Chapter 8, Problem 18E

To determine

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 Accounts receivable of June 30	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:

To determine

Budgeted Purchase for the month of July shall be determined.

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:

To determine

The Budgeted Cost of goods sold for the month of July shall be determined.

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:

To determine

The Budgeted Net operating income for the month of July shall be determined.

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
Depreciation 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 Retained earnings. Therefore, the ending balance of Retained earnings will be $287,700.

Explanation of Solution

The Budgeted Net operating income statement is computed by deducting the cost of goods sold from the sales revenue to come to Gross margin. The depreciation and other selling and administrative expense shall be deducted from the gross margin to arrive at the net operating income of the company.

Requirement2:

To determine

The budgeted balance sheet as on July 31 shall be prepared.

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 Stockholder’s equity:	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

Conclusion

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.