Chapter 22: Q8RQ (page 1228)
In a manufacturing company, what are the three types of budgets included in the master budget? Describe each type.
The master budget includes the operating, capital, andfinancial budgets.
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
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 a financial budget—budgeted balance sheet
Use the following June actual ending balances and July 31, 2018, budgeted amounts for Omas to prepare a budgeted balance sheet for July 31, 2018.
a. June 30 Merchandise Inventory balance, \(17,770
b. July purchase of Merchandise Inventory, \)4,400, paid in cash
c. July payments of Accounts Payable, \(8,400
d. June 30 Accounts Payable balance, \)10,700
e. June 30 Furniture and Fixtures balance, \(34,100; Accumulated Depreciation balance, \)29,880
f. June 30 total stockholders’ equity balance, \(28,020
g. July Depreciation Expense, \)500
h. Cost of Goods Sold, 60% of sales
i. Other July expenses, including income tax, \(2,000, paid in cash
j. June 30 Cash balance, \)11,600
k. July budgeted sales, all on account, \(12,600
l. June 30 Accounts Receivable balance, \)5,130
m. July cash receipts from collections on account, $14,700
(Hint: It may be helpful to trace the effects of each transaction on the accounting equation to determine the ending balance of each account.)
Explain the difference between strategic and operational budgets
Preparing an operating budget—inventory, purchases, and cost of goods sold budget
Slate, Inc. sells tire rims. Its sales budget for the nine months ended September 30, 2018, follows:
Quarter Ended Nine-MonthTotal
March 31 June 30 September 30 Cash sales, 20% \( 28,000 \) 38,000 \( 33,000 \) 99,000
Credit sales, 80% 112,000 152,000 132,000 396,000 Total sales \( 140,000 \) 190,000 \( 165,000 \) 495,000
In the past, cost of goods sold has been 40% of total sales. The director of marketing and the financial vice president agree that each quarter’s ending inventory should not be below \(5,000 plus 10% of cost of goods sold for the following quarter. The marketing director expects sales of \)240,000 during the fourth quarter. The January 1 inventory was $38,000. Prepare an inventory, purchases, and cost of goods sold budget for each of the first three quarters of the year. Compute cost of goods sold for the entire nine-month period.
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.
