CHAPTER 6: OPERATIONA OPERATIONAL L AND FINANCIAL BUDGETING Problems 1. Ballan Inc. estimates its units sales for the coming months to be as follows: March April May June July August
280,000 260,000 250,000 230,000 240,000 225,000
Ballan maintains maintains inventory at budgeted sales needs for the next month. March 1 inventory will be 248!!! units. a. "re#are a monthly #urchasing schedule for March through $uly. %&'()I&*: a. March arch #urc #urcha hase ses: s:
2+2 2+2!! !!! ! unit units s ,28! 28!!! !!! ! - 2! 2!!! !!! ! / 248 248!! !!!0 !0
#ril #ril #urchas #urchases: es: 2!!! 2!!!! ! units units ,2!! ,2!!!! !! - 2!!! 2!!!! ! / 2!!! 2!!!!0 !0 May #urchases:
23!!!! units ,2!!!! - 23!!!! / 2!!!!0
$une #urchases: 24!!!! units ,23!!!! - 24!!!! / 23!!!!0 $uly #urchases: #urchases: 22!!! 22!!! units ,24!!!! ,24!!!! - 22!!! 22!!! / 24!!!!0 24!!!!0 2. %u#erior om#any manufactures a single #roduct. It 5ee#s its inventory inventory of finished goods at twice the coming month6s budgeted sales and inventory of raw materials at 1!7 of the coming month6s budgeted #roduction. ach unit of #roduct re9uires five #ounds of materials which cost 3 #er #ound. )he sales budget is in units: May May 1!!!!; $une 124!!; $uly $uly 12!!; ugust 132!!. a. om#ute budgeted #roduction for $une. b. om#ute budgeted #roduction for $uly. c. om#ute budgeted material #urchases for $une in #ounds and dollars.
%&'()I&*: a. $une #roduction: 128!! units ,124!! - <2 x 12!!= > <2 x 124!!=0 b. $uly #roduction: 138!! units ,12!! - <2 x 132!!= > <2 x 12!!=0 c. $une materials #urchases: ?1!! #ounds; 214!! Used in production (5 lbs ! "2,800# $nding in%entory (5 lbs ! "3,800 ! "50 otal *ess beginning in%entory (5 lbs ! "2,800 ! "50 urchases i-es cost per pound $/uals dollar purchases
64,000 lbs "03,500 ''''''' "6),500 +6,000 ''''''' )",500 .3 ''''''' .2"4,500
3. Ironwood sells a single #roduct for 1!. )he #urchase cost is 4 #er unit and Ironwood #ays a 2!7 sales commission. @ixed costs are 4!!! #er month including 12!!! de#reciation and the com#any maintains inventory e9ual to budgeted sales needs for the following month. )he following budgeted data are available. 1n%entory on hand, udgeted sales ' ' '
ebruary " ebruary March April
28,000 units 24,000 units 26,000 units 25,000 units
a. om#ute total budgeted income income for @ebruary and March. b. @ind budgeted inventory at March 31 in units and dollars. c. @ind budgeted #urchases for March in units and dollars. %&'()I&*: a. Budgeted income: income: 11!!!! 11!!!! ales (24,000 26,000# ! ."07 ost o9 sales (50,000 ! .4#
.500,000 200,000
''''''' .300,000 "00,000 ''''''' .200,000 +0,000 ''''''' .""0,000
:ross pro9it o--issions at 20& ontribution -argin i!ed costs (2 ! 45,000# 1nco-e
b. Budgeted inventory: 2!!! units; 1!!!!! <4 x 2!!!= c. Budgeted #urchases: 2!!! units; 1!!!!! ost o9 sales $nding in%entory otal re/uired *ess beginning in%entory urchases
26,000 units 25,000 '''''' 5",000 26,000 '''''' 25,000 units ! .4
."04,000 "00,000 '''''''' .204,000 "04,000 '''''''' ."00,000
4. Aestrum estimates #roduction overhead costs e9ual to 3!!!!! - 2 where is the number of machine hours used. Aestrum budgeted 4!!!! machine hours for 2!4. Aestrum #roduced 23!!! units in 2!4 each re9uiring 3 machine hours. ctual #roduction costs were 42!!!!. a. alculate the flexible budget allowance for #roduction overhead costs for for 2!4. b. @ind the amount and direction of the budget variance for 2!4 for #roduction overhead. 42!!!!= . cme Inc. estimates its dollar sales for the coming months to be as follows. June July August
.340,000 360,000 300,000
epte-ber ;ctober
260,000 240,000 200,000
cme has an average gross margin of 4!7 of sales and maintains maintains inventory at ?7 of budgeted sales needs for the next month. cme began $une with 1!!!! in inventory. a. "re#are a monthly #urchasing schedule
Ju ne .340 ,000 ! 4 0 ' ' ' ' '' '' ."36 ,000 "08 ,00 0 ( " 5 0 , 00 0 # ' ' ' ' '' '' . + 4 , 00 0
Ju l y . 3 6 0, 0 0 0 ! 40 ' ''''' '' . "44,0 00 +0,0 0 0 ( "08,0 00 # ' ''''' '' . "26,0 00
Au g u st .30 0,000 ! 4 0 ''' ''''' . " 2 0, 00 0 ) 8,00 0 (+ 0 , 0 0 0 # ''' ''''' ."0 8,000
e pt e - be r . 260, 000 ! 4 0 ' ' ' '' ' ' ' . "04, 000 )2, 00 0 ( ) 8 , 0 00 # ' ' ' '' ' ' ' . +8, 000
;ct ober .24 0,00 0 ! 4 0 ''' '''' ' . + 6,00 0 6 0 ,0 0 0 () 2,00 0# ''' '''' ' . 8 4,00 0
. Bay ity estimates #roduction overhead costs e9ual to 2!!!!! - 4 - ?C ?C where is the number of direct labor hours used and C is the number of machine hours used. Bay ity budgeted 2!!!! direct labor hours and !!!! machine hours for 2!2. Bay ity #roduced 3!!!! units in 2!2 each re9uiring 1 direct labor hour and 2. machine hours. ctual #roduction costs were 8+!!!!. a. alculate the flexible budget allowance for #roduction overhead costs for for 2!2. b. @ind the amount and direction of the budget variance for 2!2 for #roduction overhead. 8+!!!!= ?. Aebster Aebster om#any om#any has has the following following sales sales budget. budget. January
.200,000
ebruary March April
.240,000 .300,000 .360,000
ost of sales is ?!7 of sales. %ales are collected 4!7 in the month of sale and !7 in the following following month. Aebster 5ee#s inventory e9ual e9ual to double the coming month6s budgeted sales re9uirements. It #ays for #urchases 8!7 in the month of #urchase and 2!7 in the month after #urchase. Inventory at the beginning beginning of $anuary is 1+!!!!. 1+!!!!. Aebster has monthly fixed costs of 3!!!! including !!! de#reciation. @ixed costs re9uiring cash are #aid as incurred. a. om#ute budgeted cash recei#ts in March. b. om#ute budgeted accounts receivable at the end of March. c. om#ute om#ute budgeted inventory at the end of @ebruary. @ebruary. d. om#ute budgeted #urchases in @ebruary. e. March #urchases are 2+!!!!. om#ute budgeted cash #ayments in March to su##liers of goods. f. om#ute budgeted accounts #ayable for goods at the end of @ebruary. g. ash at the end of @ebruary is 4!!!. ash disbursements are not re9uired for anything other than #ayments to su##liers and fixed costs. om#ute the budgeted cash balance at the end of March. %&'()I&*: a. March recei#ts: 24!!! ,<24!!!! x !7= - <3!!!!! x 4!7=0 b. Deceivables at end of March: 18!!!! ,3!!!!! x <1!!7 > 4!7=0 c. Inventory at end of @ebruary: 42!!!! <3!!!!! x ?!7 x 2= d. @ebruary #urchases: 22!!! ,<24!!!! x ?!7= - <3!!!!! x 2 x ?!7= > <24!!!! x 2 x ?!7=0 e. March #ayments: 2824!! ,<22!!! x 2!7= - <2+!!!! x 8!7=0 f. " at end of @ebruary: !4!! <22!!! x 2!7= g. ash at end of March: 2!! <2!!! - 24!!! > 2824!! > 24!!!=
8. Aeasel Aeasel om#any om#any has the follow following ing sales sales #roEection #roEections s for 2!3: 2!3: J a n ua r y e b ru a r y M arc h A pri l M ay J un e
.2 0 0 , 0 00 2 " 0 , 00 0 2 2 5 , 0 00 2 3 0 , 0 00 2 4 5 ,0 0 0 2 4 0 , 00 0
Aeasel collects 4!7 of its sales in the month of sale 47 in the month following the sale and 137 in the second month following the sale. Decords show that sales were 22!!! in *ovember and 2!8!!! in Fecember 2!2. a.
"re#are "re#are a sche schedul dule e of cash cash rece recei#t i#ts s for the first first three three months months of 2!3. 2!3.
b.
Ahat would would be the account accounts s recei receivab vable le
%&'()I&*: a. $anu $anuar ary y coll ollect ections ions::
<13 <137 x 22 22!! !!!= != H 2+ 2+2 2! <47 x 2!8!!!= H +3!! <4!7 x 2!!!!!= H 8!!!! >>>>>>> 2!28! HHHHHHHH
@ebruary collections: <137 x 2!8!!!= H 2?!4! <47 x 2!!!!!= H +!!!! <4!7 x 21!!!!= H 84!!! >>>>>>> 2!1!4! HHHHHHHH March collections:
b.
1?8!!
<137 x 2!!!!!= H 2!!! <47 x 21!!!!= H +4!! <4!7 x 22!!!= H +!!!! >>>>>>> 21!!! HHHHHHHH 2?3!! H @ebruary sales 21!!!! x 137 13!!! H March sales 22!!! x <47 - 137= >>>>>>>> 1?8!! HHHHHHHH
+. Bismarc5 has the following sales budget: Ma r c h Ap r i l Ma y Ju n e
. 3 0 0, 0 0 0 . 3 " 2, 0 0 0 .3 2 0 ,0 0 0 . 3 4 8 , 00 0
ost of sales is 7 of sales. Bismarc5 5ee#s an inventory e9ual to one>fourth the coming month6s budgeted sales re9uirements. It #ays for #urchases 4!7 in the month of #urchase and !7 in the month after #urchase. ccounts "ayable is +48!! on March 1. a. "re#are a monthly #urchasing schedule for March March through May. b. "re#are a monthly cash #ayment schedule for March through May. c.
om# om#ut ute e the the acco accoun unts ts #ayab #ayable le bala balance nce as of May May 31. 31.
%&'()I&*: a. ales ! 55 & o s t o 9 a l es $nd in g 1 n % ' e g 1n % urch ases
b. Marc March h #aym #aymen ents ts::
#ril #ayments:
M a rc h .300 ,000 ! 5 5 ' ' ' ' '' '' ."65 ,000 42 ,+0 0 ( 4 " , 25 0 # ' ' ' ' '' '' . " 6 6 , 65 0
Apri l . 3 " 2, 0 0 0 ! 55 ' ''''' '' . ")",6 00 44,0 0 0 (42,+ 00 # ' ''''' '' . ")2,) 00
May .32 0,000 ! 55 ''' ''''' . " ) 6, 00 0 5 ",+)5 (4 4 , 0 0 0 # ''' ''''' ."8 3,+)5
(40& ! "66,650# . 66,660 Mar " Acct ay +4,800 ''''''' ."6",460 (40& ! ")2,)00# . 6+,080 (60& ! "66,650# ++,++0 ''''''' ."6+,0)0
HHHHHHHH May #ayments:
(40& ! "83,+)5# (60& ! ")2,)00#
. )3,5+0 "03,620 ''''''' .")),2"0
c. ccounts ccounts "ayable "ayable May 31: 11!38,! 11!38,!7 7 x 183+?0 183+?0 1!. ic5s om#any has the following sales #roEections for 2!4: J anua ry . "60,0 00 e b r u a r y " 68 ,0 0 0
Mar ch Apr il
")5,0 00 "80,0 00
Ma y Jun e
" +5,00 0 " +0,00 0
ic5s collects 3!7 of its sales in the month of sale 47 in the month following the sale and 247 in the second month following the sale. Decords show that sales were 1!!!! in *ovember and 18!!! in Fecember 2!3. a.
"re#are "re#are a sche schedul dule e of cash cash rece recei#t i#ts s for the first first three three months months of 2!4. 2!4.
b.
Ahat would would be the account accounts s recei receivab vable le balanc balance e
%&'()I&*: January collecti collections= ons= (24& ! "60, "60,000# 000# a. January (45& (45& ! "68, "68,000 000# # (30& (30& ! "60, "60,000 000# #
.38,400 .38,400 )5,60 )5, 600 0 48,00 48, 000 0 ''''''' ."62,000
ebruary collections= (24& ! "68,000# .40,320 (45& ! "60,000# )2,000 (30& ! "68,000# 50,400 ''''''' ."62,)20 March collections=
b.
11!?!
(24& ! "60,000# .38,400 (45& ! "68,000# )5,600 (30& ! ")5,000# 52,500 ''''''' ."66,500
4!32! H @ebruary sales <18!!! x 247= 12!?! H March sales ,1?!!! x <47 - 247=0 >>>>>>> 11!?! HHHHHHHH