Chapter 7, Problem 4PSB

To determine

(1)

Concept introduction:

Master forecast

Master budget is a detailed plan for upcoming, it start with sales forecast and ends with money (cash) forecast and with statement of finance. It is also known as combined forecast produced by the company at a very small level. It also include budget for money (cash), budgeted statement of finance and financial plan.

Sales forecast:

It relates to the monetary plan that shows the manner in which capital can be assigned in best way for achieving target for sales. The aim of this budget is to curb and plan for the expenditure incurred for objective achievement.

Sales forecast for the third quarter of the calendar.

Answer to Problem 4PSB

Therefore, it is determined that sales forecast for quarter first is $1020000.

Explanation of Solution

Sales forecast:

It relates to the monetary plan that shows the manner in which capital can be assigned in best way for achieving target for sales. The aim of this budget is to curb and plan for the expenditure incurred for objective achievement with respect to sales.

So, computation of sales forecast is given below.

N manufacturing forecast for sales
Particulars	Forecasted units	Unit value	Dollar (total)
July	21000	17	357000
August	19000	17	323000
September	20000	17	340000
third quarter total	60000		1020000

To determine

(2)

Concept introduction:

It depicts the units required to be produced. It is determined by a assembly of scheduled amount relating to stock of completed units and sales budget.

To explain:

Commodity production forecast (budget ) for the third quarter of the calendar.

Answer to Problem 4PSB

Therefore, it is determined that the production forecast (budget) for July, August and September is $17500, 19700 and $ 22800, respectively.

Explanation of Solution

It depicts the units required to be produced. It is determined by a assembly of scheduled amount relating to stock of completed units and sales budget.

Hence, computation of production budget as below,

N manufacturing production forecast (budget)
Particulars	July	August	September
Forecast sales for succeeding month	19000	20000	24000
Ratio of stock to upcoming sales	0.70	0.70	0.70
Forecasted closing stock	13300	14000	16800
Add- forecasted sales	19000	20000	24000
Units required to be manufactured	34300	33000	36800
Less-opening stock	(16800)	(13300)	(14000)
Units to be produced	17500	19700	22800

To determine

(3)

Concept introduction:

Raw material forecast point out the forecast for the material that is required for producing of the units and services.

Raw material forecast for the third quarter of the calendar.

Answer to Problem 4PSB

Therefore, it is determined that the raw material forecast for the month of July, August and September is $50760, $81280 and $88800, respectively

Explanation of Solution

N manufacturing raw material forecast
Particulars	July	August	September
Manufactured forecasted units	17500	19700	22800
Per unit material required	0.50	0.50	0.50
Material required for manufacturing	8750	9850	11400
Add-forecasted closing stock	1970	2280	1980
Total material required	10720	12130	13380
Less-opening stock	(4375)	(1970)	(2280)
Material required to be purchased	6345	10160	11100
Price per unit of material	$8	$8	$8
Cost in total of direct material (DM) purchase	50760	81280	88800

To determine

(4)

Concept introduction:

Direct labour forecast usually determine the number hours required for producing units specified underlying the production forecast.

Direct labour forecast for the third quarter of the calendar.

Answer to Problem 4PSB

Therefore, it is determined that direct labour forecast for July, August and September is $140000, $157600 and $182400, respectively.

Explanation of Solution

Direct labour forecast usually determine the number hours required for producing units specified underlying the production forecast.

So, computation of direct labour forecast is given below.

N manufacturing labour(direct) forecast
Particulars	July	August	September
Forecasted manufacturing units	17500	19700	22800
Requirement of labour unit per hours	0.50	0.50	0.50
Total hours needed	8750	9850	11400
Labour rate	16	16	16
Labour $	140000	157600	182400

To determine

(5)

Concept introduction:

Factory overhead forecast is that forecast which consists of cost of production apart from cost relating to direct material (DM) and direct labour.

Factory overhead forecast for the third quarter of the calendar.

Answer to Problem 4PSB

Hence, it is determined that factory overhead forecast for July, August and September is $43625, $46595 and $50780, respectively.

Explanation of Solution

Factory overhead forecast is that forecast which consists of cost of production apart from cost relating to direct material (DM) and direct labour.

So, computation of factory overhead forecast is given below.

N manufacturing factory overhead forecast
Particulars	July	August	September
Hours of labour needed	17500	19700	22800
Factory overhead (variable) rate	1.35	1.35	1.35
Forecasted overhead(variable)	23625	26595	30780
Overhead(fixed)	20000	20000	20000
Total overhead forecasted	$43625	$46595	$50780

To determine

(6)

Concept introduction:

Forecast for selling expenses is that forecast which involves forecast relating to non producing department i.e. sales, marketing, engineering and accounting.

Selling expenses forecast for the third quarter of the calendar.

Answer to Problem 4PSB

Hence, it is determined that selling expenses forecast for July, August and September is $39200, $35800 and $37500, respectively.

Explanation of Solution

Forecast for selling expenses is that forecast that involves forecast relating to non producing department i.e. sales, marketing, engineering as well as accounting.

So computation of selling expenses forecast is given below.

N manufacturing selling expenses forecast
Particulars	July	August	September
Forecasted sales	357000	323000	340000
Commission percentage sales	10%	10%	10%
Expenses related to sales commission	35700	32300	34000
Salaries of sales	3500	3500	3500
Selling expenses in total	$39200	$35800	$37500

To determine

(7)

Concept introduction:

Administrative and general expenditure forecast relates to those expenditure that are made for running of the company i.e. rent, utilities and insurance. It does not include expenditure that are in relation to manufacturing of the commodity and services.

Administrative and general expenses forecast for the third quarter of the calendar.

Answer to Problem 4PSB

Hence, it is determined that administrative and general expenses forecast for July, August and September is $11700, $11700 and $11700, respectively.

Explanation of Solution

Administrative and general expenditure forecast relates to those expenditure that are made for running of the company i.e. rent, utilities and insurance. It does not include expenditure that are in relation to manufacturing of the commodity and services.

So, computation of Administrative and general expenditure forecast is given below.

N manufacturing administrative and general expenses forecast
Particulars	July	August	September
Salaries	9000	9000	9000
Long term interest $\left(300000\times 0.9\%\right)$	2700	2700	2700
Expenses total	$11700	$11700	$11700

To determine

(8)

Concept introduction:

Cash received forecast shows the outflow and inflow of money(cash) on forecasted period to assess the money(cash) balance to meet the obligation of cash in forecasted period.

Cash forecast for the third quarter of the calendar.

Answer to Problem 4PSB

Therefore, the closing balance for July, August and September is $96835, $$141180 and $40000, respectively.

Explanation of Solution

Cash received forecast shows the outflow and inflow of money(cash) on forecasted period to assess the money(cash) balance to meet the obligation of cash in forecasted period.

So computation of cash received forecast is given below.

N manufacturing cash received forecast
Particulars	July	August	September
Total sales	357000	323000	340000
Cash sales (30%)	107100	96900	102000
Amount due from last month(70% of credit sales)	249900	249900	226100
Total cash received	$357000	$346800	$328100

N manufacturing cash forecast
Particulars	July	August	September
Opening balance	40000	96835	141180
Cash received	357000	346800	328100
Total available cash	397000	443635	469280
Cash disposal
Payment for material	51400	50760	81280
Payment for direct labour	140000	157600	182400
Payment for overhead(variable)	23625	26595	30780
Sales commission	35700	32300	34000
Salaries	3500	3500	3500
Administrative & general	9000	9000	9000
Income tax	10000
Dividends	20000
Loan interest	240
Interest long term	2700	2700	2700
Purchase of equipment	100000
Total cash disposal	276165	302455	443660
Preliminary balance money(cash)	120835	141180	25620
Additional loan	14380
Payment of loan	(24000)
Closing cash balance	$96835	$141180	$40000
Loan balance			$14380

To determine

(9)

Concept introduction:

Forecasted statement of income assess the financial standing of the company. It depicts the income, expenses, net income of a firm over a period.

Forecasted income statement for the entire third quarter.

Answer to Problem 4PSB

Hence it is determined that net revenue for third quarter is $7254.

Explanation of Solution

Forecasted statement of income assess the financial standing of the company. It depicts the income, expenses, net income of a firm over a period.

So, computation of income statement forecast is given below.

N manufacturing forecasted income statement
sales		$1020000
Cost of goods sold(COGS) $(60000\times \$14.35)$		861000
Gross profit		159000
Running expenses
Commission on sales	102000
Salaries	10500
Administrative & general salaries	27000
Long term interest	8100
Expenses on interest	240	147840
Before tax income		11160
Tax $(11160\times 35\%)$		3906
Net revenue		$7254

Hence it is determined that net revenue for third quarter is $7254.

To determine

(10)

Concept introduction:

Financial statement also known as balance sheet that help in summarizing asset, liabilities and equity of the company held by shareholders at point of time.

Financial statement for the entire third quarter.

Answer to Problem 4PSB

Hence financial statement total for third quarter is $1054920.

Explanation of Solution

Financial statement also known as balance sheet that help in summarizing asset, liabilities and equity of the company held by shareholders at point of time.

So computation of financial statement forecast is given below.

N manufacturing forecasted income statement
Asset
Cash		40000
Amount due		238000
Raw material stock		15840
Finished goods stock		241080
Total current asset		534920
Equipment	820000
Less-depreciation	300000	520000
Total of asset		$1054920
Liabilities and equities
Account to be paid		88800
Bank loan		14380
Taxes		3906
Total of current liabilities		107086
Long term loan		300000
Common inventory	600000
Retained income	47834
Total equity shareholder		647834
Total equity and liabilities		$1054920

Hence it is determined that total asset and liabilities is $1054920.