Chapter 22: Q20SE (page 1232)
Using sensitivity analysis in budgeting Riverbed Sporting Goods Store has the following sales budget:
Suppose June sales are expected to be \(81,000 rather than \)65,000. Revise Riverbed’s sales budget.
Answer
The cash sales for June are $60,750 and credit sales are $20,250.
Over 30 million students worldwide already upgrade their learning with Vaia!
All the tools & learning materials you need for study success - in one app.
Get started for free
Question: Completing a comprehensive budgeting problem—manufacturing company
The Gerard Tire Company manufactures racing tires for bicycles. Gerard sells tires for \(90 each. Gerard is planning for the next year by developing a master budget by quarters. Gerard’s balance sheet for December 31, 2018, follows:
Other data for Gerard Tire Company:
a. Budgeted sales are 1,500 tires for the first quarter and expected to increase by 200 tires per quarter. Cash sales are expected to be 10% of total sales, with the remaining 90% of sales on account.
b. Finished Goods Inventory on December 31, 2018, consists of 300 tires at \)33 each.
c. Desired ending Finished Goods Inventory is 30% of the next quarter’s sales; first quarter sales for 2020 are expected to be 2,300 tires. FIFO inventory costing method is used.
d. Raw Materials Inventory on December 31, 2018, consists of 600 pounds of rubber compound used to manufature the tires.
e. Direct materials requirements are 2 pounds of a rubber compound per tire. The cost of the compound is \(8.50 per pound.
f. Desired ending Raw Materials Inventory is 40% of the next quarter’s direct materials needed for production; desired ending inventory for December 31, 2019 is 600 pounds; indirect materials are insignificant and not considered for budgeting purposes.
g. Each tire requires 0.4 hours of direct labor; direct labor costs average \)12 per hour.
h. Variable manufacturing overhead is \(4 per tire.
i. Fixed manufacturing overhead includes \)6,000 per quarter in depreciation and \(16,770 per quarter for other costs, such as utilities, insurance, and property taxes.
j. Fixed selling and administrative expenses include \)12,500 per quarter for salaries; \(3,000 per quarter for rent; \)450 per quarter for insurance; and \(2,000 per quarter for depreciation.
k. Variable selling and administrative expenses include supplies at 2% of sales. l. Capital expenditures include \)15,000 for new manufacturing equipment, to be purchased and paid in the first quarter.
m. Cash receipts for sales on account are 70% in the quarter of the sale and 30% in the quarter following the sale; December 31, 2018, Accounts Receivable is received in the first quarter of 2019; uncollectible accounts are considered insignificant and not considered for budgeting purposes.
n. Direct materials purchases are paid 60% in the quarter purchased and 40% in the following quarter; December 31, 2018, Accounts Payable is paid in the first quarter of 2019. o. Direct labor, manufacturing overhead, and selling and administrative costs are paid in the quarter incurred.
p. Income tax expense is projected at \(1,500 per quarter and is paid in the quarter incurred.
q. Gerard desires to maintain a minimum cash balance of \)55,000 and borrows from the local bank as needed in increments of \(1,000 at the beginning of the quarter; principal repayments are made at the beginning of the quarter when excess funds are available and in increments of \)1,000; interest is 6% per year and paid at the beginning of the quarter based on the amount outstanding from the previous quarter.
Requirements
1. Prepare Gerard’s operating budget and cash budget for 2019 by quarter. Required schedules and budgets include: sales budget, production budget, direct materials budget, direct labor budget, manufacturing overhead budget, cost of goods sold budget, selling and administrative expense budget, schedule of cash receipts, schedule of cash payments, and cash budget. Manufacturing overhead costs are allocated based on direct labor hours. Round all calculations to the nearest dollar.
2. Prepare Gerard’s annual financial budget for 2019, including budgeted income statement and budgeted balance sheet.
Match the following statements to the appropriate budgeting objective or benefit: developing strategies, planning, directing, controlling, coordinating and communicating, and benchmarking.
1. Managers are required to think about future business activities.
2. Managers use feedback to identify corrective action.
3. Managers use results to evaluate employees’ performance.
4. Managers work with managers in other divisions.
Using Excel for to prepare an operating budeget (manufacturing company)
Download an Excel template for this problem online in MyAccountingLab or athttp://www.pearsonhighered.com/Horngren.
Thunder Creek Company is preparing budgets for the first quarter of 2018. All relevant information is presented on the Excel template.
Requirements
1. Prepare a Sales Budget.
2. Prepare a Production Budget.
3. Prepare a Direct Materials Budget.
4. Prepare a Direct Labor Budget.
5. Prepare a Manufacturing Overhead Budget.
6. Prepare a Cost of Goods Sold Budget
7. Prepare a Selling and Administrative Expense Budget.
Preparing a financial budget—schedule of cash receipts and schedule of cash payments
Agua Cool is a distributor of bottled water. For each of the items, compute the amount of cash receipts or payments Agua Cool will budget for September. The solution to one item may depend on the answer to an earlier item.
a. Management expects to sell equipment that cost \(14,000 at a gain of \)7,000. Accumulated depreciation on this equipment is \(5,000.
b. Management expects to sell 7,100 cases of water in August and 9,000 cases in September. Each case sells for \)14. Cash sales average 20% of total sales, and credit sales make up the rest. Three-fourths of credit sales are collected in the month of the sale, with the balance collected the following month.
c. The company pays rent and property taxes of $4,500 each month. Commissions and other selling expenses average 30% of sales. Agua Cool pays one-half of commissions and other selling expenses in the month incurred, with the balance paid the following month.
Preparing an operating budget—cost of goods sold budget Butler Company expects to sell 1,650 units in January and 1,550 units in February. The company expects to incur the following product costs:
Direct materials cost per unit \( 85
Direct labor cost per unit 60
Manufacturing overhead cost per unit 55
The beginning balance in Finished Goods Inventory is 250 units at \)200 each for a total of $50,000. Butler uses FIFO inventory costing method. Prepare the cost of goods sold budget for Butler for January and February.
What do you think about this solution?
We value your feedback to improve our textbook solutions.
