost of goods manufactured $25,000,0002
Add beginning finished goods inventory 8,000,000
Cost of goods available for sale $33,000,000
Deduct ending finished goods inventory 10,000,000
Cost of goods sold $23,000,0001

1 Earnings (10% of $50,000,000 = 5,000,000) 12.5% of sales

Marketing and administrative expenses 30.0%
42.5 % of sales
Cost of goods sold ($23,000,000) 57.5%
100.0% of sales

2. Cost of goods sold + Ending finished goods inventory + Beginning finished goods inventory = Cost of goods manufactured
$23,000,000 + $10,000,000 $8,000,000 = $25,000,000
 3 Costs of goods manufactured + Ending work in process inventory Beginning work in process inventory = Total manufacturing cost
(materials, labor, and factory overhead)
$25,000,000 + $3,000,000 $1,000,000 = $27,000,000

4 Total manufacturing cost Labor (50% of manufacturing cost) Cost of materials used = Factory overhead
$27,000,000 $13,500,000 $12,500,000 = $1,000,000

5 Cost of materials used + Ending materials inventory Beginning materials inventory =Materials purchases
$12,500,000 + $4,000,000 $5,000,000 = $11,500,000

9. (1) The net income must equal 20% of $4,000,000, or $800,000.

(2) Podunk Pottery Company

Budgeted Income Statement
For Year Ending December 31, 19--

Sales $1,541,667
Less cost of goods sold:
Variable manufacturing expenses $462,500
Fixed manufacturing expenses 100,000 562,500
Gross profit $979,167
Sales commissions $154,167
Fixed general and administrative expenses 25,000 179,167
Net income $800,000

10. Bennett Novelty Wholesale Store

Pro Forma Income Statement
For the Month Ended May 31, 2001

Sales $300,000
Cost of goods sold ($300,000 1.5) (200,000)
Gross margin $100,000
Selling and administrative expenses $40,000
Depreciation expense 5,000
Bad debts expense ($300,000 3%) 9,000 54,000
Net income $ 46,000

11. Sales (126,000 x $3.24) $408,240

Less: COGS (126,000 x $1.80) 226,800
Gross margin 181,440
Operating expenses ($28,000 + $79,800) 107,800
Net income $ 73,640

12. a. Income Statement

For the Month of June 20x3

Sales $800,000
Cost of goods sold:
Materials used $200,000
Wages 140,000
Depreciation 24,000
Insurance 4,000
Maintenance 28,000
Utilities 16,000 412,000
Gross profit $388,000
Operating expenses:
Selling expenses $60,000
Office salaries 80,000 140,000
Net income $248,000
 b. Russell Company
Balance Sheet
June 30, 20x3

Assets: Liabilities and Owners Equity:

Cash $ 56,000 Accounts payable $ 40,000
Accounts receivable 100,000 Bonds payable 160,000
Inventories 180,000 Capital stock 400,000
Equipment, net 240,000 Retained earnings* 376,000
Buildings, net 400,000
Total $976,000 Total $976,000
*$976,000 ($40,000 + $160,000 + $400,000) = $376,000

13. Budgeted Income Statement and Purchases Budget (20 minutes)

1. Budgeted income statement for first three months of 20X9
Sales ($70,000 + $70,000 + $90,000) $230,000
Cost of sales at 60% 138,000
Gross profit 92,000
Fixed costs ($12,000 x 3) 36,000
Income $ 56,000
2. Purchases budget
January February March Total
Cost of sales* $ 42,000 $ 42,000 $ 54,000 $138,000
Desired ending inventory** 63,000 81,000 72,000 72,000
Total requirements 105,000 123,000 126,000 210,000
Beginning inventory 55,000 63,000 81,000 55,000
Purchases $ 50,000 $ 60,000 $ 45,000 $155,000
* 60% of month's sales
**1.5 x coming month's cost of sales; $63,000 = 1.5 x $42,000; $81,000 =1.5 x $54,000;
$72,000 = 1.5 x $80,000 x .60 (April cost of sales)
Note to the Instructor: We urge stressing that inventory, and hence purchases, must be stated in cost dollars, not selling prices. Despite the
attention paid to this point in the chapter, some students will insist on interpreting "one and one-half times the coming month's budgeted
sales" as meaning that inventory is 1.5 times sales for the coming month, not cost of sales.

14. Cash Budget and Pro Forma Balance Sheet (Continuation of 6-9) (20-25 minutes)
1. Cash receipts budget
January February March Total
Sales budget $ 70,000 $ 70,000 $ 90,000
Collections from:
Current month (60%) $ 42,000 $ 42,000 $ 54,000 $138,000
Prior month (40%) 30,000 28,000 28,000 86,000
Total $ 72,000 $ 70,000 $ 82,000 $224,000

2. Cash disbursements budget

January February March Total
Purchases (6-9) $ 50,000 $ 60,000 $ 45,000
Payments for
purchases:
Current month (40%) $ 20,000 $ 24,000 $ 18,000 $ 62,000
Prior month (60%) 18,000 30,000 36,000 84,000
Fixed costs 12,000 12,000 12,000 36,000
Total $ 50,000 $ 66,000 $ 66,000 $182,000

3. Cash budget
January February March Total
Beginning balance $ 20,000 $ 42,000 $ 46,000 $ 20,000
Receipts 72,000 70,000 82,000 224,000
Available 92,000 112,000 128,000 244,000
Disbursements 50,000 66,000 66,000 182,000
Ending balance $ 42,000 $ 46,000 $ 62,000 $ 62,000
 4. Pro Forma Balance Sheet as of March 31, 20X9
Assets
Cash (cash budget) $ 62,000
Accounts receivable (40% of March sales of $90,000) 36,000
Inventory (6-9 purchases budget) 72,000
Total assets $170,000
Equities
Accounts payable (60% x $45,000 March purchases) $ 27,000
Stockholders' equity 143,000*
Total equities $170,000
* $87,000 beginning balance + $56,000 income, from 6-9

15. Budgeted Income Statement for a Manufacturer (5-10 minutes)

Sales (50 units x $40) $2,000
Variable costs:
Manufacturing, materials (50 x $12) $ 600
other (50 x $14) 700
Commissions, 15% of sales 300 1,600
Contribution margin 400
Fixed costs, manufacturing $ 150
other 70 220
Profit $ 180

16. Production Budget for a Manufacturer (Continuation of 6-15) (5-10 minutes)

Variable manufacturing costs (50 units):
Materials (50 units x 4 lbs. per unit x $3 per lb.) $ 600
Other variable manufacturing cost [50 units x ($26 - $12)] 700
Fixed manufacturing costs 150
Total production cost $1,450

17. Purchases Budget for a Manufacturer (Continuation of 6-15 and 6-16) (10 minutes)
Pounds Dollars Pounds x $3
Material needed for production (50 units x 4 lbs.) 200 $ 600
Material needed for ending inventory 55 units x 4 lbs. x 20% 44 132
Total required 244 732
Material in beginning inventory, given 34 102
Required purchases 210 $ 630

18. Understanding Budgets (20 minutes)

1. $41,000
Receivable at December 31, 20X0 $ 31,000
Collected on January sales ($50,000 x 20%) 10,000
Total $ 41,000
2. $78,000 [($60,000 + $70,000) x 60%]
3. $49,000
January cost of sales, $50,000 x 60% $ 30,000
Required ending inventory, requirement 2 78,000
Total requirements 108,000
Beginning inventory, given 59,000
Purchases $ 49,000

4. $3,000
Sales, given $ 50,000
Cost of sales (60%) 30,000
Gross profit 20,000
Other variable costs (20%) 10,000
Contribution margin 10,000
Fixed costs, given 6,000
Income before taxes 4,000
Taxes, at 25% 1,000
Net income $ 3,000
 5. $2,800
Balance, 12/31 (given in balance sheet) $ 33,000
Receipts from sales, requirement 1 41,000
Total 74,000
Disbursements:
December purchases (accounts payable at 12/31) $ 9,000
January purchases (80% of requirement 3) 39,200
Variable cost for January (20% of January sales) 10,000
January fixed costs, cash only 5,000
Taxes on December income (liability at 12/31) 8,000 71,200
Balance $ 2,800

6. $48,000 ($60,000 x 80%)

7. $99,000 [$102,000 - (3 x $1,000)]

8. $7,800 (20% x $39,000)

March cost of sales (60% x $70,000) $ 42,000
Inventory 3/31 [60% x ($66,000 + $65,000)] 78,600
Required 120,600
Inventory 2/28 [60% x ($70,000 + $66,000)] 81,600
Purchases $ 39,000

9. $29,800
Retained earnings, 12/31 $ 28,000
Budgeted net income (requirement 4) 3,000
Total 31,000
Dividend 1,200
Budgeted retained earnings, 1/31 $ 29,800

10. $2,000, from March tax accrual. Taxes are paid in the month after accrual per item g.
Sales $ 70,000
Cost of sales at 60% 42,000
Gross profit 28,000
Other variable costs at 20% 14,000
Contribution margin 14,000
Fixed costs 6,000
Income before taxes $ 8,000
Income taxes at 25% $ 2,000

19. a. March receipts: $264,000 [($240,000 x 60%) + ($300,000 x 40%)]

b. Receivables at end of March: $180,000 [$300,000 x (100% - 40%)]
c. Inventory at end of February: $420,000 ($300,000 x 70% x 2)
d. February purchases: $252,000 [($240,000 x 70%) + ($300,000 x 2 x 70%) ($240,000 x 2 x 70%)]
e. March payments: $282,400 [(252,000 x 20%) + ($290,000 x 80%)]
f. AP at end of February: $50,400 ($252,000 x 20%)
g. Cash at end of March: $2,600 ($25,000 + $264,000 - $282,400 - $24,000)