Concept explainers
Budgets are prepared for maintaining the budgetary control over various department. The standard budgeted figures are given to each department for comparison with their actual figures. The budget preparation is started from preparation of sales budget and other budgets to be followed.
Requirement1a:
Budgeted sales for the month of July shall be determined.
Answer to Problem 18E
Solution: The Budgeted Sales for the month of July shall be prepared as under:
| STATEMENT SHOWING BUDGETED SALES FOR THE MONTH OF JULY | |
| AMOUNT $ | |
| Total cash collections for the month | 77,000 |
| Less: Collections of | 50,000 |
| Collections of Current month sales | 27,000 |
| (which is 30% of Monthly total sales) | |
| Monthly Total sales of July (27,000/30%) | 90,000 |
Note: The Accounts receivable at the end of July will be $63,000 ($90,000-$27,000)
Explanation of Solution
The Budgeted sales shall be computed in this case by way of reverse calculations. The collections from previous Accounts receivable shall be deducted from total collections to compute the collections of current month sales. Then, the trend of collections shall be taken to compute the total sales of the month, which will be the budgeted sales of the month.
Requirement1b:
Budgeted Purchase for the month of July shall be determined.
Requirement1b:
Answer to Problem 18E
Solution: The budgeted Purchases for the month of July shall be prepared as follows:
| STATEMENT SHOWING BUDGETED MERCHANDISE PURCHASE FOR JULY | |
| AMOUNT $ | |
| Total cash disbursement | 44,500 |
| Less: Disbursement of Accounts Payable of June 30 | 35,300 |
| Disbursement for current month purchases | 9,200 |
| (which is 20% of total purchases) | |
| Monthly Total purchases of July (9,200/20%) | 46000 |
Note: Accounts payable balance at the end of July will be $36,800 ($46,000 - $9,200)
Explanation of Solution
The Budgeted Purchases shall be computed in this case by way of reverse calculations. The Disbursals to previous Accounts payable shall be deducted from total disbursals to compute the disbursals of the current month purchases. Then, the trend of disbursals shall be taken to compute the total Purchases of the month, which will be the budgeted Purchases of the month.
Requirement1c:
The Budgeted Cost of goods sold for the month of July shall be determined.
Requirement1c:
Answer to Problem 18E
Solution: The Budgeted cost of goods sold shall be prepared as under:
| STATEMENT SHOWING BUDGETED COST OF GOODS SOLD FOR JULY | |
| AMOUNT $ | |
| Beginning Inventory | 30,000 |
| Add: July month Purchases | 46,000 |
| Less: Ending Inventory on July 31 | 22,000 |
| Budgeted Cost of Goods sold | 54,000 |
Explanation of Solution
The budgeted cost of goods sold shall be prepared based on the adjustment being made for the beginning and ending inventory in hand in the total purchases of the month.
Requirement1d:
The Budgeted Net operating income for the month of July shall be determined.
Requirement1d:
Answer to Problem 18E
Solution: The Budgeted net operating income for the month of July shall be computed as under:
| STATEMENT SHOWING BUDGETED NET OPERATING INCOME FOR JULY | |
| AMOUNT $ | |
| Budgeted Sales for the month | 90,000 |
| Less: Budgeted Cost of goods sold | 54,000 |
| Gross Margin | 36,000 |
| Less: Expense | |
| 3,000 | |
| Selling and administrative expense | 15,000 |
| Net Operating Income | 18,000 |
Note: The net Operating income of the month is added in the balance of
Explanation of Solution
The
Requirement2:
The budgeted
Requirement2:
Answer to Problem 18E
Solution: The Budgeted Balance Sheet shall be made as under:
| WOLFPACK COMPANY BALANCE SHEET AS ON JULY 31 | |
| AMOUNT $ | |
| Assets: | |
| Cash | 92,500 |
| Accounts receivable | 63,000 |
| Inventory | 22,000 |
| Building and equipment, net of depreciation | 147,000 |
| Total Assets | 324,500 |
| Liabilities: | |
| Accounts Payable | 36800 |
| Retained earnings | 287700 |
| Total Liabilities and Stockholder’s Equity | 324,500 |
Explanation of Solution
The Budgeted balance Sheet shall be prepared on the basis of total assets and liabilities of the company. The ending cash balance of company as on July 31 shall be computed as under:
| STATEMENT SHOWING CASH BALANCE AT THE END OF JULY | |
| AMOUNT $ | |
| Beginning Balance of cash | 75,000 |
| Add: Cash collections | 77,000 |
| Less: Cash disbursals for purchases | 44,500 |
| Less: Cash payment for selling and Administrative expense | 15,000 |
| Ending Balance of cash | 92,500 |
To conclude, it can be said that after computing the various budgeted amounts, the Budgeted Balance Sheet shall be prepared on the basis of these amount.
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Chapter 8 Solutions
MANAGERIAL ACCOUNTING
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