Solutions

Chapter 6

6-30 (30 min.) Budgeted income statement. Easecom Company Budgeted Income Statement for 2011 (in thousands) Revenues Equipment ($6,000 × 1.06 × 1.10) Maintenance contracts ($1,800 × 1.06) Total revenues Cost of goods sold ($4,600 × 1.03 × 1.06) Gross margin Operating costs: Marketing costs ($600 + $250) Distribution costs ($150 × 1.06) Customer maintenance costs ($1,000 + $130) Administrative costs Total operating costs Operating income

$6,996 1,908 $8,904 5,022 3,882 850 159 1,130 900 3,039 $ 843

6-31 (50–60 min.) Comprehensive review of budgeting. 1.

Schedule 1: Revenue Budget For the Year Ended December 31, 2010

Ginger ale Diet Ginger ale Total 2.

Units (Lots) 1,296 648

Selling Price £10,800 10,200

Total Sales £13,996,800 6,609,600 £20,606,400

Schedule 2: Production Budget in Units For the Year Ended December 31, 2010 Products Ginger ale Diet Ginger ale Budgeted sales (Schedule 1) 1,296 648 Add target ending finished-goods inventory 20 10 Total requirements 1,316 658 Deduct beginning finished-goods inventory 100 50 Units to be produced 1,216 608

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Units of direct material to be used from beginning inventory (under FIFO) Multiply by cost per unit of beginning inventory Cost of direct materials to be used from beginning inventory (a) Units of direct materials to be used from purchases (1,216 – 80; 608 – 70; (1,824 – 200; 1,824 – 400) Multiply by cost per unit of purchased materials Cost of direct materials to be used from purchases (b) Total costs of direct materials to be used [(a) + (b)]

Units of direct materials to be used for production of Ginger ale (1,216 lots u 1) Units of direct materials to be used for production of Diet Ginger ale (608 lots u 1) Total direct materials to be used (in units)

538 £ 1,320 £710,160 £794,160

1,136 1,440 £1,635,840 £1,741,440

£

£ 84,000

£ 105,600

£

70 £ 1,200

608 608

— 1,216

80 1,320

—

Syrup— Diet Ginger ale

1,216

Syrup— Ginger ale

Schedule 3A: Direct Materials Usage Budget in Units and Dollars For the Year Ended December 31, 2010


3.

6-31 (cont’d)

Instructor’s Solutions Manual for Cost Accounting, 5Ce

£1,948,800 £2,176,800

£

1,624 1,200

£ 228,000

£

200 1,140

608 1,824

1,216

Containers

£1,367,040 £1,799,040

£

1,424 960

£ 432,000

£

400 1,080

608 1,824

1,216

Packaging

£5,661,840 £6,511,440

£ 849,600

Total

229

Direct Manufacturing Labour-Hours per Unit 20 20

Hourly Rate £30 30

Total £ 729,600 364,800 £1,094,400

Packaging 1,824 200 2,024 400 1,624 £ 960 £1,559,040

Containers 1,824 100 1,924 200 1,724 £ 1,200 £2,068,800


Total Hours 24,320 12,160 36,480

Schedule 4: Direct Manufacturing Labour Budget For the Year Ended December 31, 2010

5.

Output Units Produced (Schedule 2) Ginger ale 1,216 Diet Ginger ale 608 Total

Schedule 3B: Direct Materials Purchases Budget in Units and Dollars For the Year Ended December 31, 2010 Syrup— Syrup— Diet Ginger ale Ginger ale Direct materials to be used in production (in units) from Schedule 3A 1,216 608 Add target ending direct materials inventory in units 30 20 Total requirements in units 1,246 628 Deduct beginning direct materials inventory in units 80 70 Units of direct materials to be purchased 1,166 558 Multiply by cost/unit of purchased materials £ 1,440 £ 1,320 Direct materials purchase costs £1,679,040 £736,560

4.

6-31 (cont’d)

£6,043,440

Total

Chapter 6


6-31 (cont’d) 6.

Schedule 5: Manufacturing Overhead Costs Budget For the Year Ended December 31, 2010 Variable manufacturing overhead costs: Ginger ale [£720 u 2 hours per lot u 1,216 lots (Schedule 2)] Diet Ginger ale [£720 u 2 hours per lot u 608 lots (Schedule 2)] Variable manufacturing overhead costs Fixed manufacturing overhead costs Total manufacturing overhead costs

£1,751,040 875,520 2,626,560 1,440,000 £4,066,560

Fixed manufacturing overhead per bottling hour = £1,440,000 ÷ 3,648 = £395. Note that the total number of bottling hours is 3,648 hours: 2,432 hours for Ginger ale (2 hours per lot u 1,216 lots) plus 1,216 hours for Diet Ginger ale (2 hours per lot u 608 lots). 7.

Schedule 6B: Ending Inventory Budget December 31, 2010 Units (Lots) Direct materials: Syrup for Ginger ale Syrup for Diet Ginger ale Containers Packaging

30 20 100 200 Units (Lots)

Finished goods: Ginger ale Diet Ginger ale Total ending inventory

20 10

*From Schedule 6A below


230

Cost per Unit (Lot) £1,440 1,320 1,200 960

Total £ 43,200 26,400 120,000 192,000

£381,600

Cost per Unit £6,430* 6,310*

£128,600 63,100

191,700 £573,300

20 2 2

£1,440 1,200 960 600 1,440 790 £6,430

Ginger ale Inputs in Units (Lots) or Hours Amount

20 2 2

Diet Ginger ale Inputs in Units (Lots) or Hours

£1,320 1,200 960 600 1,440 790 £6,310

Hour

231


*Variable manufacturing overhead varies with bottling hours (2 hours per lot for both Ginger ale and Diet Ginger ale). Fixed manufacturing overhead is allocated on the basis of bottling hours at the rate of £395 per bottling hour calculated in Schedule 5.

Syrup Containers Packaging Direct manufacturing labour £ 30 Variable manufacturing overhead* 720 Fixed manufacturing overhead* 395 Total

Cost per Unit (Lot) Or Hour Of Input

Schedule 6A: Computation of Unit Costs of Manufacturing Finished Goods For the Year Ended December 31, 2010

6-31 (cont’d)

Chapter 6


6-31 (cont’d) 8.

Schedule 7: Cost of Goods Sold Budget For the Year Ended December 31, 2010 From Schedule Beginning finished goods inventory, January 1, 2010 Direct materials used Direct manufacturing labour Manufacturing overhead Cost of goods manufactured Cost of goods available for sale Deduct ending finished goods inventory, December 31, 2010 Cost of goods sold

Given* 3A 4 5

Total £ 948,000

£6,511,440 1,094,400 4,066,560 11,672,400 12,620,400

6B

191,700 £12,428,700

*Given in description of basic data and requirements (Ginger ale, £6,360 u 100; Diet Ginger ale, £6,240 u 50)

9.

Schedule 8: Marketing Costs Budget For the Year ended December 31, 2010 Marketing costs, 12% u Sales, £20,606,400

£2,472,768

10. Schedule 9: Distribution Costs Budget For the Year ended December 31, 2010 Distribution costs, 8% u Sales, £20,606,400

£1,648,512

11. Schedule 10: Administration Costs Budget For the Year ended December 31, 2010 Administration costs 10% u Cost of goods manufactured, £11,672,400*

£1,167,240

*from schedule 7

12. Budgeted Income Statement For the Year ended December 31, 2010 Sales Cost of goods sold Gross margin Operating costs: Marketing costs Distribution costs Administration costs Total operating costs Operating income


Schedule 1 Schedule 7

Schedule 8 Schedule 9 Schedule 10

£20,606,400 12,428,700 8,177,700 £2,472,768 1,648,512 1,167,240 5,288,520 £ 2,889,180

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Chapter 6

6-32 (40 min.) Cash budgeting for distributor. 1.

The pro forma cash budget for Montrose for the second quarter of 2010 is presented below. Supporting calculations are presented on the next page. Montrose Inc. Cash Budget For the Second Quarter 2010 April $ 600,000

May $ 600,000

June $ 1,476,000

Beginning balance Collections1 February sales March sales April sales May sales Total receipts

11,280,000

12,600,000

5,520,000 9,000,000 14,520,000

Total cash available

11,880,000

13,200,000

15,996,000

4,986,000 4,140,000 1,080,000

5,682,000 4,500,000 1,080,000

6,342,000 5,040,000 1,080,000 408,000

1,536,000 11,742,000

11,262,000

12,870,000

1,938,000

3,126,000

Disbursements Accounts payable5 Hourly wages2 General & administrative3 Property taxes Income taxes4 Total disbursements Cash balance Cash borrowed Cash repaid Ending balance

4,800,000 6,480,000

138,000 462,000 $ 600,000

4,320,000 8,280,000

(462,000) $1,476,000

$ 3,126,000

160%

of sales in first month; 40% of sales in second month of current month sales 3(Total less property taxes and amortization) ÷ 12 4 40% u $3,840,000 5 See schedule on next page. 230%

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6-32 (cont’d) Supporting Calculations Accounts payable—parts received: Month February March March April April May May June

Payment February March March April April May

40% of Revenues $4,800,000 4,320,000 4,320,000 5,520,000 5,520,000 6,000,000 6,000,000 6,720,000

$4,464,000 5,160,000 5,160,000 5,856,000 5,856,000 6,504,000

Timing February .30 $1,440,000 .70 3,024,000 .30 .70 .30 .70 .30 .70 $4,464,000

March

April

May

June

$1,296,000 3,864,000 $1,656,000 4,200,000

$5,160,000

.25 .75 .25 .75 .25 .75

$5,856,000

$1,800,000 4,704,000 $6,504,000

$1,116,000 3,870,000 $1,290,000 4,392,000

$

0

$

0

$4,986,000

$5,682,000

$1,464,000 4,878,000 $6,342,000

6-32 (cont’d) 2.

Cash budgeting is important for Montrose because as sales grow so will expenditures for input factors. Since these expenditures generally precede cash receipts, the company must plan for possible financing to cover the gap between payments and receipts. The cash budget shows the probable cash position at certain points in time, allowing the company to plan for borrowing, as Mon Montroseose must do in April. Cash budgeting also facilitates the control of excess cash. The company may be losing investment opportunities, if excess cash is left idle in a chequing account. The cash budget alerts management to periods when there will be excess cash available for investment, thus facilitating financial planning and cash control.


234

235

$8,000

Excess cash (cash deficiency), prior to financing (D) = (A) - (C)

Ending cash balance = (A) - (B) + (E)

$0 $0 ($1,230) ($1,230) $30,770

$30,520

$2,000

$250,000 115,000 58,000 30,000 0 0 25,000 $478,000 $30,000 $508,000

479,480 0 $510,000

$41,000 $0 ($1,230) $39,770

($39,250)

$220,000 120,000 62,000 30,000 11,250 20,000 21,000 $484,250 $30,000 $514,250

437,000 0 $475,000

Quarters ending June September $38,000 $30,520


$38,000

$0 $0 $0 $0

$200,000 117,000 60,000 20,000 0 0 20,000 $417,000 $30,000 $447,000

Cash disbursements: Raw material purchases Payroll S, G, & A expenses Equipment purchase Bond interest (@9%) Bond sinking fund payment Income taxes Total cash disbursements, prior to financing = (B) Plus: Minimum cash balance Total cash needed = (C)

Financing: Short-term borrowing Repayment (principal) Interest (@12%) Total Effects of Financing = (E)

425,000 0 $455,000

March $30,000

Cash balance, beginning Plus: Cash receipts: Collections from customers Equipment disposal Total cash available = (A)

6-33 (40-50 min.) Cash budgeting.

$30,630

$22,000 $0 ($1,890) $20,110

($19,480)

$270,000 122,000 64,000 0 11,250 0 18,000 $485,250 $30,000 $515,250

460,000 5,000 $495,770

December $30,770

$30,63

$63,000 $0 ($4,350) $58,650

$(58,020)

$940,000 474,000 244,000 80,000 22,500 20,000 84,000 $1,864,500 $30,000 $1,894,500

1,801,480 5,000 $1,836,480

Year $30,000

Chapter 6