Chapter 22, Problem 8APSA

To determine

22-8A Part 1

Note: All the parts of the question are related with each other. Solution of one part is used as a base for solving / analyzing other Parts of the question.

Introduction:

Sales budget represent the quantities which will be sold in the specified period along with amount recovered from sales.

To Determine:

Monthly sales budget of First three month of 2018

Answer to Problem 8APSA

Solution:

Dimsdale Sports Company

Sales budget for the month ended

	January 18'	February 18'	March 18'
Sales (Units)	7000	9000	11000
Sales amount per unit ($)	55	55	55
Sales in amounts ($) [Units* amount per unit]	385000	495000	605000

Explanation of Solution

As per terms mentioned in question:

Expected sales for above mentioned three months mention in question which is sold at the rate of $ 55 per unit. Further, sales amounts computed by multiplying sales units with amount per unit.

Conclusion

Budgeted sales quantity for the month ended January, February and March 18 will be 7000, 9000 and 11000 units amounting $ 385,000, $ 495,000 and $ 605,000.

To determine

22-8A Part 2

Introduction:

Purchase budget is a format used for computing how much quantities need to be purchase for meeting our sales target along with cost of purchasing such units. It can be purchase of finished product as well as raw material.

To Determine:

Product quantities to be purchased in First three month of 2018

Answer to Problem 8APSA

Solution:

Dimsdale Sports Company

Merchandise Purchase Budget for the month ended

	January 18'	February 18'	March 18'
Opening Stock	5000	1800	2200
Add: Purchase	3800	9400	10800
Less: Closing stock	-1800	-2200	-2000
Sales	7000	9000	11000
Amounts
Purchase per unit ($)	30	30	30
Purchase (IN $)	114000	282000	324000

Explanation of Solution

As per terms mentioned in question:

Formula: Product units to be purchase

Units to be sold	XX
Add: Closing stock of Product	XX
Less: Opening stock of Product	XX
	XX

It can be interpreted as:

We can say that product units to be purchase is the sum total of product that need to be sold and closing stock of Product. Out of which, Product quantities already in our stock, which have already purchased say Opening stock will be reduced to arrive net quantity which will be purchase.

In the question as all the figures are already mentioned. So with the help of formula as shown above and also in the part “solution” with “quantities”

Further, Total cost of purchase of Product is computed by:

Cost of one quantity of product multiplied by quantity of product purchased. Say in month January

$30 multiplied by 3800

= $ 114,000/-

Conclusion

Budgeted merchandise purchase quantities will be 3800, 9400 and 10800 units in the month January, February and March respectively.

To determine

22-8A Part 3

Introduction:

Selling expenses budget represent the amount that how much amount spent on selling or product.

To Determine:

Budgeted selling expenses in First three month of 2018

Answer to Problem 8APSA

Solution:

Dimsdale Sports Company

Selling expense Budget for the month ended

	January 18'	February 18'	March 18'
Sales (In $)	385000'	495000	605000
Sales commission	77000	99000	121000
(20% of sales)
Salaries	5000	5000	5000
($ 60000 per year)
	82000	104000	126000

Explanation of Solution

As per terms mentioned in question:

Sales commission is 20% of sales in respective month computed by multiplying % of commission with sales. Further, Salaries per year divided in months by dividing 12.

Conclusion

Budgeted Selling expenses will be $ 82,000, $ 104,000 and $ 126,000 in the month January, February and March respectively.

To determine

22-8A Part 4

Introduction:

General and administrative expenses budget represent the amount that to be incurred for administrative purpose.

To Determine:

Budgeted general and administrative expenses in First three month of 2018

Answer to Problem 8APSA

Solution:

Dimsdale Sports Company

General and Administrative expense Budget for the month ended

	January 18'	February 18'	March 18'
General and Administrative salaries	12000	12000	12000
Maintenance expenses	2000	2000	2000
	14000	14000	14000

Explanation of Solution

As per terms mentioned in question:

General and administrative expenses is sum total of Administrative salaries and maintenance expenses as mentioned in question.

Conclusion

General and administrative expenses will be $ 14,000 in the month January, February and March each respectively.

To determine

22-8A Part 5

Introduction:

Capital expenditure budget represent the amount that to be incurred for Capital purpose. That is budgeted amount to be spent on Machineries etc.

To Determine:

Budgeted capital expenses in First three month of 2018

Answer to Problem 8APSA

Solution:

Dimsdale Sports Company

Capital expenditure Budget for the month ended

	January 18'	February 18'	March 18'
Equipment purchase	36000	96000	28800
Land			150000
	36000	96000	178800

Explanation of Solution

As per terms mentioned in question:

Capital expenses are sum total of Asset purchased as mentioned in question, which include Equipment and Land.

Conclusion

Capital expenditure will be $ 36,000, $ 96,000 and $ 178,800 in the month January, February and March 2018 respectively.

To determine

22-7A Part 6

Introduction:

Cash budget represents the budgeted cash inflow as well as outflow from whatever source i.e. whether it’s operational or non- operational. Inflow can be from sales or other receipts. Outflow can be in the form of purchase cost or other cost. It is different from cash receipts budget in the form that earlier one contains only receipt. On the other hand, later one contains inflow as well as outflow. It represents the net of inflow and outflow of cash.

To Determine:

Preparation of cash budget for January, February and March 2018

Answer to Problem 8APSA

Solution:

Dimsdale Sports Company

Cash Budget for the month ended

	January 18'	February 18'	March 18'
Opening cash balance	36000	30100	210300
Receipts:
Cash Sales	96250	123750	151250
Recovery of credit sales	125000	400000	115500
		173250
February sale (371250*60%)			222750
Expenditure:
Purchase payment Mention in question	-80000	-280000
January 2018 payment		-22800	-91200
February 2018 payment at the rate of 20%			-56400
Interest on loan	-150
general and administrative expenses	-14000	-14000	-14000
Selling expenses	-82000	-104000	-126000
Purchase of land	-36000	-96000	-178800
Tax payable			-90000
Loan payable	-15000
Closing Cash balance	30100	210300	143400

Explanation of Solution

As said earlier it represent the net of cash inflow and outflow or say how much cash remained in our hands at the end of specified period. It can be computed by using formula:

Opening cash balance at the beginning of period:	XXX
Add: receipts during that period	XXX
Less: Expensed during that period	XXX
Closing balance at the end of period	XXX

All receipts and payment are computed as per terms mentioned in question. As question suggest loan can be taken at the end of any month to maintain a minimum balance of $ 25,000. No need is arisen in respect of loan as sufficient cash was available.

As question contains $ 15000 balance as loan payable in December end will be treated opening balance of loan in January month on which at the rate of 1% per month applied as interest computed by multiplying loan figure with interest rate as follows:

$ 15000 multiplied by 1%

= $ 150

Further such loan is returned in January, no more interest charged.

Conclusion

Budgeted cash remains at the end of January, February and March will be $ 30,100 and $ 210,300 and $ 143,400 respectively.

To determine

22-8A Part 7

Introduction:

A budgeted income statement represents the budgeted income as well as budgeted expenses occurred during the year. The net result is represented by either income or loss. Result can be interpreted by how much income or loss earned in specified period say month, quarter or year.

To Determine:

Budgeted Income statement of First three month of 2018

Answer to Problem 8APSA

Solution:

Dimsdale Sports Company

Budgeted income statement for the month ended March 2018

Expenses	$	Income		$
Opening stock	150000	Sales		1485000
purchase	720000	Closing stock		60000
Selling expenses	312000
General and administrative expenses	42000
Interest on loan	150
Depreciation	20300
Profit before tax	300550
Tax payable at the rate 35%	120220
Profit after tax	180330
	1545000			1545000

Explanation of Solution

Income statement drafted as per terms mentioned in question. However income statement is also self -explainable as all figure put in income statement put from question or other parts of solution.

Conclusion

Budgeted income for the month ended March 2018 will be $ 180,330 after applying tax rate at the rate of 35%.

To determine

22-8A Part 8

Introduction:

A budgeted Balance sheet represents the statement of affairs of the company at the end of specified period represented by two sides named Asset and Liabilities. On the one hand, where income statement are prepared for the period, the said statement made at the end of that period as mentioned “ as at Period” on the head of balance sheet.

To Determine:

Budgeted Balance sheet as of march 2018

Answer to Problem 8APSA

Solution:

Dimsdale Sports Company

Budgeted Balance sheet as of 31^st March 2018

Assets	$	Liability		$
cash	143400	Account payable		549600
Account Receivable	602250	Tax Payable		120220
closing stock	60000
Equipment	613000	shareholder's equity	718500
land	150000	Add: Current profit	180330	898830
	1568650			1568650

Explanation of Solution

Balance sheet drafted as per terms mentioned in question. All figure put in Balance sheet taken from question or other parts of solution. As asset side represent what we have and Liability side represent what we have to pay.

As tax paid in April, so the said amount shown in our liability in March end.

As usual, our account receivable and account payable stands in respective side. One addition in asset side in the form of land purchased in January to March period computed as below:

Opening balance of equipment:	472500
Add: Purchase	160800
Less: Depreciation	20300
Closing balance	613000

Depreciation is sum total of 16875+1125+2000+300 as depreciation on opening as well as three newly purchased equipment on timely basis at the rate mentioned in question.

Conclusion

Our Assets and Liability side represent $ 15,68,650.