Chapter 22, Problem 4BPSB

Problem 22-4B Manufacturing: Preparation of a complete master budget P1 P2 P3
The management of Nabar Manufacturing prepared the following estimated balance sheet for June 2019.

Assets Liabilities and Equity

Cash.............................. $ 40,000 Accounts payable................... $ 51,400
Accounts receivable ................. 249,900 Income taxes payable................ 10,000
Raw materials inventory.............. 35,000 Short-term notes payable ............ 24,000
Finished goods inventory............. 241,080 Total current liabilities ............... 85,400
Total current assets.................. 565,980 Long-term note payable.............. 300,000
Equipment......................... 720,000 Total liabilities...................... 385,400
Accumulated depreciation............. (240,000) Common stock..................... 600,000
Equipment.net...................... 430,000 Retained earnings .................. 60,580
Total stockholders' equity ............ 660,580
Total assets......................... $1,045,980 Total liabilities and equity ............ $1,045,980

To prepare a master budget for July, August, and September of 2019. Management gathers the following information:

3. Sales were 20,000 units in June. Forecasted sales in units are as follows: Jury. 21.000: August, 19,000: September, 20,000: and October, 24,000. The product's selling price is $17 per unit and its total product cost is $14,35 per unit.
b. Company policy calls for a given month's ending finished goods inventory to equal 70% of the next month's expected unit sales. The June 30 finished goods inventory is 16,800 units, which does not comply with the policy.
C. Company policy calls for a given month's ending raw materials inventory to equal 20% of the next month's materials requirements. The June 30 raw materials inventory is 4,375 units (which also fails to meet the policy). The budgeted September 30 raw materials inventory is 1,980 units. Raw materials cost $8 per unit. Each finished unit requires 0.50 units of raw materials.
d. Each finished unit requires 0.50 hours of direct labor at a rate of $16 per hour. e. Overhead is allocated based on direct labor hours. The predetermined variable overhead rate is $2,70 per direct labor hour. Depreciation of
$20,000 per month is treated as fixed factory overhead. f. Monthly general and administrative expenses include $9,000 administrative salaries and 0.9% monthly interest on the long-term note payable. g. Sales representatives commissions are 10% of sales and are paid in the month of the sales. The sales manager's monthly salary is $3,500.
h. The company expects 30% of sales to be for cash and the remaining 70% on credit. Receivables are collected in full in the month following the sale (none are collected in the month of the sale).
i. All raw materials purchases are on credit, and no payables arise from any other transactions. One month's raw materials purchases are fully paid in the next month.
j. Dividends of $20,000 are to be declared and paid in August.
k. Income taxes payable at June 30 will be paid in July. Income tax expense will be assessed at 35% in the quarter and paid in October.
l. Equipment purchases of $100,000 are budgeted for the last day of September.
m. The minimum ending cash balance for all months is $40,000. If necessary, the company borrows enough cash using a short-term note to reach the minimum. Short-term notes require an interest payment of 1% at each month-end (before any repayment). If the ending cash balance exceeds the minimum, the excess will be applied to repaying the short-term notes payable balance.

To determine

Concept Introduction:

Master Budget-

Master budget is a sum of all lower level budgets which are produced at different functional areas of the company. It helps in providing good coordination among all level managers. It also helps the manager in evaluating the actual performance and comparing it with the standards set by them.

A sales budget is a budget which is used to estimate the expected units of sales in dollars and also helps to determine the estimated earnings during a period.

Requirement 1-

To prepare:

Monthly sales budget

Answer to Problem 4BPSB

NABAR Manufacturing
Monthly sales budget
	July	August	September	Total
Sales in units	21,000	19,000	20,000	60,000
Selling price per unit	$17	$17	$17	$17
Dollar sales value($)	357,000	323,000	340,000	1,020,000

Explanation of Solution

Given,

• Sales units for July = 21,000
• Sales units for August = 19,000
• Sales units for September = 20,000
• Selling price per unit = $17

  $\begin{array}{l}\begin{array}{l}Salesunitstotal=Julysales+Augustsales+Septembersales\hfill \\ Salesunitstotal=21,000+19,000+20,000\hfill \end{array}\\ Salesunits\text{ total}=60,000\end{array}$

Dollar sales value for each month is calculated as follows-

  $\begin{array}{l}Dollarsalesvalue=Salesinunits\times Sellingpriceperunit\hfill \\ DollarsalesvalueforJuly=21,000\times \$17\hfill \\ \begin{array}{l}DollarsalesvalueforJuly=\$357,000\\ \begin{array}{l}DollarsalesvalueforAugust=19,000\times \$17\hfill \\ \begin{array}{l}DollarsalesvalueforAugust=\$323,000\\ DollarsalesvalueforSeptember=20,000\times \$17\\ DollarsalesvalueforSeptember=\$340,000\\ DollarsalesvalueTotal=60,000\times \$17\\ DollarsalesvalueTotal=\$1,020,000\end{array}\hfill \end{array}\end{array}\hfill \end{array}$

Conclusion:

Thus, the monthly sales budget has been prepared.

To determine

Concept Introduction:

Master Budget-

Master budget is a sum of all lower level budgets which are produced at different functional areas of the company. It helps in providing good coordination among all level managers. It also helps the manager in evaluating the actual performance and comparing it with the standards set by them.

Requirement 2-

To prepare:

Production budget

Answer to Problem 4BPSB

NABAR Manufacturing
Production budgets
	July	August	September	Total
Budgeted Sales for the month	21,000	19,000	20,000
Ending inventory in units	13,300	14,000	16,800
Total Needs	34,300	33,000	36,800
Less: Beginning inventory	(16,800)	(13,300)	(14,000)
Units to be produced	17,500	19,700	22,800	60,000

Explanation of Solution

First, ending inventory in units is required to be calculated-

Calculation of ending inventory in units is as under-

  $\begin{array}{l}Ending\text{ inven}toryrequirement=\text{ 70}\%ofNextMonthsExpectedsalesunits\\ Ending\text{ inven}toryrequirementforJuly=70\%XExpectedsalesunitsforAugust\\ Ending\text{ inven}toryrequirementforJuly=70\%X\text{ 19},000units\\ Ending\text{ inven}toryrequirementforJuly=13,300units\\ \\ Ending\text{ inven}toryrequirementforAugust=70\%XExpectedsalesunitsforSeptember\\ Ending\text{ inven}toryrequirementforAugust=70\%X\text{ 20,0}00units\\ Ending\text{ inven}toryrequirementforAugust=14,000units\\ \\ Ending\text{ inven}toryrequirementforSeptember=70\%XExpectedsalesunitsforOctober\\ Ending\text{ inven}toryrequirementforSeptember=70\%X\text{ 24,000}units\\ Ending\text{ inven}toryrequirementforSeptember\text{ = 16,800 }units\end{array}$

Now, Merchandise purchases required is to be calculated-

  $\begin{array}{l}Requiredmerchandisepurchases\hfill \\ =EndingInventory+Expectedsalesofthemonth–BeginningInventory\hfill \end{array}$

Given, Expected sales of the month-

• July − 21,000 units
• August − 19,000 units
• September − 20,000 units
Ending inventory −
• July − 13,300 units
• August − 14,000 units
• September − 16,800 units

Beginning inventory-

• Ending inventory of the previous month shall be beginning inventory of current month.

• July − 16,800 units (given)
• August − 13,300 units
• September − 14,000 units
Total requirement for the month of July, August and September-

  $\begin{array}{l}Requiredmerchandisepurchases\hfill \\ \begin{array}{l}=EndingInventory+Expectedsalesofthemonth–BeginningInventory\\ RequiredmerchandisepurchasesforJuly=13,300units+21,000units–16,800units\\ RequiredmerchandisepurchasesforJuly=17,500units\\ \\ RequiredmerchandisepurchasesforAugust=14,000units+19,000units–13,300units\\ RequiredmerchandisepurchasesforAugust=19,700units\\ \\ \begin{array}{l}RequiredmerchandisepurchasesforSeptember=16,800units+20,000units–14,000units\hfill \\ RequiredmerchandisepurchasesforSeptember=22,800units\hfill \end{array}\end{array}\hfill \end{array}$

Conclusion:

Thus, the Production budget has been prepared for the months of July, August and September.

To determine

Concept Introduction:

Master Budget-

Master budget is a sum of all lower level budgets which are produced at different functional areas of the company. It helps in providing good coordination among all level managers. It also helps the manager in evaluating the actual performance and comparing it with the standards set by them.

Requirement 3-

To prepare:

Raw materials Budget

Answer to Problem 4BPSB

NABAR Manufacturing
Raw Materials budgets
	July	August	September	Total
Production Budget	17,500	19,700	22,800
Materials requirement per unit	0.5	0.5	0.5
Materials needed for production	8,750	9,850	11,400
Add: Budgeted ending raw material inventory	1,970	2,280	1,980
Total material requirements (units)	10,720	12,130	13,380
Less: Desired opening raw material inventory	(4,375)	(1,970)	(2,280)
Materials to be purchased	6,345	10,160	11,100	27,605
Materials price per unit	$8	$8	$8	$8
Total cost of direct material purchases	$50,760	$81,280	$88,800	$220,840

Explanation of Solution

Given,

• Materials requirement per unit = 0.5
• Desired opening raw material inventory for June = 4,375 units
• Desired ending raw material inventory for September = 1,980 units
• Materials price per unit = $8
• Production Budget = Calculated in Req.2

  $\begin{array}{l}Materialsneededforproduction=ProductionBudget\times Materialsrequirementperunit\hfill \\ MaterialsneededforproductionforJuly=17,500\times 0.5\hfill \\ MaterialsneededforproductionforJuly=8,750units\hfill \\ MaterialsneededforproductionforAugust=19,700\times 0.5\hfill \\ MaterialsneededforproductionforAugust=9,850units\hfill \\ MaterialsneededforproductionforSpetmeber=22,800\times 0.5\hfill \\ MaterialsneededforproductionforSeptember=11,400\hfill \end{array}$

Ending inventory is 50% of next month's Materials requirements-

  $\begin{array}{l}Ending\text{ inven}toryrequirement=\text{ 20}\%ofNextMonthsMaterialsrequirements\\ Ending\text{ inven}toryrequirementforJuly=20\%XMaterialsrequirementsforAugust\\ Ending\text{ inven}toryrequirementforJuly=20\%X9,850units\\ Ending\text{ inven}toryrequirementforJuly=1,970units\\ \\ Ending\text{ inven}toryrequirementforAugust=20\%XMaterialsrequirementsforSeptember\\ Ending\text{ inven}toryrequirementforAugust=20\%X11,400units\\ Ending\text{ inven}toryrequirementforAugust=2,280units\\ \end{array}$

Beginning raw material inventory-

• Ending raw material inventory of the previous month shall be beginning raw material inventory of current month.

• July − 4,375 units
• August −1,970units
• September − 2,280 units

Now, we need to calculate Materials to be purchased-

  $\begin{array}{l}\begin{array}{l}Materialstobepurchased\hfill \\ =Materialsneededforproduction+Budgetedendingrawmaterialinventory-Desiredopeningrawmaterialinventory\hfill \\ MaterialstobepurchasedforJuly=8,750+1,970-4,375\hfill \\ \begin{array}{l} MaterialstobepurchasedforJuly=6,345units\\ \end{array}\hfill \\ MaterialstobepurchasedforAugust=9,850+2,280-1,970\hfill \\ \begin{array}{l}MaterialstobepurchasedforAugust=10,160\\ \end{array}\hfill \\ MaterialstobepurchasedforSeptember=11,400+1,980-2,280\hfill \end{array}\\ MaterialstobepurchasedforSeptember=11,100\end{array}$

Total cost of direct materials purchases is calculated below-

  $\begin{array}{l}\begin{array}{l}Costofdirectmaterialspurchases=Materialstobepurchased\times Materialpriceperunit\hfill \\ CostofdirectmaterialspurchasesforJuly=6,345\times \$8\hfill \\ \begin{array}{l}CostofdirectmaterialspurchasesforJuly=\$50,760\\ \end{array}\hfill \\ CostofdirectmaterialspurchasesforAugust=10,160\times \$8\hfill \\ \begin{array}{l}CostofdirectmaterialspurchasesforAugust=\$81,280\\ \end{array}\hfill \\ CostofdirectmaterialspurchasesforSeptember=11,100\times \$8\hfill \end{array}\\ CostofdirectmaterialspurchasesforSeptember=\$88,800\end{array}$

Conclusion:

Thus, Raw materials budget has been prepared.

To determine

Concept Introduction:

Master Budget-

Master budget is a sum of all lower level budgets which are produced at different functional areas of the company. It helps in providing good coordination among all level managers. It also helps the manager in evaluating the actual performance and comparing it with the standards set by them.

Requirement 4-

To prepare:

Direct Labor Budget

Answer to Problem 4BPSB

NABAR Manufacturing
Direct Labor budgets
	July	August	September	Total
Budgeted production (units)	17,500	19,700	22,800
Labor requirements per unit (hours)	0.5	0.5	0.5
Total labor hours needed	8,750	9,850	11,400	30,000
Labor rate (per hour)	$16	$16	$16	$16
Labor Dollars	$140,000	$157,600	$182,400	$480,000

Explanation of Solution

Given,

• Production Budget = Calculated in Req.2
• Labor requirements per unit= 0.5
• Labor rate (per hour) = $16

Total labor hours needed is calculated as below-

  $\begin{array}{l}\begin{array}{l}Totallaborhoursneeded=Budgetedproduction\times Budgetedproduction\hfill \\ TotallaborhoursneededforJuly=17,500\times 0.5\hfill \\ \begin{array}{l}TotallaborhoursneededforJuly=8,750\\ \end{array}\hfill \\ TotallaborhoursneededforAugust=19,700\times 0.5\hfill \\ \begin{array}{l}TotallaborhoursneededforAugust=9,850\\ \end{array}\hfill \\ TotallaborhoursneededforSeptember=22,800\times 0.5\hfill \end{array}\\ TotallaborhoursneededforSeptember=11,400\end{array}$

Now, we need to calculate Labor dollars-

  $\begin{array}{l}LabordollarsforJuly=TotallaborhoursneededforJuly\times Laborrate\left(perhour\right)\hfill \\ LabordollarsforJuly=8,750\times \$16\hfill \\ LabordollarsforJuly=\$140,000\hfill \end{array}$

  $\begin{array}{l}LabordollarsforAugust=TotallaborhoursneededforAugust\times Laborrate\left(perhour\right)\hfill \\ LabordollarsforAugust=9,850\times \$16\hfill \\ LabordollarsforAugust=\$157,600\hfill \end{array}$

  $\begin{array}{l}LabordollarsforSeptember=TotallaborhoursneededforSeptember\times Laborrate\left(perhour\right)\hfill \\ LabordollarsforSeptember=11,400\times \$16\hfill \\ LabordollarsforSeptember=\$182,400\hfill \end{array}$

Conclusion:

Thus, Labor budget is prepared.

To determine

Concept Introduction:

Master Budget-

Master budget is a sum of all lower level budgets which are produced at different functional areas of the company. It helps in providing good coordination among all level managers. It also helps the manager in evaluating the actual performance and comparing it with the standards set by them.

Requirement 5-

To prepare:

Factory overhead Budget

Answer to Problem 4BPSB

NABAR Manufacturing
Factory overhead budget
	July	August	September	Total
Labor hours needed	17,500	19,700	22,800
Variable factory overhead rate	$1.35	$1.35	$1.35
Budgeted variable overhead	$23,625	$26,595	$30,780	$81,000
Budgeted fixed overhead	$20,000	$20,000	$20,000	$60,000
Budgeted total overhead	$43,625	$46,595	$50,780	$141,000

Explanation of Solution

Given,

• Labor hours needed- Calculated in Requirement 4
• Variable factory overhead rate - $1.35
• Budgeted fixed overhead (Depreciation)- $20,000
First we need to calculate Budgeted variable overhead-

Budgeted variable overhead is calculated as under-

  $Budgetedvariableoverhead=Laborhoursneeded\times Variablefactoryoverheadrate$

  $\begin{array}{l}BudgetedvariableoverheadforJuly=17,500\times \$1.35\hfill \\ BudgetedvariableoverheadforJuly=\$23,625\hfill \end{array}$

  $\begin{array}{l}BudgetedvariableoverheadforAugust=19,700*\$1.35\\ BudgetedvariableoverheadforAugust=\$26,595\end{array}$

  $\begin{array}{l}BudgetedvariableoverheadforSeptember=22,800\times \$1.35\\ BudgetedvariableoverheadforSeptember=\$30,780\end{array}$

Budgeted total overhead-

  $\begin{array}{l}\begin{array}{l}Budgetedtotaloverhead=Budgetedvariableoverhead+Budgetedfixedoverhead\hfill \\ BudgetedtotaloverheadforJuly=\$23,625+\$20,000\hfill \\ BudgetedtotaloverheadforJuly=\$43,625\hfill \\ BudgetedtotaloverheadforAugust=\$26,595+\$20,000\hfill \\ BudgetedtotaloverheadforAugust=\$46,595\hfill \\ BudgetedtotaloverheadforSeptember=\$30,780+\$20,000\hfill \end{array}\\ BudgetedtotaloverheadforSeptember=\$50,780\end{array}$

Conclusion:

Thus, factory overhead budget is prepared.

To determine

Concept Introduction:

Master Budget-

Master budget is a sum of all lower level budgets which are produced at different functional areas of the company. It helps in providing good coordination among all level managers. It also helps the manager in evaluating the actual performance and comparing it with the standards set by them.

Requirement 6-

To prepare:

Selling expense Budget

Answer to Problem 4BPSB

NABAR Manufacturing
Selling Expense budgets
	July ($)	August ($)	September ($)	Total ($)
Sales commissions	35,700	32,300	34,000	102,000
Sales salaries	3,500	3,500	3,500	10,500
Selling expenses	39,200	35,800	37,500	112,500

Explanation of Solution

First we need to calculate Sales commissions.

Calculation of sales commission is as under-

• Sales are calculated in Requirement 1

  $\begin{array}{l}SalesCommission=10\%\times Sales\hfill \\ SalesCommissionforJuly=10\%\times \$357,000\hfill \\ \begin{array}{l}SalesCommissionforJuly=\$35,700\\ \\ SalesCommissionforAugust=10\%\times \$323,000\\ SalesCommissionforAugust=\$32,300\\ \\ \begin{array}{l}SalesCommissionforSeptember=10\%\times \$340,000\hfill \\ SalesCommissionforSeptember=\$34,000\hfill \end{array}\end{array}\hfill \end{array}$

Sales salary for each month- $3,500 (Given)

Selling expense for each month is calculated as under-

  $\begin{array}{l}SellingExpense=SalesCommission+Salessalary\hfill \\ SellingExpenseforJuly=\$35,700+\$3,500\hfill \\ \begin{array}{l}SellingExpenseforJuly=\$39,200\\ \\ \begin{array}{l}SellingExpenseforAugust=\$32,300+\$3,500\hfill \\ \begin{array}{l}SellingExpenseforAugust=\$35,800\\ \\ SellingExpenseforSeptember=\$34,000+\$3,500\\ SellingExpenseforSeptember=\$37,500\end{array}\hfill \end{array}\end{array}\hfill \end{array}$

Conclusion:

Thus, the selling expense budget is prepared for the month of July, August and September.

To determine

Concept Introduction:

Master Budget-

Master budget is a sum of all lower level budgets which are produced at different functional areas of the company. It helps in providing good coordination among all level managers. It also helps the manager in evaluating the actual performance and comparing it with the standards set by them.

Requirement 7-

To prepare:

General and administrative expense Budget

Answer to Problem 4BPSB

NABAR Manufacturing
General and administrative budgets
	July	August	September	Total ($)
Salaries	9,000	9,000	9,000	27,000
Interest on long term note	2,700	2,700	2,700	8,100
Total general and administrative expenses	11,700	11,700	11,700	35,100

Explanation of Solution

Given:

• Salaries Expense = $9,000 per month

Interest on long term note-

  $\begin{array}{l}Interestonlongtermnote=Longtermnotepayable\times Interestrate\hfill \\ Interestonlongtermnote=\$300,000\times 0.9\%\hfill \\ Interestonlongtermnote=\$2,700\hfill \end{array}$

Total General and administrative expenses for each month is calculated as under-

  $\begin{array}{l}TotalGeneralandadministrativeexpenses=Salariesexpense+Interestonlongtermnote\hfill \\ TotalGeneralandadministrativeexpenses=\$9,000+\$2,700\hfill \\ TotalGeneralandadministrativeexpenses=\$11,700\hfill \end{array}$

Conclusion:

Thus, the general and administrative expenses budget is prepared for the month of July, August and September. Expense for each month is $11,700.

To determine

Concept Introduction:

Master Budget-

Master budget is a sum of all lower level budgets which are produced at different functional areas of the company. It helps in providing good coordination among all level managers. It also helps the manager in evaluating the actual performance and comparing it with the standards set by them.

Requirement 8-

To prepare:

Cash Budget

Answer to Problem 4BPSB

NABAR Manufacturing
Cash Budget
	July	August	September
Beginning cash balance	40,000	96,835	141,180
Add: Cash receipts from customers	357,000	346,800	328,100
Total cash available	397,000	443,635	469,280
Less: Cash disbursements
Payment for raw materials	51,400	50,760	81,280
Payment for direct labor	140,000	157,600	182,400
Payments for variable overhead	23,625	26,595	30,780
Sales commission	35,700	32,300	34,000
Sales salaries	3,500	3,500	3,500
General and administrative salaries	9,000	9,000	9,000
Dividends	0	20,000	0
Loan interest	240	0	0
Long term note interest	2,700	2,700	2,700
Income taxes	10,000	0	0
Purchase of equipment	0	0	100,000
Total cash disbursements	276,165	302,455	443,660
Excess of cash receipts over cash disbursements	120,835	141,180	25,620
Additional loan (Loan repayment)	(24,000)		14,380
Ending cash balance	96,835	141,180	40,000

Explanation of Solution

Given-

• Beginning cash balance = $40,000
• Payment for raw materials − Calculated in Req. 3
• Payment for direct labor - Calculated in Req. 4
• Payments for variable overhead - Calculated in Req. 5
• Sales commission - Calculated in Req. 6
• Sales salaries - Calculated in Req. 6
• General and administrative salaries - Calculated in Req.7
• Long term note interest - Calculated in Req.7
• Dividends - $20,000
• Purchase of equipment - $100,000
• Income taxes - $10,000
Total cash available

Calculation of cash receipts from customers is as under-

-It is given that amount of credit sales will be collected in the month following the sale.

Calculation of cash receipts from customers-
	July	August	September
Total budgeted sales (Req.1)	357,000	323,000	340,000
Cash Sales (30%)	107,100	96,900	102,000
Credit sales (70%)	249,900	226,100	238,000
Total cash receipts from customers
Current month's cash sales	107,100	96,900	102,000
Collection of receivables	249,900	249,900	226,100
Total cash receipts	357,000	346,800	328,100

Total cash available-

  $\begin{array}{l}Totalcashavailable=Beginningcashbalance+Totalcashreceipts\hfill \\ TotalcashavailableforJuly=\$40,000+\$357,000\hfill \\ TotalcashavailableforJuly=\$397,000\hfill \\ TotalcashavailableforAugust=\$96,835+\$346,800\hfill \\ TotalcashavailableforAugust=\$443,635\hfill \\ TotalcashavailableforSeptember=\$141,180+\$328,100\hfill \\ TotalcashavailableforSeptember=\$469,280\hfill \end{array}$

Total cash disbursementsLoan interest-

  $\begin{array}{l}Loaninterest=Loanamount\times Rateofinterest\hfill \\ Loaninterest=\$24,000\times 1\%\hfill \\ Loaninterest=\$240\hfill \end{array}$

Total cash disbursements-

  $\begin{array}{l}\begin{array}{l}TotalcashdisbursementsforJuly=\hfill \\ \begin{array}{l}(Paymentforrawmaterials+Paymentfordirectlabor+ Paymentsforvariableoverhead+Salescommission\\ +Salessalaries+Generalandadministrativesalaries+Incometaxes+Loaninterest+Longtermnoteinterest)\end{array}\hfill \\ TotalcashdisbursementsforJuly=\hfill \\ \$51,400+\$140,000+\$23,625+\$35,700+\$3,500+\$9,000+\$10,000+\$240+\$2,700\hfill \end{array}\\ TotalcashdisbursementsforJuly=\$276,165\end{array}$

  $\begin{array}{l}\begin{array}{l}TotalcashdisbursementsforAugust=\hfill \\ \left(\begin{array}{l}Paymentforrawmaterials+Paymentfordirectlabor+ Paymentsforvariableoverhead+Salescommission\\ +Salessalaries+Generalandadministrativesalaries+Dividends+Longtermnoteinterest\end{array}\right)\hfill \\ TotalcashdisbursementsforAugust=\hfill \\ \$50,760+\$157,600+\$26,595+\$32,300+\$3,500+\$9,000+\$20,000+\$2,700\hfill \end{array}\\ TotalcashdisbursementsforAugust=\$302,455\end{array}$

  $\begin{array}{l}\begin{array}{l}TotalcashdisbursementsforSeptember=\hfill \\ \left(\begin{array}{l}Paymentforrawmaterials+Paymentfordirectlabor+ Paymentsforvariableoverhead+Salescommission\\ +Salessalaries+Generalandadministrativesalaries+Longtermnoteinterest+Purchaseofequipment\end{array}\right)\hfill \\ TotalcashdisbursementsforSeptember=\hfill \\ \$81,280+\$182,400+\$30,780+\$34,000+\$3,500+\$9,000+\$2,700+\$100,000\hfill \end{array}\\ TotalcashdisbursementsforSeptember=\$443,660\end{array}$

Excess of cash receipts over cash disbursements

  $\begin{array}{l}Excessofcashreceiptsovercashdisbursements=Totalcashavailable-Totalcashdisbursements\hfill \\ ExcessofcashreceiptsovercashdisbursementsforJuly=\$397,000-\$276,165\hfill \\ \begin{array}{l}ExcessofcashreceiptsovercashdisbursementsforJuly=\$120,835\\ \end{array}\hfill \\ ExcessofcashreceiptsovercashdisbursementsforAugust=\$443,635-\$302,455\hfill \\ \begin{array}{l}ExcessofcashreceiptsovercashdisbursementsforAugust=\$141,180\\ \end{array}\hfill \\ ExcessofcashreceiptsovercashdisbursementsforSeptember=\$469,280-\$443,660\hfill \\ ExcessofcashreceiptsovercashdisbursementsforSeptember=\$25,620\hfill \end{array}$

- It is given that Company need to maintain minimum cash balance of $40,000. In September month they don't have sufficient cash balance so, need to borrow loan to meet minimum cash balance as $40,000.

Loan amount for June month-

Available cash balance=$25,620

  $\begin{array}{l}Loanamount=\$40,000-\$25,620\hfill \\ Loanamount=\$14,380\hfill \end{array}$

-Loan is repaid in the month of July of $24,000.

Ending cash balance-

  $\begin{array}{l}EndingcashbalanceJuly=\$120,835-\$24,000\hfill \\ EndingcashbalanceJuly=\$96,835\hfill \\ EndingcashbalanceAugust=\$141,180\hfill \\ EndingcashbalanceSeptember=\$25,620+\$14,380\hfill \\ EndingcashbalanceSeptember=\$40,000\hfill \end{array}$

Conclusion:

Thus, cash budget is prepared with ending cash balance in the month of September $40,000.

To determine

Concept Introduction:

Master Budget-

Master budget is a sum of all lower level budgets which are produced at different functional areas of the company. It helps in providing good coordination among all level managers. It also helps the manager in evaluating the actual performance and comparing it with the standards set by them.

Requirement 9-

To prepare:

Budgeted income statement

Answer to Problem 4BPSB

NABAR Manufacturing
Income Statement
Particulars	Amount ($)	Amount ($)
Sales		1,020,000
Cost of merchandise sold		861,000
Gross Profit		159,000
Operating expenses:
Sales Commissions	102,000
Sales Salaries	10,500
Long term note interest	8,100
General and administrative salaries	27,000
Interest expense	240	147,840
Income before tax		11,160
Tax @ 35%		3,906
Net operating income		7,254

Explanation of Solution

Given,

• Sales = $1,020,000 Calculated in Req.1
• Sales commission - $102,000 Calculated in Req. 6
• Sales salaries - $10,500 Calculated in Req. 6
• General and administrative salaries - $27,000 Calculated in Req.7
• Long term note interest - $8,100 Calculated in Req.7
• Interest expense -$240 Calculated in Req.8

Cost of merchandise sold-

  $\begin{array}{l}Costofmerchandisesold=No.ofunits\times Costprice\hfill \\ Costofmerchandisesold=60,000\times \$14.35\hfill \\ Costofmerchandisesold=\$861,000\hfill \end{array}$

Gross profit is calculated as under-

  $\begin{array}{l}Grossprofit=Sales–Costofmerchandisesold\hfill \\ Grossprofit=\$1,020,000-\$861,000\hfill \\ Grossprofit=\$159,000\hfill \end{array}$

Total operating expenses-

  $\begin{array}{l}\begin{array}{l}TotalOperatingexpenses=SalesCommissions+SalesSalaries+Longtermnoteinterest\\ +Generalandadministrativesalaries+Interestexpense\end{array}\hfill \\ TotalOperatingexpenses=\$102,000+\$10,500+\$8,100+\$27,000+\$240\hfill \\ TotalOperatingexpenses=\$147,840\hfill \end{array}$

Income before tax-

  $\begin{array}{l}Incomebeforetax=Grossprofit–Totaloperatingexpenses\hfill \\ Incomebeforetax=\$159,000-\$147,840\hfill \\ Incomebeforetax=\$11,160\hfill \end{array}$

Tax Expense-

  $\begin{array}{l}TaxExpense=Incomebeforetax\times TaxRate\hfill \\ TaxExpense=\$11,600\times 35\%\hfill \\ TaxExpense=\$3,906\hfill \end{array}$

Net Operating income is calculated as under-

  $\begin{array}{l}NetOperatingincome=Incomebeforetax-TaxExpense\hfill \\ NetOperatingincome=\$11,160-\$3,906\hfill \\ NetOperatingincome=\$7,254\hfill \end{array}$

Conclusion:

Thus, Income statement is prepared for the quarter.

To determine

Concept Introduction:

Master Budget-

Master budget is a sum of all lower level budgets which are produced at different functional areas of the company. It helps in providing good coordination among all level managers. It also helps the manager in evaluating the actual performance and comparing it with the standards set by them.

Requirement 10-

To prepare:

Budgeted Balance sheet.

Answer to Problem 4BPSB

NABAR Manufacturing
Balance sheet as of September 30, 2019
	Amount ($)	Amount ($)
Assets
Cash	40,000
Accounts receivable	238,000
Raw materials Inventory	15,840
Finished goods inventory	241,080
Total current assets		534,920
Equipment	820,000
Less: Accumulated depreciation	(300,000)
Equipment net		520,000
Total assets		1,054,920
Stockholder's Equity and Liabilities
Accounts payable	88,800
Bank loan payable	14,380
Tax payable	3,906
Current liabilities		107,086
Long term note payable		300,000
Common stock	600,000
Retained earnings	47,834
Total Stockholder's Equity		647,834
Total Stockholder's Equity and Liabilities		1,054,920

Explanation of Solution

Assets

Given,

• Cash = $40,000 (Req.8)

Calculation of other current assets-

Particulars	Amount ($)
Accounts Receivables
Beginning receivables	249,900
Credit sales	714,000
Less: Collections	(725,900)
Ending Receivables	238,000
Raw material inventory
Beginning raw materials	35,000
Purchases of raw materials	220,840
Less: Materials used in production	(240,000)
Ending raw materials inventory	15,840
Finished goods inventory
Beginning Finished goods inventory	241,080
Cost of goods completed during the period	861,000
Less: Cost of goods sold during the period	(861,000)
Ending Finished goods inventory	241,080

Total current assets-

  $\begin{array}{l}\begin{array}{l}Totalcurrentassets=Cash+Accountsreceivables+Rawmaterialinventory+Finishedgoodsinventory\hfill \\ Totalcurrentassets=\$40,000+\$238,000+\$15,840+\$241,080\hfill \end{array}\\ Totalcurrentassets=\$534,920\end{array}$

Calculation of Equipment-

Particulars	Amount ($)
Equipment Gross
Beginning Equipment	720,000
Purchased in June	100,000
Total (A)	820,000
Accumulated Depreciation
Beginning Accumulated Depreciation	240,000
Depreciation expense	60,000
Total (B)	300,000
Equipment (A-B)	520,000

Total Assets-

  $\begin{array}{l}Totalassets=Totalcurrentassets+Equipment\hfill \\ Totalassets=\$534,920+\$520,000\hfill \\ Totalassets=\$1,054,920\hfill \end{array}$

Stockholder's Equity and Liabilities

Given,

• Bank loan payable = $14,380 (Req.8)
• Taxes payable = $3,906 (Req.9)
• Long −term note payable = $300,000
• Common stock = $600,000

Accounts payable-

Particulars	Amount ($)
Accounts Payables
Beginning accounts payable	51,400
Purchase of raw materials	220,840
Payments of raw materials	(183,440)
Ending accounts payable	88,800

Total current liabilities-

  $\begin{array}{l}Totalcurrentliabilities=Accountspayable+Bankloanpayable+Taxespayable\hfill \\ Totalcurrentliabilities=\$88,800+\$14,380+\$3,906\hfill \\ Totalcurrentliabilities=\$107,086\hfill \end{array}$

Retained Earnings-

Particulars	Amount ($)
Retained Earnings
Retained Earnings, Beginning	60,580
Add: Net Income	7,254
	67,834
Less: Dividends	(20,000)
Retained Earnings, Ending	47,834

Total stockholder's equity-

  $\begin{array}{l}Totalstockholder’sequity=Commonstock+RetainedEarnings\hfill \\ Totalstockholder’sequity=\$600,000+\$47,834\hfill \\ Totalstockholder’sequity=\$647,834\hfill \end{array}$

Total Stockholder's Equity and Liabilities-

  $\begin{array}{l}TotalStockholder\text{'}sEquityandLiabilities=Currentliabilities+Longtermnotepayable+Totalstockholder’sequity\hfill \\ TotalStockholder\text{'}sEquityandLiabilities=\$107,086+\$300,000+\$647,834\hfill \\ TotalStockholder\text{'}sEquityandLiabilities=\$1,054,920\hfill \end{array}$

Conclusion:

Thus, Budgeted balance sheet is prepared with total of $1,054,920.