Exercise 8-1

1. April May June Total

February sales:
$230,000 × 10%........ $ 23,000 $    23,000
March sales: $260,000
× 70%, 10%.............. 182,000 $ 26,000 208,000
April sales: $300,000 ×
20%, 70%, 10%........ 60,000 210,000 $ 30,000 300,000
May sales: $500,000 ×
20%, 70%................. 100,000 350,000 450,000
June sales: $200,000 ×
20%..........................                                40,000       40,000
Total cash collections.... $265,000 $336,000 $420,000 $1,021,000
Notice that even though sales peak in May, cash collections peak in
June. This occurs because the bulk of the company’s customers pay in
the month following sale. The lag in collections that this creates is even
more pronounced in some companies. Indeed, it is not unusual for a
company to have the least cash available in the months when sales are
greatest.

2. Accounts receivable at June 30:

From May sales: $500,000 × 10%........................ $ 50,000
From June sales: $200,000 × (70% + 10%).........  160,000
Total accounts receivable at June 30..................... $210,000

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Solutions Manual, Chapter 8 1
 Exercise 8-2

April May June Quarter

Budgeted unit sales................. 50,000 75,000 90,000 215,000
Add desired units of ending
finished goods inventory*......  7,500  9,000  8,000    8,000
Total needs............................. 57,500 84,000 98,000 223,000
Less units of beginning finished
goods inventory....................  5,000  7,500  9,000    5,000
Required production in units..... 52,500 76,500 89,000 218,000
*10% of the following month’s sales in units.

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written consent of McGraw-Hill Education.
Solutions Manual, Chapter 8 2
Exercise 8-3

Quarter—Year 2
First Second Third Fourth Year
Required production in units of finished
goods...................................................... 60,000 90,000 150,000 100,000 400,000
Units of raw materials needed per unit of
finished goods..........................................      × 3       × 3      × 3      × 3      × 3
Units of raw materials needed to meet
production................................................ 180,000 270,000 450,000 300,000 1,200,000
Add desired units of ending raw materials
inventory*................................................   54,000   90,000   60,000   42,000     42,000
Total units of raw materials needed.............. 234,000 360,000 510,000 342,000 1,242,000
Less units of beginning raw materials
inventory..................................................   36,000   54,000   90,000   60,000     36,000
Units of raw materials to be purchased......... 198,000 306,000 420,000 282,000 1,206,000
Unit cost of raw materials............................ × $1.50 × $1.50 × $1.50 × $1.50 × $1.50
Cost of raw materials to purchased.............. $297,000 $459,000 $630,000 $423,000 $1,809,000

* Fourth quarter: 70,000 units × 3 grams per unit × 20% = 42,000 grams.

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Solutions Manual, Chapter 8 3
Exercise 8-4
The direct labor budget is as follows:
1st 2nd 3rd 4th
Quarter Quarter Quarter Quarter Year
Required production in units............................ 8,000 6,500 7,000 7,500 29,000
Direct labor time per unit (hours)..................... × 0.35 × 0.35 × 0.35 × 0.35 × 0.35
Total direct labor-hours needed........................ 2,800 2,275 2,450 2,625 10,150
Direct labor cost per hour................................ × $15.00 × $15.00 × $15.00 × $15.00 × $15.00
Total direct labor cost...................................... $ 42,000 $ 34,125 $ 36,750 $ 39,375 $152,250

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Solutions Manual, Chapter 8 4
Exercise 8-5

1. Yuvwell Corporation
Manufacturing Overhead Budget
1st 2nd 3rd 4th
Quarter Quarter Quarter Quarter Year
Budgeted direct labor-hours................................ 8,000 8,200 8,500 7,800 32,500
Variable manufacturing overhead rate.................. × $3.25 × $3.25 × $3.25 × $3.25 × $3.25
Variable manufacturing overhead........................ $26,000 $26,650 $27,625 $25,350 $105,625
Fixed manufacturing overhead............................  48,000  48,000  48,000  48,000  192,000
Total manufacturing overhead............................. 74,000 74,650 75,625 73,350 297,625
Less depreciation................................................  16,000  16,000  16,000  16,000    64,000
Cash disbursements for manufacturing overhead.. $58,000 $58,650 $59,625 $57,350 $233,625

2. Total budgeted manufacturing overhead for the year (a)... $297,625

Budgeted direct labor-hours for the year (b).....................    32,500
Predetermined overhead rate for the year (a) ÷ (b).......... $9.16

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Solutions Manual, Chapter 8 5
Exercise 8-6
Weller Company
Selling and Administrative Expense Budget
1st 2nd 3rd 4th
Quarter Quarter Quarter Quarter Year
Budgeted unit sales........................................... 15,000 16,000 14,000 13,000 58,000
Variable selling and administrative expense per
unit................................................................  × $2.50 × $2.50 × $2.50 × $2.50 × $2.50
Variable selling and administrative expense......... $ 37,500 $ 40,000 $ 35,000 $ 32,500 $145,000
Fixed selling and administrative expenses:
Advertising...................................................... 8,000 8,000 8,000 8,000 32,000
Executive salaries............................................ 35,000 35,000 35,000 35,000 140,000
Insurance....................................................... 5,000 5,000 10,000
Property taxes................................................. 8,000 8,000
Depreciation...................................................    20,000    20,000    20,000    20,000    80,000
Total fixed selling and administrative expenses....    68,000    71,000    68,000    63,000  270,000
Total selling and administrative expenses............ 105,500 111,000 103,000 95,500 415,000
Less depreciation...............................................    20,000    20,000    20,000    20,000    80,000
Cash disbursements for selling and administrative
expenses........................................................ $ 85,500 $ 91,000 $ 83,000 $ 75,500 $335,000

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Solutions Manual, Chapter 8 6
Exercise 8-7
Garden Depot
Cash Budget
1st 2nd 3rd 4th
Quarter Quarter Quarter Quarter Year
Beginning cash balance. $ 20,000 $ 10,000 $ 35,800 $ 25,800 $ 20,000
Total cash receipts........  180,000  330,000  210,000  230,000  950,000
Total cash available....... 200,000 340,000 245,800 255,800 970,000
Less total cash
disbursements............  260,000  230,000  220,000  240,000  950,000
Excess (deficiency) of
cash available over
disbursements............  (60,000) 110,000    25,800    15,800    20,000
Financing:
Borrowings (at
beginnings of
quarters)*............... 70,000 70,000
Repayments (at ends
of quarters)............. (70,000) (70,000)
Interest ....................                 (4,200)             
§
                (4,200)
Total financing..............   70,000  (74,200)                              (4,200)
Ending cash balance..... $ 10,000 $ 35,800 $ 25,800 $ 15,800 $ 15,800
* Since the deficiency of cash available over disbursements is $60,000, the company must borrow
$70,000 to maintain the desired ending cash balance of $10,000.
§
$70,000 × 3% × 2 = $4,200.

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Solutions Manual, Chapter 8 7
Exercise 8-11
Quarter (000 omitted)
1 2 3 4 Year
Beginning cash balance............................... $ 6 * $ 5 $  5 $  5 $  6
Add collections from customers....................  65  70    96 *   92  323 *
Total cash available.....................................  71 *  75  101   97  329
Less cash disbursements:
Purchase of inventory............................... 35 * 45 * 48 35 * 163
Selling and administrative expenses........... 28 30 * 30 * 25 113 *
Equipment purchases................................ 8* 8 * 10 * 10 36 *
Dividends.................................................    2 *    2 *      2 *     2 *     8
Total cash disbursements............................  73  85 *    90   72  320
Excess (deficiency) of cash available over
disbursements..........................................   (2)* (10)   11 *   25     9
Financing:
Borrowings............................................... 7 15 * 0 0 22
Repayments (including interest)................    0    0    (6)   (17)*   (23)
Total financing............................................    7  15    (6)   (17)     (1)
Ending cash balance.................................... $ 5 $ 5 $  5 $  8 $  8
* Given.

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Solutions Manual, Chapter 8 8
Exercise 8-12
1. Schedule of expected cash collections:
Month
July August Sept. Quarter
From accounts receivable $136,000 $136,000
From July sales:
35% × 210,000............ 73,500 73,500
65% × 210,000............ $136,500 136,500
From August sales:
35% × 230,000............ 80,500 80,500
65% × 230,000............ $149,500 149,500
From September sales:
35% × 220,000............                                77,000    77,000
Total cash collections....... $209,500 $217,000 $226,500 $653,000

2. a. Merchandise purchases budget:

July August Sept. Total
Budgeted cost of goods sold
(60% of sales)...................... $126,000 $138,000 $132,000 $396,000
Add desired ending
merchandise inventory*.........    41,400    39,600    43,200    43,200
Total needs............................. 167,400 177,600 175,200 439,200
Less beginning merchandise
inventory..............................    62,000   41,400    39,600    62,000
Required purchases................. $105,400 $136,200 $135,600 $377,200
*
At July 31: $138,000 × 30% = $41,400. At September 30:
$144,000 × 30% = $43,200.

b. Schedule of cash disbursements for purchases:

July August Sept. Total
From accounts payable.......... $ 71,100 $ 71,100
For July purchases................. 42,160 $ 63,240 105,400
For August purchases............ 54,480 $ 81,720 136,200
For September purchases.......                              54,240    54,240
Total cash disbursements....... $113,260 $117,720 $135,960 $366,940
Exercise 8-12 (continued)
3.
Beech Corporation
Income Statement
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Solutions Manual, Chapter 8 9
 For the Quarter Ended September 30

Sales ($210,000 + $230,000 + $220,000). . $660,000

Cost of goods sold (Part 2a) .....................  396,000
Gross margin............................................ 264,000
Selling and administrative expenses
($60,000 × 3 months) ...........................  180,000
Net operating income................................ $  84,000
4.
Beech Corporation
Balance Sheet
September 30

Assets
Cash ($90,000 + $653,000 – $366,940 – ($55,000 ×
3))...................................................................... $211,060
Accounts receivable ($220,000 × 65%)...................... 143,000
Inventory (Part 2a)................................................... 43,200
Plant and equipment, net ($210,000 – ($5,000 ×3)). . .  195,000
Total assets.............................................................. $592,260

Liabilities and Stockholders’ Equity

Accounts payable ($135,600 × 60%)......................... $ 81,360

Common stock (Given).............................................. 327,000
Retained earnings ($99,900 + $84,000).....................  183,900
Total liabilities and stockholders’ equity...................... $592,260

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reserved.
Solutions Manual, Chapter 8 10