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# Introduction to Management Accounting Solutions Manual

Problems: Set A

## P9-59A Comprehensive budgeting problem (Learning Objectives 2 & 3)

Requirements
1. Prepare a schedule of cash collections for January, February, and March, and for the quarter
in total.
2. Prepare a production budget.
3. Prepare a direct materials budget.
4. Prepare a cash payments budget for the direct material purchases from Requirement 3.
5. Prepare a cash payments budget for conversion costs.
6. Prepare a cash payments budget for operating expenses.
7. Prepare a combined cash budget.
8. Calculate the budgeted manufacturing cost per unit.
9. Prepare a budgeted income statement for the quarter ending March 31.
Solution:
Given

Sales Budget
December January February March
Unit sales \$ 7,000 \$ 8,000 \$ 9,200 \$ 9,900
Unit selling price \$ 10 \$ 10 \$ 10 \$ 10
Total sales Revenue \$ 70,000 \$ 80,000 \$ 92,000 \$ 99,000

Req. 1

Cash Collections
January February March Quarter
Cash Sales in Current Month at 30% \$ 24,000 \$ 27,600 \$ 29,700 \$ 81,300
Collection On Credit Sales - Previos Monh at
70% \$ 49,000 \$ 56,000 \$ 64,400 \$ 169,400
Total Cash Collections \$ 73,000 \$ 83,600 \$ 94,100 \$ 250,700

Req. 2

Production Budget
January February March Quarter
Unit Sales 8,000 9,200 9,900 27,100

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Introduction to Management Accounting Solutions Manual

## Plus: Desired Ending Inventory 2,300 2,475 2,425 2,425

Total Needed 10,300 11,675 12,325 29,525
Less: Beginning Inventory 2,000 2,300 2,475 2,000
Number of Units to Produce 8,300 9,375 9,850 27,525

Req. 3

## Direct Materials Budget

January February March Quarter
Units to be Produced 8,300 9,375 9,850 27,525
x Pounds of DM Needed Per Unit 2 2 2 2
Quantity (pounds) Needed For Productio 16,600 18,750 19,700 55,050
Plus: Desired Ending Inventory of DM 1,875 1,970 1,880 1,880
Total Quantity (pounds) Needed 18,475 20,720 21,580 56,930
Less: Beginning Inventory of DM 1,660 1,875 1,970 1,660
Quantity (pounds) to Purchase 16,815 18,845 19,610 55,270
x Cost Per Pound \$ 2 \$ 2 \$ 2 \$ 2
Total Cost of DM Purchases 33,630 37,690 39,220 110,540

April May
Unit Sales 9,700
Plus: Desired Ending Inventory 2,125
Total Needed 11,825
Less: Beginning Inventory 2,425
Number of Units to Produce 9,400
Unit to be Produced 9,400
X Pounds of DM Needed Per Unit 2

Req. 4

## Schedule of Expected Cash Disbursements—Material Purchases

January February March Quarter
December Purchases (from Accounts
Payable) \$ 42,400 \$ - \$ - \$ 42,400
January Purchases \$ 6,726 \$ 26,904 \$ - \$ 33,630
February Purchases \$ - \$ 7,538 \$ 30,152 \$ 37,690
March Purchases \$ - \$ - \$ 7,844 \$ 7,844
Total Cash Payments for DM Purchases \$ 49,126 \$ 34,442 \$ 37,996 \$ 121,564

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Introduction to Management Accounting Solutions Manual

Req. 5

## Schedule of Expected Cash Disbursements—Conversion Costs

January February March Quarter
Variable Conversion Costs \$ 9,960 \$ 11,250 \$ 11,820 \$ 33,030
Rent (Fixed) \$ 5,000 \$ 5,000 \$ 5,000 \$ 15,000
Other Fixed MOH \$ 3,000 \$ 3,000 \$ 3,000 \$ 9,000
Total Payments for Conversion Costs \$ 17,960 \$ 19,250 \$ 19,820 \$ 57,030

Req. 6

## Schedule of Expected Cash Disbursements -- Operating Expenses

January February March Quarter
Variable Operating Expenses \$ 8,000 \$ 9,200 \$ 9,900 \$ 27,100
Fixed Operating Expenses \$ 1,000 \$ 1,000 \$ 1,000 \$ 3,000
Total Payments for Operating Expenses \$ 9,000 \$ 10,200 \$ 10,900 \$ 30,100

Req. 7
Combined Cash Budget
January February March Quarter
Beginning Cash Balance \$ 4,500 \$ 4,414 \$ 4,122 \$ 4,500
Plus: Cash Collections \$ 73,000 \$ 83,600 \$ 94,100 \$ 250,700
Total Cash Available \$ 77,500 \$ 88,014 \$ 98,222 \$ 255,200
Less: Cash Payments
DM Purchases \$ 49,126 \$ 34,442 \$ 37,996 \$ 121,564
Conversion Costs \$ 17,960 \$ 19,250 \$ 19,820 \$ 57,030
Operating Expenses \$ 9,000 \$ 10,200 \$ 10,900 \$ 30,100
Equipment Purchases \$ 5,000 \$ 12,000 \$ 16,000 \$ 33,000
Tax Payment \$ - \$ 10,000 \$ - \$ 10,000
Total Cash Payments \$ 81,086 \$ 85,892 \$ 84,716 \$ 251,694
Ending Cash Balance Before Financing \$ (3,586) \$ 2,122 \$ 13,506 \$ 3,506
Financing: \$ -
Borrowings \$ 8,000 \$ 2,000 \$ - \$ 10,000
Repayments \$ - \$ - \$ 9,000 \$ 9,000
Interest Payments \$ - \$ - \$ 280 \$ 280
Ending Cash Balance \$ 4,414 \$ 4,122 \$ 4,226 \$ 4,226

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Introduction to Management Accounting Solutions Manual

Req. 8

## Budgeted Manufacturing Cost per Unit

DM Cost Per Unit \$ 4.00
Conversion Cost Per Unit \$ 1.20
Fixed MOH Per Unit \$ 0.80
Budgeted Cost of Manufacturing Each Unit \$ 6.00

Req. 9

Silverman Manufacturing
Budgeted Income Statement
For the Quarter Ended March 31
Sales \$ 271,000
Cost of Goods Sold \$ 162,600
Gross Profit \$ 108,400
Operating Expenses \$ 30,100
Depreciation \$ 4,800
Operating Income \$ 73,500
Less: Interest Expense \$ 280
Less: Provision for Income Taxes \$ 21,966
Net Income \$ 51,254

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Introduction to Management Accounting Solutions Manual

April May
\$ 9,700 \$ 8,500
\$ 10 \$ 10
\$ 97,000 \$ 85,000

April May
9,700 8,500

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Introduction to Management Accounting Solutions Manual

2,125
11,825
2,425
9,400

April
9,400
2
18,800