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Solution to Chapter 9 

9‐21,22,24,25 (1) (2) E29 (1) P9‐35 
 
EXERCISE 9-21 (20 MINUTES)

1. The total required production is 131,144 units, computed as follows:

Budgeted Sales Planned Ending Inventory


(in units) (in units)
June 32,000 (40,000 × 80%)
July 40,000 (given)
August 42,000 (40,000 × 1.05)
September 44,100 (42,000 × 1.05) 37,044 (46,305 × 80%)
October 46,305 (44,100 × 1.05)

Sales in units:

July ................................................................................................................ 40,000


August ........................................................................................................... 42,000
September..................................................................................................... 44,100
Total for third quarter................................................................................... 126,100
Add: Desired ending inventory, September 30 ......................................... 37,044
Subtotal ......................................................................................................... 163,144
Deduct: Desired ending inventory, June 30 .............................................. 32,000
Total required production............................................................................ 131,144

2. Assumed production during third quarter (in units)................................. 120,000


Raw-material requirements per unit of product (in pounds).................... × 4
Raw material required for production in third quarter (in pounds) ......... 480,000
Add: Desired ending raw-material inventory, September 30
(480,000 × 25%).................................................................................... 120,000
Subtotal ......................................................................................................... 600,000
Deduct: Ending raw-material inventory, June 30 ...................................... 140,000
Raw material to be purchased during third quarter (in pounds) ............. 460,000
Cost per pound of raw material .................................................................. × $1.40
Total raw-material purchases during third quarter ................................... $ 644,000
EXERCISE 9-22 (25 MINUTES)

1. Cash collections in October:

Month of Sale Amount Collected in October


July............................................................... $150,000 × 4% $ 6,000
August ......................................................... 175,000 × 10% 17,500
September ................................................... 200,000 × 15% 30,000
October ........................................................ 225,000 × 70% 157,500
Total ............................................................. $211,000

Notice that the amount of sales on account in June, $122,500 was not needed to
solve the exercise.

2. Cash collections in fourth quarter from credit sales in fourth quarter.

Amount Collected
Credit
Month of Sale Sales October November December
October ............................................ $225,000 $157,500 $ 33,750 $ 22,500
November ........................................ 250,000 – 175,000 37,500
December ........................................ 212,500 – – 148,750
Total ................................................. $157,500 208,750 $208,750
Total collections in fourth quarter
from credit sales in fourth
quarter ......................................... $575,000

3. In the electronic version of the solutions manual, press the CTRL key and
click on the following link: BUILD A SPREADSHEET

EXERCISE 9-24 (15 MINUTES)

1. Production (in units) required for the year:

Sales for the year ........................................................................................... 3,360,000


Add: Desired ending finished-goods inventory on December 31.............. 350,000
Deduct: Beginning finished-goods inventory on January 1 ...................... 560,000
Required production during the year ........................................................... 3,150,000

2. Purchases of raw material (in units), assuming production of 3,500,000 finished units:

Raw material required for production (3,500,000 × 2) ................................ 7,000,000


Add: Desired ending inventory on December 31 ........................................ 315,000
Deduct: Beginning inventory on January 1 ................................................. 245,000
Required raw-material purchases during the year...................................... 7,070,000

EXERCISE 9-25 (20 MINUTES)

1. WHITE MOUNTAIN FURNITURE COMPANY


EXPECTED CASH COLLECTIONS
NOVEMBER
Expected
Month Sales Percent Collections
September......................................... $150,000 9% $ 13,500
October ............................................. 195,000 20% 39,000
November.......................................... 165,000 70% 115,500
Total .............................................. $168,000

2. WHITE MOUNTAIN FURNITURE COMPANY


EXPECTED CASH DISBURSEMENTS
NOVEMBER
October purchases to be paid in November................................................ $135,000
Less: 2% cash discount ................................................................................ 2,700
Net ............................................................................................................... $132,300
Cash disbursements for expenses............................................................... 36,000
Total ............................................................................................................ $168,300

3. WHITE MOUNTAIN FURNITURE COMPANY


EXPECTED CASH BALANCE
NOVEMBER 30
Balance, November 1..................................................................................... $ 55,000
Add: Expected collections ............................................................................ 168,000
Less: Expected disbursements .................................................................... 168,300
Expected balance....................................................................................... $ 54,700

EXERCISE 9-29 (20 MINUTES)

1.
Total Sales in January 20x5
$200,000 $260,000 $320,000
Cash receipts in January, 20x5
From December sales on account ........... $ 14,250* $ 14,250 $ 14,250
From January cash sales .......................... 150,000† 195,000 240,000
From January sales on account ............... 40,000** 52,000 64,000
Total cash receipts .................................... $ 204,250 $261,250 $318,250

*$14,250 = $380,000 × .25 × .15


†$150,000 = $200,000 × .75

**$40,000 = $200,000 × .25 × .80

2. Operational plans depend on various assumptions. Usually there is uncertainty about


these assumptions, such as sales demand or inflation rates. Financial planning helps
management answer "what if" questions about how the budget will look under various
sets of assumptions.

 
PROBLEM 9-35 (25 MINUTES)

1. Sales budget

July August September


Sales (in sets).............................................. 5,000 6,000 7,500
Sales price per set ...................................... × $60 × $60 × $60
Sales revenue.............................................. $300,000 $360,000 $450,000

2. Production budget (in sets)

July August September


Sales ............................................................ 5,000 6,000 7,500
Add: Desired ending inventory ................. 1,200 1,500 1,500
Total requirements ..................................... 6,200 7,500 9,000
Less: Projected beginning inventory........ 1,000 1,200 1,500
Planned production .................................... 5,200 6,300 7,500

3. Raw-material purchases

July August September


Planned production (sets) ............................ 5,200 6,300 7,500
Raw material required per set
(board feet)................................................. × 10 × 10 × 10
Raw material required for production
(board feet)................................................. 52,000 63,000 75,000
Add: Desired ending inventory of raw
material (board feet).................................. 6,300 7,500 8,000
Total requirements ........................................ 58,300 70,500 83,000
Less: Projected beginning inventory of
raw material (board feet)........................... 5,200 6,300 7,500
Planned purchases of raw material
(board feet)................................................. 53,100 64,200 75,500
Cost per board foot ....................................... × $.60 × $.60 × $.60
Planned purchases of raw material
(dollars) ...................................................... $ 31,860 $ 38,520 $ 45,300

PROBLEM 9-35 (CONTINUED)

4. Direct-labor budget

July August September


Planned production (sets) ............................ 5,200 6,300 7,500
Direct-labor hours per set............................. × 1.5 × 1.5 × 1.5
Direct-labor hours required .......................... 7,800 9,450 11,250
Cost per hour ................................................. × $21 × $21 × $21
Planned direct-labor cost.............................. $163,800 $198,450 $236,250

5.  In the electronic version of the solutions manual, press the CTRL key 
and click on  the following link:  BUILD A SPREADSHEET 

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