Chapter 22, Problem 4AP

1.

To determine

Prepare the sales budget of Z manufacturing for the second calendar quarter.

Explanation of Solution

Sales Budget: The sales budget is the budget prepared to estimate the revenue, the expected number of units to be sold and the expected selling price for each product. The sales budget is the first step for an operating budget and the basis for the production and cost of goods sold budget.

Prepare the sales budget of Z manufacturing for the second calendar quarter:

Z Manufacturing
Sales Budgets
April, May, and June 2015
	Budgeted Units	Budgeted Unit Price	Budgeted Total Dollars
April 2015	20,500	$23.85	$  488,925
May 2015	19,500	23.85	465,075
June 2015	20,000	23.85	477,000
Total for the second quarter	60,000		$1,431,000

Table (1)

Conclusion

Therefore, budgeted sales for Z manufacturing for the second calendar quarter are 60,000 units for $1,431,000.

2.

To determine

Prepare the production budget of Z manufacturing for the second calendar quarter.

Explanation of Solution

Production Budget: The production budget refers to that budget which forecasts the production for the future accounting period. The budgeted production for any financial period is planned by combining the forecasted unit of sales and the finished goods inventory and deducting the beginning goods inventory.

Prepare the production budget of Z manufacturing for the second calendar quarter:

Z Manufacturing
Production Budget
April, May, and June 2015
	April	May	June	Total
Next month’s budgeted sales (A)	19,500	20,000	20,500
Ratio of inventory to future sales (B)	80%	80%	80%
Budgeted ending inventory $\left[\left(\text{A}\right)\times \left(\text{B}\right)\right]$	15,600	16,000	16,400
Add: Budgeted sales	20,500	19,500	20,000
Required units to be produced	36,100	35,500	36,400
Less: Beginning inventory	(16,400)	(15,600)	(16,000)
Units to be produced	19,700	19,900	20,400	60,000

Table (2)

Conclusion

Therefore, Z manufacturing’s budgeted production for the second calendar quarter is 60,000 units.

3.

To determine

Prepare the raw materials budget of Z manufacturing for the second calendar quarter.

Explanation of Solution

Raw Materials Budget: The raw materials budget is prepared to estimate the number of units of raw materials used in the production to produce a product.

Prepare the raw materials budget of Z manufacturing for the second calendar quarter:

Z Manufacturing
Raw Materials Budget
April, May, and June 2015
	April	May	June	Total
Production budget (units) (A)	19,700	19,900	20,400
Materials requirement per unit (B)	0.50	0.50	0.50
Materials needed for production $\left[\left(\text{A}\right)\times \left(\text{B}\right)\right]$	9,850	9,950	10,200
Add: budgeted ending inventory	4,975	5,100	4,000
Total materials requirements (units)	14,825	15,050	14,200
Less: beginning inventory	(4,925)	(4,975)	(5,100)
Materials to be purchased (units)	9,900	10,075	9,100		29,075
Material price per unit	$20	$20	$20		$20
Total cost of raw material purchases	$198,000	$201,500	$182,000		$581,500

Table (3)

Conclusion

Therefore, Z manufacturing’s budgeted raw material for production for the second calendar quarter is 29,075 units.

4.

To determine

Prepare the direct labour budget of Z manufacturing for the second calendar quarter.

Explanation of Solution

Direct Labour Budget: The direct labour budget provides information about the total direct manufacturing labour hours and the cost of the total direct manufacturing labour hour.

Prepare the direct labour budget of Z manufacturing for the second calendar quarter:

Z Manufacturing
Direct Labour Budget
April, May, and June 2015
	April	May	June	Total
Budgeted production (units)	19,700	19,900	20,400
Labour requirements per unit (hours)	0.50	0.50	0.50
Total labour hours needed (A)	9,850	9,950	10,200	30,000
Labour rate (per hour) (B)	$15	$15	$15	$15
Labour dollars $\left[\left(\text{A}\right)\times \left(\text{B}\right)\right]$	$147,750	$149,250	$153,000	$450,000

Table (4)

Note:

$\text{Total labour hours needed =}\text{Budgeted production }\left(\text{units}\right)\times \text{Labour requirements per unit }\left(\text{hours}\right)$

Conclusion

Therefore, total labour hours needed by Z manufacturing for the second calendar quarter is 30,000 hours.

5.

To determine

Prepare the factory overhead budget of Z manufacturing for the second calendar quarter.

Explanation of Solution

Factory overhead: It includes all the budgeted manufacturing costs except direct material cost and direct labour cost.

Prepare the factory overhead budget of Z manufacturing for the second calendar quarter:

Z Manufacturing
Factory Overhead Budget
April, May, and June 2015
	April	May	June	Total
Labour hours needed (A)	9,850	9,950	10,200
Variable factory overhead rate (B)	$2.70	$2.70	$2.70
Budgeted variable overhead $\left[\left(\text{A}\right)\times \left(\text{B}\right)\right]$	26,595	26,865	27,540	$ 81,000
Fixed overhead	20,000	20,000	20,000	60,000
Budgeted factory overhead (total)	$46,595	$46,865	$47,540	$141,000

Table (5)

Conclusion

Therefore, total budgeted factory overheads for the second calendar quarter are $141,000.

6.

To determine

Prepare the selling expense budget of Z manufacturing for the second calendar quarter.

Explanation of Solution

Selling expense budget: This budget shows the estimated selling expenses for the budgeted period.

Prepare the selling expense budget of Z manufacturing for the second calendar quarter:

Z Manufacturing
Selling Expense Budgets
April, May, and June 2015
	April	May	June	Total
Budgeted sales (A)	$488,925	$465,075	$477,000
Sales commission percent (B)	8%	8%	8%
Sales commissions expense $\left[\left(\text{A}\right)\times \left(\text{B}\right)\right]$	39,114	37,206	38,160	$114,480
Sales salaries	3,000	3,000	3,000	9,000
Total selling expenses	$ 42,114	$40,206	$41,160	$123,480

Table (6)

Conclusion

Therefore, total budgeted selling expense for the second calendar quarter is $123,480.

7.

To determine

Prepare the General and administrative expenses budget of Z manufacturing for the second calendar quarter.

Explanation of Solution

General and administrative expense budget: This budget shows the estimated General and administrative expenses for the budgeted period.

Prepare the selling expense budget of Z manufacturing for the second calendar quarter:

Z Manufacturing
General and administrative Expense Budgets
April, May, and June 2015
	April	May	June	Total
Salaries(A)	$12,000	$12,000	$12,000	$36,000
Interest rate on long-term note (B)	0.90%	0.90%	0.90%
Long term note (C)	$500,000	$500,000	$500,000
Sales commissions expense $\text{D}\text{=}\left[\left(\text{B}\right)\text{×}\left(\text{C}\right)\right]$	4,500	4,500	4,500	13,500
Total budgeted general and administrative expenses $\left(\text{A}\right)\text{+}\left(\text{D}\right)$	$16,500	$16,500	$16,500	$49,500

Table (7)

Conclusion

Therefore, total budgeted general and administrative expense for the second calendar quarter is $49,500.

8.

To determine

Prepare the cash budget of Z manufacturing for the second calendar quarter.

Explanation of Solution

Cash budget: This budget shows the total cash receipts and cash disbursements for the budgeted period.

Prepare the cash budget of Z manufacturing for the second calendar quarter:

Z Manufacturing
Cash Budgets
April, May, and June 2015
	April	May	June
Beginning cash balance	$40,000	$83,346	$124,295
Cash receipts from customers (Working note A)	488,925	481,770	468,653
Total cash available	528,925	565,116	592,948
Cash disbursements:
Payments for raw materials (Working note B)	200,500	198,000	201,500
Payments for direct labour	147,750	147,750	147,750
Payments for variable overhead	26,595	26,595	26,595
Sales commissions	39,114	37,206	38,160
Sales salaries	3,000	3,000	3,000
General & administrative salaries	12,000	12,000	12,000
Dividends		10,000
Loan interest $\left(\$12,000\times 1\%\right)$	120
Long-term note interest $\left(\$500,000\times 0.90\%\right)$	4,500	4,500	4,500
Purchase of equipment	$0	$0	130,000
Total cash disbursements	433,579	440,821	569,700
Preliminary cash balance	95,346	124,295	23,248
Additional loan			16,752
Repayment of loan to bank	(12,000)
Ending cash balance	$ 83,346	$124,295	$40,000
Loan balance, end of month	$0	$0	$16,752

Table (8)

Working note A: Compute the cash receipts from customers:

	April	May	June	Total
Cash sales (30%)	146,677	139,522	143,100	429,299
Credit sales (70%)	342,248	325,553	333,900	1,001,701
Total sales	$488,925	$465,075	$477,000	$1,431,000
Cash collections from customers:
Month after sale (100%)	$342,248	$342,248	$325,553	$1,010,049
Cash sales	146,677	139,522	143,100	429,299
Total cash received	$488,925	$481,770	$468,653	$1,439,348

Table (9)

Working note B: Compute the cash payment for raw materials

	April	May	June	Total
Cash paid in the following month of purchases (100%)	$200,500	$198,000	$201,500	$ 600,000
Total cash paid for raw material	$200,500	$198,000	$201,500	$ 600,000

Table (10)

9.

To determine

Prepare the budgeted income statement for the entire second quarter.

Explanation of Solution

Budgeted income statement: The budgeted financial statement which reports the budgeted revenues and expenses from business operations and the result of those operations as net income or net loss for a budgeted period is referred to as budgeted income statement.

Prepare the budgeted income statement for the entire second quarter:

Z Manufacturing
Budgeted Income Statement
For Three Months Ended June 30, 2015
Particulars	Amount ($)	Amount ($)
Sales		$1,431,000
Cost of goods sold (60,000 units @ $19.85)		1,191,000
Gross profit		240,000
Operating expenses:
Sales commissions	$114,480
Sales salaries	9,000
General administrative salaries	36,000
Long-term note interest	13,500
Interest expense	120	173,100
Income before taxes		66,900
Income taxes (35%)		23,415
Net income		$43,485

Table (11)

Conclusion

Therefore, budgeted net income of Z Manufacturers for the second calendar quarter is $43,485.

10.

To determine

Prepare the budgeted balance sheet for the entire second quarter.

Explanation of Solution

Budgeted Balance Sheet: Budgeted Balance Sheet is one of the budgeted financial statements which summarize the budgeted assets, the liabilities, and the Shareholder’s equity of a company at a given date.

Prepare the budgeted balance sheet for the entire second quarter:

Z Manufacturing
Budgeted Balance sheet
As on June 30, 2015
Particulars	Amount ($)	Amount ($)
Assets
Cash (Cash budget)		$40,000
Accounts receivable (Note C)		333,900
Raw materials inventory (Note D)		80,000
Finished goods inventory (Note E)		325,540
Total current assets		779,440
Equipment (Note F)	$730,000
Less: Accumulated depreciation (Note G)	210,000	520,000
Total assets		$1,299,440
Liabilities and Equity
Accounts payable (Note H)		$182,000
Bank loan payable (Cash budget)		16,752
Taxes payable (Income statement)		23,415
Total current liabilities		222,167
Long-term note payable		500,000
Common stock (Unchanged)	$335,000
Retained earnings (Note I)	242,273
Total stockholders’ equity		577,273
Total liabilities and equity		$1,299,440

Table (12)

Working notes:

Note C: Compute the ending receivables:
Beginning receivables	$ 342,248
Credit sales	1,001,701
Less: Collections	(1,010,049)
Ending receivables	$333,900
Note D: Compute the ending raw material:
Beginning raw materials inventory	$98,500
Purchases of raw materials	581,500
Less materials used in production (balance amount)	(600,000)
Ending raw materials inventory $\left(4,000\text{units}\times \text{\$20}\right)$	$80,000
Note E: Compute the ending finished goods inventory
Beginning finished goods inventory	$325,540
Cost of goods completed during the period	1,191,000
Less cost of goods sold during the period	(1,191,000)
Ending finished goods inventory (16,400 units @ $19.85)	$325,540
Note F: Compute the equipment balance:
Beginning equipment	$600,000
Purchased in June	130,000
Total equipment balance	$730,000
Note G: Compute the ending accumulated depreciation
Beginning accumulated depreciation	$150,000
Depreciation expense	60,000
Total	$210,000
Note H: Compute the ending balance of accounts payable
Beginning accounts payable	$200,500
Purchases of raw materials	581,500
Payments for raw materials	(600,000)
Ending accounts payable	$182,000
Note I: Compute the ending balance of retained earnings
Retained earnings at beginning	$208,788
Add: Net Income	$43,485
Less: Dividend	($10,000)
Ending balance of retained earnings	$242,273

Table (13)