Brief Exercise 7-1 (10 Minutes)

Brief Exercise 7-1 (10 minutes)
1. Control involves the steps taken by management to increase

the likelihood that the objectives set down at the planning
stage are attained.
2. Motivation is generally higher when an individual participates
in setting his or her own goals than when the goals are
imposed from above.
3. In responsibility accounting, a manager is held accountable
for those items, and only those items, over which he or she
has significant control.
4. If a manager is not able to meet the budget and it has been
imposed from above, the manager can always say that the
budget was unreasonable or unrealistic to start with, and
therefore was impossible to meet.
5. Planning involves developing objectives and preparing various
budgets to achieve those objectives.
6. A budget is a detailed plan for acquiring and using financial
and other resources over a specified time period.
7. A budget committee is usually responsible for overall policy
matters relating to the budget program and for coordinating
the preparation of the budget itself.
8. The budgeting process can uncover potential bottlenecks
before they occur.
9. A self-imposed budget is one that is prepared with the full
cooperation and participation of managers at all levels of the
organization.
10. Budgets define goals and objectives that can serve as
benchmarks for evaluating subsequent performance.
The McGraw-Hill Companies, Inc., 2008. All rights reserved.

Solutions Manual, Chapter 7

1.
July
May sales:
$430,000 10%.......
June sales:
$540,000 70%,
10%........................
July sales:
$600,000 20%,
70%, 10%...............
August sales:
$900,000 20%,
70%........................
September sales:
$500,000 20%.......
Total cash collections. .
August
September
$
43,000
Total
$
$
54,000
378,000
43,00
0
432,000
$
60,000
600,000
180,000 630,000
810,000
120,000 420,000
100,00
100,00
0
0
$541,00 $654,00 $790,00 $1,985,00
0
0
0
0
Notice that even though sales peak in August, cash collections

peak in September. This occurs because the bulk of the
companys customers pay in the month following sale. The lag
in collections that this creates is even more pronounced in
some companies. Indeed, it is not unusual for a company to
have the least cash available in the months when sales are
greatest.
2. Accounts receivable at September 30:
From August sales: $900,000
10%..............................................
From September sales:
$500,000 (70% + 10%).............
$
90,000
400,00
0
$490,00
Total accounts receivable................
0

Budgeted sales in units.......

Add desired ending
inventory*........................
Total needs..........................
Less beginning inventory....
Required production............
Septembe
July
August
r
Quarter
30,000 45,000
60,000 135,000
4,500
34,500
3,000
31,500
6,000
51,000
4,500
46,500
5,000
5,000
65,000 140,000
6,000
3,000
59,000 137,000
*10% of the following months unit sales.

Required production of calculators....

Number of chips per calculator.........
Total production needschips...........
Production needschips...................
Add desired ending inventorychips
Total needschips.............................
Less beginning inventorychips.......
Required purchaseschips...............
First
60,000
3
180,000
QuarterYear 2
Second
Third
90,000 150,000
3
3
270,000 450,000
Fourth
100,000
3
300,000
First
180,000
54,000
234,000
36,000
198,000
Year 2
Third
450,000
60,000
510,000
90,000
420,000
Fourth
300,000
48,000
348,000
60,000
288,000
Second
270,000
90,000
360,000
54,000
306,000
Cost of purchases at $2 per chip....... $396,000 $612,000 $840,000 $576,000
Year 3
First
80,000
3
240,000
Year
1,200,000
48,000
1,248,000
36,000
1,212,000
$2,424,00
0


1. Assuming that the direct labor workforce is adjusted each quarter, the direct labor
budget would be:
Units to be produced.................................
Direct labor time per unit (hours)..............
Total direct labor hours needed.................
Direct labor cost per hour.........................
Total direct labor cost................................
1st
2nd
3rd
4th
Quarter Quarter Quarter Quarter
Year
5,000
4,400
4,500
4,900 18,800
0.40
0.40
0.40
0.40
0.40
2,000
1,760
1,800
1,960
7,520
$11.0 $11.00 $11.0 $11.0 $11.00
0
0
0
$22,000 $19,360 $19,800 $21,560 $82,720
2. Assuming that the direct labor workforce is not adjusted each quarter and that overtime
wages are paid, the direct labor budget would be:
Units to be produced................................
Direct labor time per unit (hours).............
Total direct labor-hours needed................
Regular hours paid...................................
Overtime hours paid................................
1st
2nd
3rd
4th
5,000
4,400
4,500
4,900
0.40
0.40 0.40 0.40
2,000
1,760
1,800
1,960
1,800
1,800
1,800
1,800
200
0
0
160
Year
Wages for regular hours (@ $11.00 per

$19,800 $19,800 $19,800 $19,800 $79,200
hour).....................................................
Overtime wages (@ $11.00 per hour
3,300
0
0
2,640
5,940
1.5)........................................................
Total direct labor cost............................... $23,100 $19,800 $19,800 $22,440 $85,140

1.
Krispin Corporation
Manufacturing Overhead Budget
1st
2nd
3rd
4th
Quarte Quarte Quarte Quarte
r
r
r
r
Year
Budgeted direct
labor-hours..........
5,000 4,800 5,200 5,400 20,400
Variable overhead
rate......................
$1.75 $1.75 $1.75 $1.75 $1.75
Variable
manufacturing
$ 35,70
overhead............. $ 8,750 $ 8,400 $ 9,100 $ 9,450
0
Fixed
manufacturing
140,00
overhead............. 35,000 35,000 35,000 35,000
0
Total
manufacturing
overhead............. 43,750 43,400 44,100 44,450 175,700
60,00
Less depreciation... 15,000 15,000 15,000 15,000
0
Cash
disbursements
for
manufacturing
$28,75 $28,40 $29,10 $29,45 $115,70
overhead.............
0
0
0
0
0
Total budgeted manufacturing overhead for the

2.
year (a).....................................................................$175,700
Total budgeted direct labor-hours for the year (b)....... 20,400
Predetermined overhead rate for the year (a) (b).... $
8.61


Haerve Company
Selling and Administrative Expense Budget
1st
2nd
3rd
4th
12,000 14,000 11,000 10,000
Budgeted unit sales

Variable selling and
administrative
expense per unit... $2.75
$ 33,00
Variable expense.....
0
Fixed selling and
administrative
expenses:
Advertising............
12,000
Executive salaries.
40,000
Insurance..............
0
Property taxes.......
0
Depreciation.........
16,000
Total fixed selling
and administrative
expenses..............
68,000
Total selling and
administrative
expenses.............. 101,000
Less depreciation....
16,000
Cash disbursements
for selling and
administrative
$ 85,00
expenses..............
0
Year
47,000
$2.75 $2.75 $2.75 $2.75

$ 38,50 $ 30,25 $ 27,50 $129,25
0
0
0
0
12,000 12,000 12,000 48,000

40,000 40,000 40,000 160,000
6,000
0
6,000 12,000
0
6,000
6,000
16,000 16,000 16,000 64,000
74,000
74,000
74,000 290,000
112,500 104,250 101,500 419,250

16,000 16,000 16,000 64,000
$ 96,50 $ 88,25 $ 85,50 $355,25
0
0
0
0


Forest Outfitters
Cash Budget
1st
2nd
3rd
4th
Year
$ 50,00 $ 30,00 $ 69,80 $ 49,80 $ 50,00
0
0
0
0
0
340,00 670,00 410,00 470,00 1,890,00
0
0
0
0
0
Cash balance,
beginning..........
Total cash
receipts.............
Total cash
available........... 390,000 700,000 479,800
Less total cash
530,00 450,00 430,00
disbursements. .
0
0
0
Excess
(deficiency) of
cash available
over
(140,00 250,00
disbursements. .
0)
0 49,800
Financing:
Borrowings (at
beginning)*. . . . 170,000
Repayments (at
(170,00
ending)...........
0)
(10,20
Interest ............
0)
170,00 (180,20
Total financing.....
0
0)
Cash balance,
$ 30,00 $ 69,80 $ 49,80
ending..............
0
0
0
519,800 1,940,000
480,00 1,890,00
0
0
39,800
50,000
170,000
(170,000)
(10,200
)
(10,200
)
$ 39,80
0 $ 39,800
* Since the deficiency of cash available over disbursements is

$140,000, the company must borrow $170,000 to maintain the
desired ending cash balance of $30,000.
$170,000 12% (2/4) = $10,200


Seattle Cat
Budgeted Income Statement
Sales (380 units @ $1,850 each)...................
Cost of goods sold (380 units @ $1,425
each)..........................................................
Gross margin.................................................
Selling and administrative expenses*...........
Net operating income....................................
Interest expense...........................................
Net income....................................................
$703,00
0
541,500
161,500
137,300
24,200
11,000
$ 13,200
* 380 $85 + $105,000 = $137,300


Academic Copy
Budgeted Balance Sheet
Assets
Current assets:
Cash*............................................
Accounts receivable......................
Supplies inventory........................
Total current assets.........................
Plant and equipment:
Equipment....................................
Accumulated depreciation............
Plant and equipment, net................
Total assets.....................................
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable..........................
Stockholders' equity:
Common stock..............................
Retained earnings#......................
Total stockholders' equity................
Total liabilities and stockholders'
equity...........................................
$ 4,400
6,500
2,100
28,000
(9,000)
$13,000
19,000
$32,000
$ 1,900
$ 4,000
26,100
30,100
$32,000
* Plug figure.
# Retained earnings is computed as follows:
Retained earnings, beginning
balance....................................... $21,000
Add net income.............................
8,600
29,600
Deduct dividends..........................
3,500
Retained earnings, ending
balance....................................... $26,100

10
Exercise 7-11 (45 minutes)

1.
Graber Corporation
Sales Budget
1st
2nd
3rd
4th
Year
Budgeted unit sales..........
16,000
15,000
14,000
15,000
60,000
Selling price per unit......... $22.00 $22.00 $22.00 $22.00 $22.00
$352,00 $330,00 $308,00 $330,00 $1,320,00
Total sales.........................
0
0
0
0
0
Schedule of Expected Cash Collections
Accounts receivable,
beginning balance..........
st
1 Quarter sales................
2nd Quarter sales...............
3rd Quarter sales...............
4th Quarter sales................
Total cash collections........
$ 66,000
$ 66,000
264,000 $ 70,400
334,400
247,500 $ 66,000
313,500
231,000 $ 61,600
292,600
247,50
247,500
0
$330,00 $317,90 $297,00 $309,10 $1,254,00
0
0
0
0
0

11
Exercise 7-11 (continued)

2.
Graber Corporation
Production Budget

Add desired ending
inventory........................
Total units needed.............
Less beginning inventory. .
Required production..........
1st
Quarter
16,000
3,000
2nd
Quarter
15,000
2,800
3rd
Quarter
14,000
3,000
4th
Quarter
15,000
3,400
Year
60,000
3,400
19,000
3,200
15,800
17,800
3,000
14,800
17,000
2,800
14,200
18,400
3,000
15,400
63,400
3,200
60,200

12

1. September cash sales............................... $7,400
September collections on account:
July sales: $20,000 18%......................
3,600
August sales: $30,000 70%................. 21,000
September sales: $40,000 10%..........
4,000
Total cash collections................................ $36,000
2. Payments to suppliers:
August purchases (accounts payable).... $16,000
September purchases: $25,000 20%. .
5,000
Total cash payments................................. $21,000
3.
Calgon Products
Cash Budget
For the Month of September
Cash balance, September 1..........................
Add cash receipts:
Collections from customers...........................
Total cash available before current financing
Less disbursements:
Payments to suppliers for inventory...........
Selling and administrative expenses..........
Equipment purchases.................................
Dividends paid............................................
Total disbursements......................................
Excess (deficiency) of cash available over
disbursements............................................
Financing:
Borrowings..................................................
Repayments...............................................
Interest.......................................................
Total financing...............................................
Cash balance, September 30........................
$
9,000
36,000
45,000
$21,00
0
9,000 *
18,000
3,000
51,000
(6,000)
11,000
0
0
11,000
$
5,000
*$13,000 $4,000 = $9,000.

13

1.
Harveton Corporation
Direct Labor Budget
Units to be produced.....................
Direct labor time per unit (hours)..
Total direct labor-hours needed.....
Direct labor cost per hour.............
Total direct labor cost....................
2.
1st
2nd
3rd
4th
Quarter
Quarter
Quarter
Quarter
Year
16,000
15,000
14,000
15,000
60,000
0.80
0.80
0.80
0.80
0.80
12,800
12,000
11,200
12,000
48,000
$11.50 $11.50 $11.50 $11.50 $11.50
$147,200 $138,000 $128,800 $138,000 $552,000
Harveton Corporation
Manufacturing Overhead Budget
Budgeted direct labor-hours..........

Variable overhead rate..................
Variable manufacturing overhead.
Fixed manufacturing overhead......
Total manufacturing overhead......
Less depreciation..........................
Cash disbursements for
manufacturing overhead............
1st
Quarter
12,800
$2.50
$ 32,000
90,000
122,000
34,000
2nd
Quarter
12,000
$2.50
$ 30,000
90,000
120,000
34,000
3rd
Quarter
11,200
$2.50
$ 28,000
90,000
118,000
34,000
4th
Quarter
Year
12,000
48,000
$2.50 $2.50
$ 30,000 $120,000
90,000 360,000
120,000 480,000
34,000 136,000
$ 88,000
$ 86,000
$ 84,000
$ 86,000 $344,000

14

1.
Farber Industries
Production Budget

Add desired ending
inventory........................
Total units needed.............
Required production..........
1st
Quarter
5,000
1,800
2nd
Quarter
6,000
1,200
3rd
Quarter
4,000
900
4th
Quarter
3,000
1,600
Year
18,000
1,600
6,800
1,500
5,300
7,200
1,800
5,400
4,900
1,200
3,700
4,600
900
3,700
19,600
1,500
18,100

15

2.
Farber Industries
Direct Materials Budget
1st
Quarter
5,300
5
26,500
2,700
29,200
2,650
26,550
2nd
Quarter
5,400
5
27,000
1,850
28,850
2,700
26,150
3rd
Quarter
3,700
5
18,500
1,850
20,350
1,850
18,500
4th
Quarter
3,700
5
18,500
2,670
21,170
1,850
19,320
Year
18,100
5
90,500
2,670
93,170
2,650
90,520
Required production......................
Raw materials per unit..................
Production needs..........................
Add desired ending inventory.......
Total needs....................................
Less beginning inventory..............
Raw materials to be purchased.....
Cost of raw materials to be
purchased at $6.00 per pound.... $159,300 $156,900 $111,000 $115,920 $543,120
Schedule of Expected Cash Disbursements for Materials
Accounts payable, beginning
balance....................................... $ 28,980
$ 28,980
1st Quarter purchases...................
119,475 $ 39,825
159,300
2nd Quarter purchases.................
117,675 $ 39,225
156,900
3rd Quarter purchases..................
83,250 $ 27,750 111,000
4th Quarter purchases..................
86,940
86,940
Total cash disbursements for
materials.................................... $148,455 $157,500 $122,475 $114,690 $543,120

16

1.
Priston Company
Direct Materials Budget
Required production........................
Raw materials per unit....................
Production needs............................
Add desired ending inventory.........
Total needs......................................
Less beginning inventory................
Raw materials to be purchased.......
Cost of raw materials to be
purchased at $2.50 per pound......
1st
2nd
3rd
4th
6,000
7,000
8,000
5,000
3
3
3
3
18,000 21,000 24,000 15,000
4,200
4,800
3,000
3,700
22,200 25,800 27,000 18,700
3,600
4,200
4,800
3,000
18,600 21,600 22,200 15,700
Year
26,000
3
78,000
3,700
81,700
3,600
78,100
$46,500 $54,000 $55,500 $39,250 $195,250
Schedule of Expected Cash Disbursements for Materials

Accounts payable, beginning
balance.........................................
1st Quarter purchases.....................
2nd Quarter purchases...................
3rd Quarter purchases....................
4th Quarter purchases....................
Total cash disbursements for
materials......................................
$11,775
$ 11,775
32,550 $13,950
46,500
37,800 $16,200
54,000
38,850 $16,650
55,500
27,475
27,475
$44,325 $51,750 $55,050 $44,125 $195,250

17

2.
Priston Company
Direct Labor Budget
Units to be produced.....................
Direct labor time per unit (hours)..
Total direct labor-hours needed.....
Direct labor cost per hour.............
Total direct labor cost....................
1st
2nd
3rd
4th
Quarter
Quarter
Quarter
Quarter
Year
6,000
7,000
8,000
5,000
26,000
0.50
0.50
0.50
0.50
0.50
3,000
3,500
4,000
2,500
13,000
$12.00 $12.00 $12.00 $12.00 $12.00
$ 36,000 $ 42,000 $ 48,000 $ 30,000 $156,000

18
Cash balance, beginning.....

Add collections from
customers.........................
Total cash available.............
Less disbursements:
Purchase of inventory.......
Operating expenses..........
Equipment purchases.......
Dividends..........................
Quarter (000 omitted)

1
2
Year
3
4
$
$
$9 *
5
$ 5
5
$ 9
10
76
90
125 *
0
391 *
10
85 *
95
130
5
400
40 *
36
10 *
2*
Total disbursements............
Excess (deficiency) of cash
available over
disbursements..................
Financing:
Borrowings........................
Repayments (including
interest).........................
88
Total financing.....................
Cash balance, ending..........
$5
(3)*
58
42
8
2
11
0
*
*
*
*
*
(15)
20 *
0
2
0
36
54 *
8*
2*
100
30 *
0
(25)
(25)
$ 5
32 *
48
10
2*
166
180 *
36 *
8
92
390
13
10
28
(7)*
(32)
(7)
$
6
(4)
$ 6
*Given.

19
Problem 7-17A (60 minutes)

Augus Septemb Octobe
July
t
er
r
1. Production budget:
Budgeted sales (units)...... 13,400 15,000 20,000
14,000
Add desired ending
inventory........................ 6,500 8,000
6,200
6,080
Total needs........................ 19,900 23,000 26,200
20,080
Less beginning inventory. . 6,020 6,500
8,000
6,200
Required production.......... 13,880 16,500 18,200
13,880
2. During July and August the company is building inventories in
anticipation of peak sales in September. Therefore, production
exceeds sales during these months. In September and October
inventories are being reduced in anticipation of a decrease in
sales during the last months of the year. Therefore, production
is less than sales during these months to cut back on inventory
levels.
3. Direct materials budget:
Required production (units)

(a).....................................
Alcohol needed per unit......
July
Septem
August -ber
13,880 16,500 18,200

10
10
10
138,80 165,00
Production needs (cc).........
0
0 182,000
Add desired ending
109,20
inventory (cc)................... 99,000
0 83,280*
237,80 274,20
Total alcohol needs.............
0
0 265,280
Less beginning inventory (cc) 83,280 99,000 109,200
154,52 175,20
Alcohol purchases (cc)........
0
0 156,080
Third
Quarte
r
48,580
10
485,80
0
83,280
569,08
0
83,280
485,80
0
* 13,880 units (October production) 10 cc per unit =

138,800 cc; 138,800 cc 0.6 = 83,280 cc.
As shown in part (1), production is greatest in September.
However, as shown in the raw material purchases budget, the
20
purchases of materials are greatest a month earlier because

materials must be on hand to support the heavy production
scheduled for September.

21

1. Schedule of expected cash collections:
Month
July
August
Septemb
er
From accounts receivable:

May sales
$180,000 5%........ $ 9,000
June sales $220,000
$ 11,00
65%, 5%............. 143,000
0
From budgeted sales:
July $300,000
25%, 65%, 5%.......
75,000 195,000 $ 15,000
August $380,000
25%, 65%..............
95,000 247,000
September $350,000
25%....................
0
0
87,500
$227,00 $301,00
Total cash collections. .
0
0 $349,500
Quarter
$ 9,000
154,000
285,000
342,000
87,500
$877,500

22
Problem 7-18A (continued)

2. Cash budget:
Month
Cash balance,
beginning..................
Add receipts:
Collections from
customers...............
July
August
$
$
30,000 12,000
227,00
0 301,000
257,00
Total cash available.....
0 313,000
Less disbursements:
Merchandise
purchases............... 135,000 180,000
Salaries and wages. . .
...............................
............................... 30,000 32,000
Advertising................ 80,000 80,000
Rent payments..........
6,000
6,000
Equipment
14,00
purchases...............
0
0
265,00
Total disbursements.....
0 298,000
Excess (deficiency) of
receipts over
disbursements.......... (8,000) 15,000
Financing:
Borrowings................ 20,000
0
Repayments..............
0
0
Interest.....................
0
0
20,00
Total financing.............
0
0
$
$
Cash balance, ending. . 12,000 15,000
Septembe
r
Quarter
$15,000 $ 30,000
349,500 877,500
364,500 907,500
228,000 543,000
32,000
94,000
70,000 230,000
6,000
18,000
14,00
0
0
336,000 899,000
28,500
8,500
0
20,000
(20,000) (20,000)
(600)
(600)
(20,600)
(600)
$ 7,900 $ 7,900
3. If the company needs a minimum cash balance of $10,000 to

start each month, then the loan cannot be repaid in full by
September 30. If the loan is repaid in full, the cash balance will
23
drop to only $7,900 on September 30, as shown above. Some

portion of the loan balance will have to be carried over to
October, at which time the cash inflow should be sufficient to
complete repayment.

24

1. The sales budget for the third quarter:
Month
Budgeted sales in
units.......................
Selling price per unit.
Total budgeted sales.
July
16,000
August
22,000
Septemb
er
Quarter
24,000
62,000
$3
$30
$30
$30
0
$480,00
$720,00 $1,860,00
0 $660,000
0
0
The schedule of expected cash collections from sales:

Month
July
Septembe
August
r
Quarter
Accounts receivable,
June 30: $420,000
$ 319,20
76%.................... $319,200
0
July sales: $480,000
20%, 76%...........
96,000 $364,800
460,800
August sales:
$660,000 20%,
76%........................
132,000 $501,600 633,600
September sales:
144,00
$720,000 20%.....
144,000
0
$1,557,60
Total cash collections $415,200 $496,800 $645,600
0
2. The production budget for July through October:
Septemb Octobe
July
August
er
r
Budgeted sales in units..... 16,000 22,000 24,000
18,000
Add desired ending
inventory........................
6,600
7,200
5,400
6,000
Total needs........................ 22,600 29,200 29,400
24,000
4,800
6,600
7,200
5,400
Required production.......... 17,800 22,600 22,200
18,600
25

3. The direct materials purchases budget for the third quarter:
Month
July
August
Septemb
er
Quarter
Required production
in units (above)........ 17,800 22,600
22,200
62,600
Raw material needs
per unit (feet)...........
2.0
2.0
2.0
2.0
Production needs
(feet)........................ 35,600 45,200
44,400
125,200
Add desired ending
inventory (feet)........ 18,080 17,760
14,880 * 14,880 *
Total needs (feet)........ 53,680 62,960
59,280
140,080
Less beginning
inventory (feet)........ 14,240 18,080
17,760
14,240
Raw materials to be
purchased................ 39,440 44,880
41,520
125,840
Cost of raw materials
to be purchased at
$197,20 $224,40
$629,20
$5.00 per foot...........
0
0 $207,600
0
*18,600 units (October) 2.0 feet per unit = 37,200 feet;
37,200 feet 40% = 14,880 feet
The schedule of expected cash disbursements:
Month
July
Septembe
August
r
Quarter
Accounts payable,
June 30..................... $ 91,000
$ 91,000
July purchases:
$197,200 50%,
50%..........................
98,600$ 98,600
197,200
August purchases:
$224,400 50%,
50%..........................
112,200 $112,200 224,400
September purchases:
$207,600 50%.......
103,800 103,800
26
Total cash
disbursements..........
$189,60 $210,80
0
0 $216,000 $616,400

27

1. Collections on sales:
Cash sales.................
Credit sales:
February: $340,000
70% 20%.......
March: $380,000
70% 60%, 20%..
April: $550,000
70% 20%, 60%,
20%......................
May: $580,000
70% 20%, 60%..
June: $520,000
70% 20%...........
Total cash collections.
April
May
June
Quarter
$165,00 $174,00 $156,00 $ 495,00
0
0
0
0
47,600
159,600
47,600
53,200
77,000 231,000
212,800
77,000
385,000
81,200 243,600
324,800
72,80
72,800
0
$449,20 $539,40 $549,40 $1,538,00
0
0
0
0
2. a. Merchandise purchases budget:

April
May
June
July
Budgeted cost of
$385,00 $406,00 $364,00
goods sold................
0
0
0 $336,000
Add desired ending
inventory*................. 101,500 91,000 84,000
Total needs.................. 486,500 497,000 448,000
Less beginning
inventory.................. 96,250 101,500 91,000
Required inventory
$390,25 $395,50 $357,00
purchases.................
0
0
0
*25% of the next months budgeted cost of goods sold.

28

b. Schedule of expected cash disbursements for merchandise
purchases:
April
May
June
Quarter
Accounts payable,
March 31............. $177,45
0
$ 177,450
April purchases
($390,250
$234,15
40%, 60%).......... 156,100
0
390,250
May purchases
($395,500
40%, 60%)..........
158,200 $237,300
395,500
June purchases
($357,000
40%)...................
142,800
142,800
Total cash
$333,55 $392,35
$1,106,00
disbursements....
0
0 $380,100
0

29

3.
Fowkes & Sons

Cash Budget
For the Quarter Ended June 30
April
May
June
$
52,000 $ 30,650 $ 30,700
Total cash available..... 501,200

Less disbursements:
Purchases for
inventory................ 333,550
Selling expenses.......
72,000
Administrative
expenses................
39,000
Land purchases.........
0
Dividends paid..........
39,000
570,050 580,100
Quarter
$ 52,00
0
1,538,00
0
1,590,00
0
392,350 380,100
74,000 75,000
1,106,000
221,000
Total disbursements.... 483,550

cash..........................
17,650
Financing:
Borrowing.................
13,000
Repayment...............
0
566,350 497,100
Cash balance,
beginning..................
Add collections from
sales......................... 449,200
539,400 549,400
40,000
60,000
0
3,700
42,000
0
0
83,000
121,000
60,000
39,000
1,547,00
0
43,000
27,000
0
0 (40,000)
40,000
(40,000)
(930
Interest.....................
0
0
(930)*
)
(930
Total financing.............
13,000
27,000 (40,930)
)
$ 42,07
Cash balance, ending. . $ 30,650 $ 30,700 $ 42,070
0
* $13,000 1% 3
=
$390
$27,000 1% 2
=
540
$930
30

Februar
January
y
$180,00 $187,50
Cash sales...............
0*
0
Credit sales.............
50,000 * 60,000
Total cash
$230,00 $247,50
collections............
0*
0
March
$206,25
0
62,500
$268,75
0
Quarter
$573,750
172,500
$746,250
*Given.
2. a. Merchandise purchases budget:
Februar
January
y
March
Budgeted cost of $144,00
$150,00
$165,00
1
goods sold .......
0*
0 *
0
Add desired
ending
90,00
2
inventory .........
0 * 99,000
93,600
Total needs........ 234,000 * 249,000
258,600
Less beginning
86,40
inventory..........
0 * 90,000
99,000
Required
$147,60
$159,00
$159,60
purchases.........
0*
0
0
Quarter
$459,00
0
93,600
552,600
86,400
$466,20
0
For January sales: $240,000 60% cost ratio = $144,000.

At January 31: $150,000 60% = $90,000. At March 31:
$260,000 April sales 60% cost ratio 60% = $93,600.
*Given.
1
2

31

b. Schedule of expected cash disbursements for purchases:
January
$102,00
0*
Februa
ry
March
December purchases
January purchases
$103,32
($147,600).............. 44,280 *
0*
February purchases
$111,30
($159,000)..............
47,700
0
March purchases
47,88
($159,600)..............
0
Total cash
disbursements for
$146,28 $151,02 $159,18
purchases...............
0*
0
0
Quarter
$102,00
0*
147,600 *
159,000
47,88
0
$456,48
0
3. Schedule of expected cash disbursements for selling and

administrative expenses:
Salaries and wages.

Advertising..............
Shipping..................
Other expenses.......
Total cash
disbursements for
selling and
administrative
expenses..............
Februar
y
$14,000
25,000
12,500
37,500
March
Quarter
$14,000 $ 42,000
25,000
75,000
13,750
38,250
41,250 114,750
$87,000 * $89,000
$270,00
0
January
$14,000 *
25,000 *
12,000 *
36,000 *
$94,000
*Given.

32

4. Cash budget:
Februar
y
January
March
Cash balance,
$ 26,00
beginning................
0 * $ 5,720 $ 5,200
230,00
247,50
Add cash collections..
0*
0 268,750
256,00
253,22
Total cash available...
0*
0 273,950
Less disbursements:
Purchases of
inventory.............. 146,280 * 151,020 159,180
Selling and
administrative
expenses.............. 87,000 * 89,000 94,000
Purchases of land....
0
8,000
2,000
Cash dividends....... 30,000 *
0
0
263,28
248,02
Total disbursements. .
0*
0 255,180
Excess (deficiency)
of cash....................
(7,280)*
5,200 18,770
Financing:
Borrowing............... 13,000
0
0
Repayment.............
0
0 (13,000)
Interest...................
0
0
(390)**
(13,390
Total financing........... 13,000
0
)
Cash balance,
ending.................... $ 5,720 $ 5,200 $ 5,380
**
Quarter
$ 26,000
746,250
772,250
456,480
270,000
10,000
30,000
766,480
5,770
13,000
(13,000)
(390)
(390)
$ 5,380
Given.
$13,000 1% 3 $390
=

33

5. Income statement:
Spektra Company
Income Statement
For the Quarter Ended March 31
Sales...................................................
Cost of goods sold:
Beginning inventory (Given).............
Add purchases (Part 2)......................
Goods available for sale....................
Ending inventory (Part 2)..................
Gross margin.......................................
Selling and administrative expenses:
Salaries and wages (Part 3)..............
Advertising (Part 3)...........................
Shipping (Part 3)...............................
Depreciation.....................................
Other expenses (Part 3)....................
Net operating income..........................
Less interest expense (Part 4).............
Net income..........................................
$765,000
$86,400
466,200
552,600
93,600
42,000
75,000
38,250
8,000
114,750
459,000
306,000
278,000
28,000
390
$ 27,610

34

6. Balance sheet:
Spektra Company
Balance Sheet
March 31
Assets
Current assets:
Cash (Part 4)....................................................... $ 5,380
Accounts receivable (25% $275,000)..............
68,750
Inventory (Part 2)................................................
93,600
Total current assets...............................................
167,730
Buildings and equipment, net
($80,000 + $10,000 $8,000)............................
82,000
Total assets........................................................... $249,730
Liabilities and Equity
Current liabilities:
Accounts payable
(Part 2: 70% $159,600).............
Stockholders equity:
Capital stock...................................
Retained earnings*.........................
Total liabilities and equity..................
* Retained earnings, beginning......

Add net income...........................
Total............................................
Less dividends.............................
Retained earnings, ending...........
$111,720
$45,000
93,010 *
138,010
$249,730
$95,400
27,610
123,010
30,000
$93,010

35

1. a. Schedule of expected cash collections:
Year 1Fourth quarter

sales:
First
$105,00
$700,000 15%...............
0
Year 2First quarter sales:
$720,000 80%............... 576,000
$720,000 15%...............
Year 2Second quarter
sales:
$750,000 80%...............
$750,000 15%...............
Year 2Third quarter sales:
$740,000 80%...............
$740,000 15%...............
sales:
Year 2 Quarter
Second
Third
Fourth
Total
$ 105,00
0
576,000
$108,00
0
600,000
108,000
600,000
$112,50
0
592,000
112,500
$111,00
0
592,000
111,000
560,00
$700,000 80%...............
560,000
0
$681,00 $708,00 $704,50 $671,00 $2,764,50
Total cash collections...........
0
0
0
0
0
36

b. Schedule of expected cash disbursements for merchandise purchases:
First

purchases:
$528,000 15%..................... $ 79,200
Year 2First quarter purchases:
$544,500 85%..................... 462,825
$544,500 15%.....................
Year 2Second quarter
purchases:
$561,000 85%.....................
$561,000 15%.....................
Year 2Third quarter
purchases:
$549,000 85%.....................
$549,000 15%.....................
purchases:
$528,000 85%.....................
Total cash payments..................
Year 2 Quarter
Second
Third
Fourth
Total
$
462,825
$ 81,67
5
476,850
79,200
81,675
476,850
84,150
$ 84,150
466,650
$ 82,350
466,650
82,350
448,800
448,800
$542,02 $558,52 $550,80 $531,15 $2,182,50
5
5
0
0
0

37

2.
First
Year 2 Quarter
Second
Third
Budgeted sales........... $720,000 $750,000 $740,000

Variable expense rate.
10%
10%
10%
Variable expenses.......
72,000
75,000
74,000
Fixed expenses...........
60,000
60,000
60,000
Total expenses............ 132,000 135,000 134,000
Less depreciation........
15,000
15,000
15,000
Cash disbursements.... $117,000 $120,000 $119,000
Fourth
Year
$700,00 $2,910,00
0
0
10%
10%
70,000
291,000
60,000
240,000
130,000
531,000
15,000
60,000
$115,00
0 $ 471,000

38

3. Cash budget for Year 2:
Cash balance, beginning........

Add collections from sales.....
Total cash available...............
Less disbursements:
Merchandise purchases.......
Operating expenses............
Dividends............................
Land...................................
Total disbursements...............
receipts over disbursements
Financing:
Borrowing...........................
Repayment.........................
Interest*..............................
Total financing.......................
Cash balance, ending............
*
$5,000 1% 9
=
$1,000 1% 6
=
Year 2 Quarter
First
Second
Third
Fourth
Year
$20,000 $23,975 $20,450 $20,150 $ 20,000
681,000 708,000 704,500 671,000 2,764,500
701,000 731,975 724,950 691,150 2,784,500
542,025
117,000
18,000
0
677,025
558,525
120,000
18,000
20,000
716,525
23,975
15,450
550,800 531,150 2,182,500

119,000 115,000
471,000
18,000
18,000
72,000
18,000
0
38,000
705,800 664,150 2,763,500
19,150
27,000
0
5,000
1,000
0
0
0
0
(6,000)
0
0
0
(510)
0
5,000
1,000
(6,510)
$23,975 $20,450 $20,150 $20,490 $
21,000
6,000
(6,000)
(510)
(510)
20,490
$45
0
6
0
$51
39

40

April
May
June
Quarter
$214,80
Cash sales............. $ 69,000 * $ 70,800 $ 75,000
0
1
Credit sales ..........
40,000 *
46,000
47,200 133,200
$348,00
Total collections..... $109,000 * $116,800 $122,200
0
40% of the preceding months sales.
*Given.
1
2. Merchandise purchases budget:

Budgeted cost of
goods sold1...............
Add desired ending
inventory2.................
Total needs..................
Less beginning
inventory..................
Required purchases. . . .
April
May
June
Quarter
$80,50 $ 82,60
0*
0 * $ 87,500 $250,600
20,650 * 21,875
101,15
0 * 104,475
20,125 * 20,650
$81,02 $ 83,82
5*
5
22,750
22,750
110,250
273,350
21,875
20,125
$ 88,375 $253,225
For April sales: $115,000 sales 70% cost ratio =

$80,500.
1
At April 30: $82,600 25% = $20,650.

At June 30: July sales $130,000 70% cost ratio 25%
= $22,750.
2
*Given.
Schedule of Expected Cash DisbursementsMerchandise
Purchases
April
May
June
Quarter
March purchases....... $62,250 *
$ 62,250 *
April purchases.........
16,205 * $64,820 *
81,025 *
May purchases..........
16,765 $67,06
83,825
June purchases..........
17,675
17,675
Total disbursements. . $78,455 * $81,585

*Given.
$84,73 $244,775
5


3. Schedule of Expected Cash DisbursementsSelling and
Administrative Expenses
Commissions.................
Rent..............................
Other expenses.............
Total disbursements......
April
May
$17,000 $17,000
6,000 *
6,000
3,450 *
3,540
$26,450 * $26,540
June
$17,000
6,000
3,750
$26,750
Quarter
$51,000
18,000
10,740
$79,740
June
$
23,970
Quarter
$ 15,20
0
348,00
0
363,20
0
*Given.
4. Cash budget:
Cash balance,
beginning....................
Add cash collections......
Total cash available.......
Less cash
disbursements:
For inventory..............
For expenses..............
For equipment............
Total disbursements......
cash............................
Financing:
Borrowing...................
Repayment.................
Interest1......................
Total financing...............
Cash balance, ending....
April
$ 15,20
0*
109,00
0*
124,20
0*
May
$
15,295
116,80
0
132,09
5
78,455 *
26,450 *
22,00
0*
126,90
5*
(2,705
)*
81,585
26,540
84,735
26,750
0
108,12
5
23,97
0
18,000
0
0
18,00
0
$ 15,29
5
0
0
0
0
$
23,970
122,200
146,170
111,485
34,685
244,775
79,740
22,00
0
346,51
5
16,68
5
0
18,000
(18,000) (18,000)
(540)
(540)
(18,540
)
(540)
$ $ 16,14
16,145
5
* $18,000 1% 3 =
$540

5.
Andros Company
Income Statement
For the Quarter Ended June 30
Sales ($115,000 + $118,000 +
$125,000).........................................
Cost of goods sold:
Beginning inventory (Given).............
Add purchases (Part 2)......................
Goods available for sale....................
Less ending inventory (Part 2)..........
Gross margin.......................................
Selling and administrative expenses:
Commissions (Part 3)........................
Rent (Part 3).....................................
Depreciation ($4,000 3)................
Other expenses (Part 3)....................
Net operating income..........................
Less interest expense (Part 4).............
Net income..........................................
$358,00
0
$
20,125
253,22
5
273,350
22,75
0
51,000
18,000
12,000
10,74
0
250,600 *
107,400
91,740
15,660
540
$ 15,120
*A simpler computation would be: $358,000 70% =

$250,600.


6.
Andros Company
Balance Sheet
June 30
Assets
Current assets:
Cash (Part 4)......................................................... $ 16,145
Accounts receivable ($125,000 40%)................ 50,000
Inventory (Part 2).................................................. 22,750
Total current assets................................................. 88,895
Fixed assetsnet ($120,000 + $22,000
$12,000)............................................................... 130,000
$218,89
Total assets.............................................................
5
Liabilities and Equity
Accounts payable (Part 2: $88,375
$ 70,70
80%)...................................................
0
Stockholders equity:
Capital stock (Given).......................... $ 40,000
Retained earnings............................... 108,195 * 148,195
$218,89
Total liabilities and equity......................
5
* Retained earnings, beginning.............
Add net income..................................
Retained earnings, ending.................
$ 93,07
5
15,120
$108,19
5


Brief Exercise 7-1 (10 Minutes)

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Brief Exercise 7-1 (10 minutes)

1. Control involves the steps taken by management to increase

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Brief Exercise 7-2 (30 minutes)

Notice that even though sales peak in August, cash collections

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Brief Exercise 7-3 (15 minutes)

Budgeted sales in units.......

*10% of the following months unit sales.

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Brief Exercise 7-4 (20 minutes)

Required production of calculators....

Cost of purchases at $2 per chip....... $396,000 $612,000 $840,000 $576,000

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Brief Exercise 7-5 (30 minutes)

Wages for regular hours (@ $11.00 per

Brief Exercise 7-6 (20 minutes)

Total budgeted manufacturing overhead for the

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Brief Exercise 7-7 (20 minutes)

Budgeted unit sales

$2.75 $2.75 $2.75 $2.75

12,000 12,000 12,000 48,000

112,500 104,250 101,500 419,250

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Brief Exercise 7-8 (20 minutes)

* Since the deficiency of cash available over disbursements is

$170,000 12% (2/4) = $10,200

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Brief Exercise 7-9 (15 minutes)

* 380 $85 + $105,000 = $137,300

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Brief Exercise 7-10 (20 minutes)

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Exercise 7-11 (45 minutes)

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Exercise 7-11 (continued)

Budgeted unit sales..........

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Exercise 7-12 (30 minutes)

*$13,000 $4,000 = $9,000.

Exercise 7-13 (45 minutes)

Budgeted direct labor-hours..........

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Exercise 7-14 (45 minutes)

Budgeted unit sales..........

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Exercise 7-14 (continued)

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Exercise 7-15 (45 minutes)

$46,500 $54,000 $55,500 $39,250 $195,250

Schedule of Expected Cash Disbursements for Materials

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Exercise 7-15 (continued)

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Exercise 7-16 (30 minutes)

Cash balance, beginning.....

Quarter (000 omitted)

Cash balance, ending..........

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Problem 7-17A (60 minutes)

Required production (units)

13,880 16,500 18,200