Chapter 22, Problem 4BPSB

To determine

1.

Introduction:

The master budget is the aggregation of all lower-level budgets produced by a company's various functional areas, such as budgeted financial statements, a cash forecast, a financing plan and so on.

To calculate:

To calculate the sales budget for July, August and September.

Answer to Problem 4BPSB

Solution:

The table below shows the sales budget for July, August and September:

Particulars	Amount ($)
	July	August	September
Forecastedsales in units	21,000	19,000	20,000
(*) Selling price per unit	$17	$17	$17
Budgeted sales	357,000	323,000	340,000

Explanation of Solution

The forecasted sales in units and the selling price per unit have been given. Thus, we have multiplied forecasted sales in units and the selling price per unit to obtain budgeted sales dollar amount respectively.

To determine

2.

Introduction:

The master budget is the aggregation of all lower-level budgets produced by a company's various functional areas, such as budgeted financial statements, a cash forecast, a financing plan and so on.

To calculate:

To calculate the production budget for July, August and September.

Answer to Problem 4BPSB

Solution:

The table below shows the production budget for July, August and September:

Particulars	Units
	July	August	September
Forecasted sales in units	21,000	19,000	20,000
Add- Finished goods inventory at end of the month	13,300	14,000	16,800
Less- Finished goods inventory at beginning of the month	16,800	13,300	14,000
Production budget	17,500	19,700	22,800

Explanation of Solution

The production budget as calculated above is based on forecasted sales in units and the finished goods inventory positions as estimated and required by the management. Thus, we have added finished goods inventory required at the end and deducted finished goods inventory at the beginning from theforecasted sales, for each of the given month respectively.

To determine

3.

Introduction:

The master budget is the aggregation of all lower-level budgets produced by a company's various functional areas, such as budgeted financial statements, a cash forecast, a financing plan and so on.

To calculate:

To calculate the raw materials budget for July, August and September.

Answer to Problem 4BPSB

Solution:

The table below shows the raw materials budget for July, August and September:

Particulars	Units
	July	August	September
Production budget of finished goods	17,500	19,700	22,800
(*) Raw material required in each finished unit	0.5	0.5	0.5
Raw materials used in production process	8,750	9,850	11,400
Add- Raw materials inventory at end of the month	1,970	2,280	1,980
Less- Raw materials inventory at beginning of the month	4,375	1,970	2,280
Raw materials purchases quantity	6,345	10,160	11,100
(*) Raw materials cost per unit	$8	$8	$8
Raw materials purchases budget	$50,760	$81,280	$88,800

Explanation of Solution

The raw materials purchases budget as calculated above is based on production quantity budget of finished goods, raw material required in each finished unit and raw materials inventory positions as estimated and required by the management. Thus, we have added raw materials inventory required at the end and deducted raw materials inventory at the beginning from the raw materials used in production process, for each of the given month respectively.

To determine

4.

Introduction:

The master budget is the aggregation of all lower-level budgets produced by a company's various functional areas, such as budgeted financial statements, a cash forecast, a financing plan and so on.

To calculate:

To calculate the direct labor budget for July, August and September.

Answer to Problem 4BPSB

Solution:

The table below shows the direct labor budget for July, August and September:

Particulars	Units
	July	August	September
Production budget of finished goods	17,500	19,700	22,800
(*) Direct labor requiredfor each finished unit	0.5 hours	0.5 hours	0.5 hours
Total direct labor hours required	8,750	9,850	11,400
(*) Direct labor cost per hour	$16	$16	$16
Direct labor budget	140,000	157,600	182,400

Explanation of Solution

The direct labor budget as calculated above is based on production quantity budget of finished goods anddirect labor required for each finished unit. Thus, the total labor hours required is then multiplied with direct labor cost per hour to obtain direct labor budget respectively.

To determine

5.

Introduction:

The master budget is the aggregation of all lower-level budgets produced by a company's various functional areas, such as budgeted financial statements, a cash forecast, a financing plan and so on.

To calculate:

To calculate the factory overhead budget for July, August and September.

Answer to Problem 4BPSB

Solution:

The table below shows the factory overhead budget for July, August and September:

Particulars	Amount ($)
	July	August	September
Total direct labor hours required	8,750	9,850	11,400
(*) Predetermined variable overhead rate is $2.70 per direct labor hour	$2.70	$2.70	$2.70
Variable factory overhead budget	23,625	26,595	30,780
Fixed factory overheadbudget	20,000	20,000	20,000
Total factory overhead budget	43,625	46,595	50,780

Explanation of Solution

The factory overhead cost comprises of variable as well as fixed factory overhead cost. The same is calculated as shown above from the information provided. Also, the total labor hours required is multiplied with predetermined variable overhead rate which is $2.70 per direct labor hour to obtain variable factory overhead budget.

To determine

6.

Introduction:

The master budget is the aggregation of all lower-level budgets produced by a company's various functional areas, such as budgeted financial statements, a cash forecast, a financing plan and so on.

To calculate:

To calculate the selling expense budget for July, August and September.

Answer to Problem 4BPSB

Solution:

The table below shows the selling expense budget for July, August and September:

Particulars	Amount ($)
	July	August	September
Sales representatives’ commissions	35,700	32,300	34,000
Add- Sales manager’s salary	3,500	3,500	3,500
Selling expense budget	39,200	35,800	37,500

Explanation of Solution

The selling expenses consists of sales representatives’ commissions and sales manager’s salary as calculated above. The sales representatives’ commissions are 10% of budgeted sales respectively.

To determine

7.

Introduction:

The master budget is the aggregation of all lower-level budgets produced by a company's various functional areas, such as budgeted financial statements, a cash forecast, a financing plan and so on.

To calculate:

To calculate the general and administrative expense budget for July, August and September.

Answer to Problem 4BPSB

Solution:

The table below shows the general and administrative expense budget for July, August and September:

Particulars	Amount ($)
	July	August	September
Administrative salaries	9,000	9,000	9,000
0.9% monthly interest on the long-term notes	2,700	2,700	2,700
General and administrative expense budget	11,700	11,700	11,700

Explanation of Solution

The general and administrative expenses includeadministrative salaries and 0.9% monthly interest on the long-term notes as calculated above.

To determine

8.

Introduction:

A cash budget is a budget of expected cash receipts and disbursements during the period. These cash inflows and outflows include revenues collected, expenses paid, and loans. In other words, a cash budget is an estimated projection of the company's cash position in the future.

To calculate:

To prepare a cash budget for July, August and September.

Answer to Problem 4BPSB

Solution:

The table below shows the cash budget for July, August and September:

Particulars	Reference	Amount ($)
		July	August	September
Opening Cash Balance		40,000	96,835	141,180
Add- Cash Receipts
Cash Sales		107,100	96,900	102,000
Account receivables		249,900	249,900	226,100
Total Cash Collection	(A)	397,000	443,635	469,280
Total Cash Expenses-
Account payables		51,400	50,760	81,280
Direct labor expenses		140,000	157,600	182,400
Variable factory overhead costs		23,625	26,595	30,780
Selling expenses		39,200	35,800	37,500
General and administrative expenses		11,700	11,700	11,700
Interest on short-term notes		240	0	0
Income taxes paid		10,000	0	0
Dividends paid		0	20,000	0
Equipment purchased		0	0	100,000
Total Cash Expenditure	(B)	276,165	302,455	443,660
Net Cash Balance	(A - B)	120,835	141,180	25,620
Add- Short-term notes taken		0	0	14,380
Less- Short-term notes repaid		24,000	0	0
Closing Cash Balance		96,835	141,180	40,000

Explanation of Solution

The cash budget for July, August and September as calculated above, is explained below:

1. The cash sales of the company are 30% of its total budgeted sales for respective months as per the information provided.

2. The remaining portion of total budgeted sales are credit sales for respective months, however, the collection or receipt of such account receivables are made in the following month, of the month in which such credit sales takes place.

3. Therefore, the account receivables of June will be collected in July, account receivables of July will be collected in August and account receivables of August will be collected in September respectively.

4. As per the information provided, the factory and operating expenses of the company are paid in full in the month of its expenditure itself. We have considered direct labor, factory overhead, selling expenses, general and administrative expenses as the factory and operating expenses for the given period respectively. However, the fixed factory overhead consists of depreciation cost which is a non-cash expenditure and, thus, not considered for cash budget.

5. The closing balance as on 30^th June at the balance sheet includes an outstanding liability of $5,100 as accounts payable. We have discharged such liability in the month on July in the above solution.

6. Interest on short-term notes obtained is 1% per month and the same is paid at the end of such month itself. The outstanding loan amount at the beginning of the month of July is $24,000 and interest thereon is $240 respectively.

7. Due to shortfall in the cash balance at the end of the month of September, we have obtained loan of $14,380 to have a minimum required cash balance of $40,000 respectively.

Conclusion

Thus, we have maintained a minimum cash balance of $40,000 for each of the months of July, August and September as required.

To determine

9.

Introduction:

The master budget is the aggregation of all lower-level budgets produced by a company's various functional areas, such as budgeted financial statements, a cash forecast, a financing plan and so on.

To calculate:

To calculate the budgeted income statement for the quarter ending September 2017.

Answer to Problem 4BPSB

Solution:

The table shows the budgeted income statement for the quarter ending September 2017:

Particulars	Reference	Amount ($)	Amount ($)
Budgeted sales	(A)		1,020,000
Total expenditure-
Cost of goods sold-
Purchase cost of raw materials		220,840
Add- Raw materials inventory at beginning		35,000
Add- Finished goods inventory at beginning		241,080
Less- Raw materials inventory at end		15,840
Less- Finished goods inventory at end		241,080
Less- Cost of goods sold			240,000
Less- Direct labor expenses			480,000
Less- Factory overhead costs			141,000
Less- Selling expenses			112,500
Less- General and administrative expenses			35,100
Less- Interest on short-term notes			240
Total expenditure	(B)		1,008,840
Budgeted net income	(A – B)		11,160

Explanation of Solution

The budgeted net income as calculated above for the quarter ending September 30, 2017, is explained below:

1. The cost of goods sold for the quarter is determined as cost of raw material purchases and inventories at beginning of the quarter, while subtracting inventories at end of the quarter respectively.

2. All the expenses for such quarter have been considered such as direct labor, factory overhead, interest on short-term notes, selling, general and administrative expenses respectively.

3. The positive difference of budgeted sales and total expenditure will be the budgeted net income as calculated in the table above.

To determine

10.

Introduction:

The master budget is the aggregation of all lower-level budgets produced by a company's various functional areas, such as budgeted financial statements, a cash forecast, a financing plan and so on.

To calculate:

To prepare the budgeted balance sheet as of September30, 2017.

Answer to Problem 4BPSB

Solution:

The table shows the budgeted balance sheet as of September30, 2017:

NABAR MANUFACTURING
Budgeted Balance Sheet as of September 30, 2017
Assets	Amount ($)	Liabilities and Equity	Amount ($)
Cash	40,000	Accounts payable	88,800
Accounts receivable	238,000	Income taxes payable	3,906
Raw materials inventory	15,840	Short-term notes payable	14,380
Finished goods inventory	241,080	Total current liabilities	107,086
Total current assets	534,920	Long-term note payable	300,000
		Total liabilities	407,086
Equipment	820,000
Accumulated depreciation	300,000	Common stock	600,000
Equipment, net	520,000	Retained Earnings	47,834
		Total stockholders’ equity	647,834
Total assets	10,54,920	Total liabilities and equity	1,054,920

Explanation of Solution

The budgeted balance sheet as of September 30, 2017, is explained below:

1. The equipment purchased of $100,000 have been recorded in the above balance sheet and the depreciation amount of $20,000 per month is added to the accumulated depreciation respectively.

2. The retained earnings balance was $60,580 as of June 30, 2017. However, in the month of August, dividends of $20,000 are declared and paid. Therefore, we have deducted such amount as it would be paid out of retained earnings. The current quarter budgeted income after provision for income taxes assessed at 35%, amounts to $7,254 which will be transferred to the retained earnings respectively.

3. The income taxes payable $3,906 (budgeted income $11,160 * 35%) is assessed at 35% of the budgeted income in the current quarter and to be paid in October respectively.

4. Due to shortfall in the cash balance at the end of the month of September, we have obtained short-term note of $14,380 to have a minimum required cash balance of $40,000 respectively.