MANAGEMENT ADVISORY SERVICES

MASTER BUDGET

Purchase Budget Merchandising Business

Horngren
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.

for 2000 are:

Required: (M)
Prepare a purchases budget for April through June.

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

Production & Raw Materials Purchase Budget

Horngren
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.

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.

Required: (D)
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

REQUIRED:
Prepare a schedule of cash receipts and disbursements for June.

Production and related schedules

Barfield 4e
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
5

Overhead is applied on the basis of $2 per direct labor hour. The estimated sales by product
Exercises & Problems

Cash Receipts & Cash Disbursements

Barfield
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.

Increase in Cash

Barfield 4e
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MASTER BUDGET

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

Assets
Cash
Accounts Receivable (Net of Allowance for Uncollectibles of $1,440)
Inventory
Plant Assets (Net of Accumulated Depreciation of $60,000
Total Assets
Liabilities and Stockholders' Equity
Accounts Payable
Common Stock
90,000
Retained Earnings (Deficit)
(25,240)
Total Liabilities & Stockholders Equity

Cash Budget & Financing Gap

Barfield
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:

$12,000
34,560
52,400
36,000
$134,960
$70,200
64,960
$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?

Carter & Usry

(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.

8
7

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

Exercises & Problems

Barfield 4e

Budgeted Cost Of Goods Manufactured And Sold Statement

Carter & Usry
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.
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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

Carter & Usry
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.

MASTER BUDGET
Prepare a pro forma income statement for Bennett Novelty Wholesale Store for May 2001.
11

. Kaizen-Based Income Statement

Horngren
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: (M)
Prepare a kaizen-based budgeted income statement for 20x5.

12

. Projected Income Statement and Balance Sheet

Horngren
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

10

. Pro forma income statement

AICPA adapted
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.

Exercises & Problems

Required: (M)
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)

L & H 10e
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
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MASTER BUDGET
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.

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)

L & H 10e
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:
Prepare a budgeted income statement for Odell for January.
16

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

L & H 10e
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)

L & H 10e
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.

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.
18

15

. Budget for a manufacturer (6-15)

L & H 10e
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
Exercises & Problems

. Understanding budgets
L & H 10e
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
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Fixed assets, net
Total

102,000 Retained earnings

$225,000 Total

MASTER BUDGET
28,000
$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.

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.

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
L&H
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

Exercises & Problems

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MANAGEMENT ADVISORY SERVICES

MASTER BUDGET

SOLUTIONS

Exercises & Problems

Page 6 of 14

April
$ 9,180
31,800
40,980
9,540
$31,440

Desired ending inventory

Plus COGS
Total needed
Less beginning inventory
Total purchases
2

.
Budgeted sales
Add: Required ending inventory
Total inventory requirements
Less: Beginning inventory
Budgeted production
b.
Production in units
Targeted ending inventory in lbs.*
Production needs in lbs.***
Total requirements in lbs.
Less: Beginning inventory in lbs.
Purchases needed in lbs.
Cost ($8 per lb.)
Total material purchases
*
**
***
****

May
$ 9,810
30,600
40,410
9,180
$31,230

June
$ 9,450
32,700
42,150
9,810
$32,340

Total
$ 9,450
95,100
104,550
9,540
$ 95,010

a.
120,000
42,000
162,000
24,000
138,000

July
210,000
30,000
240,000
42,000
198,000

August
150,000
36,000
186,000
30,000
156,000

July
138,000
297,000
690,000
987,000
****207,000
780,000
x $8
$6,240,000

August
198,000
234,000
990,000
1,224,000
297,000
927,000
x $8
$7,416,000

September
156,000
**252,000
780,000
1,032,000
234,000
798,000
x $8
$6,384,000

September

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.

.
Units of sales
Units desired in ending inv.
Units needed
Units in beginning inv.
Budgeted production
b. Purchases budget - Material A
Units needed for production (89,000 + 25,500)
Required ending inventory (annual units 12)
Total requirements
Less beginning inventory
Pounds to be purchased
Purchases budget - Material B
Units needed for production (178,000 + 102,000)
Required ending inventory (annual units 12)
Total requirements
Less beginning inventory
Pounds to be purchased
c. Direct labor budget
Required hours
d. Overhead budget

89,000 51,000 140,000

a.Production budget Boxes Trays

42,000
24,000
3,500
2,000
45,500
26,000
(1,000)
(500)
44,500
25,500
Total
114,500
9,542
124,042
(4,000)
120,042
280,000
23,333
303,333
(6,000)
297,333

Activity base (hours)

Multiply by rate
Overhead cost

89,000
$2
$178,000

51,000
$2
$102,000

$280,000

. Schedules of Cash Receipts and Disbursements for June

Cash Receipts:From current month sale (June)(.7 85,000) $59,500From 1 month prior sale (May) (.2 90,000)
18,000From 2 month prior sale (April)(.1 80,000) 8,000Total cash receipts $85,500Cash Disbursements:May
purchases @ 98% (less discount)(.98 40,000)$39,200Operating expenses 5,000Total cash disbursements $44,200Net
increase in cash for June $41,300
4

.
Accr. income tax expense (no cash involved)
Increase in A/R (collected less than sold)
Decrease in A/P (paid for more than purch.)
Depreciation (no cash involved)
Estimated bad debts (no cash involved)
Projected increase in cash

Income after taxes

62,000
(41,000)
(18,300)
71,200
13,100
$347,000

$260,000

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
Receipts from:
Cash sales
$10,000
$6,000
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
April credit sales

May credit sales

Total receipts
$19,900
$12,900

May

June

$8,000

3,000
600

$11,600

$11,000

1,200
1,800
$14,000

Disbursements for:
Payroll
Other expenses
February purchases (25% x $5,000)
March purchases
April purchases
May purchases
June purchases
Tax payment
Total disbursements
Net increase (decrease) in cash
Cash balances:
Beginning
Ending

$2,000
2,500
1,250
2,250

$8,000
$11,900

$1,500
2,400

750
1,950

$6,600
$6,300

$2,500
2,600

650
2,100

$7,850
$3,750

$3,000
2,800

700
3,000
15,000
$24,500
$(10,500)

5,000
$16,900

5,000
$11,300

5,000
$8,750

5,000
$ (5,500)

(2)
Available for investing
Needed to borrow

$11,900

$6,300

$3,750

$10,5001

1$5,500 + $5,000 minimum cash balance

.
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
Purchases ($120,000 0.75 0.55) +($130,000 0.75 0.45)
Cost of Goods Sold ($120,000 0.75)
Ending inventory

$ 52,400
93,375
(90,000)
$ 55,775

c. First, determine expected earnings for February:

Sales
CGS
Gross margin
Operating expenses
Net income

$120,000
(90,000)
$ 30,000
(25,500)
$ 4,500

Retained earnings, beginning balance

Earnings
Ending balance
d. Beginning balance
Cash collections
Cash available
Cash disbursements:
Accounts Payable
Other
Cash excess

$(14,000)
4,500
$( 9,500)
$ 12,000
94,560
$106,560
$70,200
21,500

91,700
$ 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
Purchases
Materials available for use
Less ending inventory
Cost of materials used
Labor
Factory overhead
Total manufacturing cost
Add beginning work in process inventory
Deduct ending work in process inventory
Cost of goods manufactured
Add beginning finished goods inventory
Cost of goods available for sale
Deduct ending finished goods inventory
Cost of goods sold

$5,000,000
11,500,0005
$16,500,000
4,000,000
$12,500,000
13,500,000
1,000,0004
$27,000,0003
1,000,000
$28,000,000
3,000,000
$25,000,0002
8,000,000
$33,000,000
10,000,000
$23,000,0001

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

Marketing and administrative expenses

12.5% of sales
30.0%
42.5 % of sales
57.5%
100.0% of sales

Cost of goods sold ($23,000,000)

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

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

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

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

(1)

(2)

The net income must equal 20% of $4,000,000, or $800,000.

Podunk Pottery Company
Budgeted Income Statement
For Year Ending December 31, 19--

Sales
Less cost of goods sold:
Variable manufacturing expenses
Fixed manufacturing expenses
Gross profit
Sales commissions
Fixed general and administrative expenses
Net income
10

$462,500
100,000
$154,167
25,000

562,500
$979,167
179,167
$800,000

Bennett Novelty Wholesale Store

Pro Forma Income Statement
For the Month Ended May 31, 2001
Sales
Cost of goods sold ($300,000 1.5)
Gross margin
Selling and administrative expenses
Depreciation expense
Bad debts expense ($300,000 3%)
Net income

11

$1,541,667

.
Less: COGS (126,000 x $1.80)
Gross margin
Operating expenses ($28,000 + $79,800)

$300,000
(200,000)
$100,000
$40,000
5,000
9,000

54,000
$ 46,000

Sales (126,000 x $3.24)

226,800
181,440
107,800

$408,240

Net income
12

$ 73,640

a.
Income Statement
For the Month of June 20x3
Sales
Cost of goods sold:
Materials used
Wages
Depreciation
Insurance
Maintenance
Utilities
Gross profit
Operating expenses:
Selling expenses
Office salaries
Net income

$800,000
$200,000
140,000
24,000
4,000
28,000
16,000
$60,000
80,000

412,000
$388,000
140,000
$248,000

b. Russell Company
Balance Sheet
June 30, 20x3
Assets:
Cash
Accounts receivable
Inventories
Equipment, net
Buildings, net
Total

$ 56,000
100,000
180,000
240,000
400,000
$976,000

Liabilities and Owners Equity:

Accounts payable
$ 40,000
Bonds payable
160,000
Capital stock
400,000
Retained earnings*
376,000
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)
Cost of sales at 60%
Gross profit
Fixed costs ($12,000 x 3)
Income
2. Purchases budget
January February March
63,000 81,000 72,000

$230,000
138,000
92,000
36,000
$ 56,000

TotalCost of sales*$ 42,000 $ 42,000 $ 54,000 $138,000Desired ending inventory**

72,000 Total requirements105,000 123,000 126,000 210,000 Beginning inventory
55,000 63,000 81,000 55,000Purchases$ 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.

. Cash Budget and Pro Forma Balance Sheet (Continuation of 6-9) (20-25 minutes)
1. Cash receipts budget
JanuaryFebruaryMarchTotalSales budget$ 70,000$ 70,000$ 90,000Collections from:Current month (60%)$ 42,000$ 42,000$
54,000$138,000Prior month (40%)30,00028,00028,00086,000Total$ 72,000$ 70,000$ 82,000$224,000
2. Cash disbursements budget
JanuaryFebruaryMarchTotalPurchases (6-9)$ 50,000$ 60,000$ 45,000Payments for purchases:Current month (40%)$
20,000$ 24,000$ 18,000$ 62,000Prior month (60%)18,00030,00036,00084,000Fixed costs12,00012,00012,00036,000Total$
50,000$ 66,000$ 66,000$182,000
3. Cash budget
JanuaryFebruaryMarchTotalBeginning balance$ 20,000$ 42,000$ 46,000$
20,000Receipts72,00070,00082,000224,000Available92,000112,000128,000244,000Disbursements50,00066,00066,000182
,000Ending 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

14

15

* $87,000 beginning balance + $56,000 income, from 6-9

. Budgeted Income Statement for a Manufacturer (5-10 minutes)
Sales (50 units x $40)
Variable costs:
Manufacturing, materials (50 x $12)
$ 600
other (50 x $14)
700
Commissions, 15% of sales
300
Contribution margin
Fixed costs, manufacturing
$ 150
other
70
Profit

$2,000

1,600
400
220
$ 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)

PoundsDollars
Pounds x $3Material needed for production (50 units x 4 lbs.)200$ 600Material needed for ending inventory 55 units x 4 lbs.
x 20%44132Total required244732Material in beginning inventory, given34102Required purchases210$ 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%
Required ending inventory, requirement 2
Total requirements
Beginning inventory, given
Purchases

$ 30,000
78,000
108,000
59,000
$ 49,000

4. $3,000
Sales, given
Cost of sales (60%)
Gross profit
Other variable costs (20%)
Contribution margin
Fixed costs, given
Income before taxes
Taxes, at 25%
Net income

$ 50,000
30,000
20,000
10,000
10,000
6,000
4,000
1,000
$ 3,000

5. $2,800
Balance, 12/31 (given in balance sheet)
Receipts from sales, requirement 1
Total
Disbursements:
December purchases (accounts payable at 12/31)
January purchases (80% of requirement 3)
Variable cost for January (20% of January sales)
January fixed costs, cash only
Taxes on December income (liability at 12/31)
Balance

$ 33,000
41,000
74,000
$ 9,000
39,200
10,000
5,000
8,000

71,200
$ 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)
Inventory 3/31 [60% x ($66,000 + $65,000)]
Required
Inventory 2/28 [60% x ($70,000 + $66,000)]
Purchases

$ 42,000
78,600
120,600
81,600
$ 39,000

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

$ 28,000
3,000
31,000
1,200
$ 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%

Contribution margin
Fixed costs
Income before taxes
Income taxes at 25%
19

b.
c.
d.
e.
f.
g.

.
40%)]
Receivables at end of March:
Inventory at end of February:
February purchases:
March payments:
AP at end of February:
Cash at end of March:

14,000
14,000
6,000
$ 8,000
$ 2,000
a.
$180,000
$420,000
$252,000
$282,400
$50,400
$2,600

March receipts: $264,000

[($240,000 x 60%) + ($300,000 x

[$300,000 x (100% - 40%)]

($300,000 x 70% x 2)
[($240,000 x 70%) + ($300,000 x 2 x 70%) ($240,000 x 2 x 70%)]
[(252,000 x 20%) + ($290,000 x 80%)]
($252,000 x 20%)
($25,000 + $264,000 - $282,400 - $24,000)