Exercise 8-1 (20 minutes)

1. July August September Total

May sales:
$430,000 × 10%........ $ 43,000 $    43,000
June sales:
$540,000 × 70%,
10%.......................... 378,000 $ 54,000 432,000
July sales:
$600,000 × 20%,
70%, 10%................. 120,000 420,000 $ 60,000 600,000
August sales:
$900,000 × 20%,
70%.......................... 180,000 630,000 810,000
September sales:
$500,000 × 20%........                            100,000     100,000
Total cash collections.... $541,000 $654,000 $790,000 $1,985,000

Notice that even though sales peak in August, cash collections peak in
September. 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 September 30:

From August sales: $900,000 × 10%...................... $ 90,000
From September sales: $500,000 × (70% + 10%). .  400,000
Total accounts receivable....................................... $490,000
Exercise 8-2 (10 minutes)

July August Sept. Quarter

Budgeted sales in units............. 30,000 45,000 60,000 135,000
Add desired ending inventory*..  4,500  6,000  5,000    5,000
Total needs............................. 34,500 51,000 65,000 140,000
Less beginning inventory..........  3,000  4,500  6,000    3,000
Required production................. 31,500 46,500 59,000 137,000

*10% of the following month’s sales

8-1
 Exercise 8-3 (15 minutes)

Quarter—Year 2
First Second Third Fourth
Required production of calculators...........
60,000 90,000 150,000 100,000
Number of chips per calculator................
     × 3      × 3      × 3      × 3
Total production needs—chips.................
180,000 270,000 450,000 300,000

Year 2
First Second Third Fourth Year
Production needs—chips 180,000 270,000 450,000 300,000 1,200,000
Add desired ending inventory—
chips    54,000    90,000    60,000    48,000       48,000
Total needs—chips 234,000 360,000 510,000 348,000 1,248,000
Less beginning inventory—chips    36,000    54,000    90,000    60,000       36,000
Required purchases—chips  198,000  306,000  420,000  288,000  1,212,000
Cost of purchases at $2 per chip $396,000 $612,000 $840,000 $576,000 $2,424,000

Exercise 8-4 (20 minutes)

1. Assuming that the direct labor workforce is adjusted each quarter, the
direct labor budget would be:
1st 2nd 3rd 4th
Quarter Quarter Quarter Quarter
Units to be produced.................... 5,000 4,400 4,500 4,900
Direct labor time per unit (hours). . ×0.40 ×0.40 ×0.40 ×0.40
Total direct labor hours needed..... 2,000 1,760 1,800 1,960
Direct labor cost per hour............. ×$11.00 ×$11.00 ×$11.00 ×$11.00
Total direct labor cost................... $22,000 $19,360 $19,800 $21,560

2. Assuming that the direct labor workforce is not adjusted each quarter
and that overtime wages are paid, the direct labor budget would be:
1st 2nd 3rd 4th
Quarter Quarter Quarter Quarter Year
Units to be produced.................... 5,000 4,400 4,500 4,900 18,800
Direct labor time per unit
(hours)..................................... ×0.40 ×0.40 ×0.40 ×0.40 ×0.40
Total direct labor hours 2,000 1,760 1,800 1,960 7,520

8-2
 needed.....................................
Regular hours paid....................... 1,800 1,800 1,800 1,800 7,200
Overtime hours paid.....................   200       0       0   160   360
Wages for regular hours
(@ $11.00 per hour).................. $19,800 $19,800 $19,800 $19,800 $79,200
Overtime wages (@ $11.00
per hour × 1.5 hours)................    3,300          0          0    2,640    5,940
Total direct labor cost...................
$23,100 $19,800 $19,800 $22,440 $85,140

8-3
Exercise 8-5 (15 minutes)
1. Krispin Corporation
Manufacturing Overhead Budget
1st 2nd 3rd 4th
Quarter Quarter Quarter Quarter Year
Budgeted direct labor-hours.......... 5,000 4,800 5,200 5,400 20,400
Variable overhead rate................. × $1.75 × $1.75 × $1.75 × $1.75 × $1.75
Variable manufacturing overhead. . $ 8,750 $ 8,400 $ 9,100 $ 9,450 $ 35,700
Fixed manufacturing overhead...... 35,000 35,000 35,000 35,000  140,000
Total manufacturing overhead...... 43,750 43,400 44,100 44,450 175,700
Less depreciation.........................15,000 15,000 15,000 15,000    60,000
Cash disbursements for
manufacturing overhead............ $28,750 $28,400 $29,100 $29,450 $115,700
2. Total budgeted manufacturing overhead for the year (a)....................................... $175,700
Total budgeted direct labor-hours for the year (b)................................................ 20,400
Predetermined overhead rate for the year (a) ÷ (b).............................................. $8.61

8-4
8-5
Exercise 8-6 (15 minutes)
Haerve Company
Selling and Administrative Expense Budget
1st 2nd 3rd 4th
Quarter Quarter Quarter Quarter Year
Budgeted unit sales 12,000 14,000 11,000 10,000 47,000
Variable selling and administrative
expense per unit × $2.75 × $2.75 × $2.75 × $2.75 × $2.75
Variable expense $ 33,000 $ 38,500 $ 30,250 $ 27,500 $129,250
Fixed selling and administrative
expenses:
Advertising 12,000 12,000 12,000 12,000 48,000
Executive salaries 40,000 40,000 40,000 40,000 160,000
Insurance 6,000 6,000 12,000
Property taxes 6,000 6,000
Depreciation   16,000   16,000   16,000   16,000 64,000
Total fixed selling and administrative
expenses   68,000   74,000   74,000   74,000 290,000
Total selling and administrative expenses 101,000 112,500 104,250 101,500 419,250
Less depreciation   16,000   16,000   16,000   16,000 64,000
Cash disbursements for selling and
administrative expenses $ 85,000 $ 96,500 $ 88,250 $ 85,500 $355,250

8-6
Exercise 8-8 (10 minutes)
Seattle Cat
Budgeted Income Statement
Sales (380 units @ $1,850 each)........................... $703,000
Cost of goods sold (380 units @ $1,425 each).......  541,500
Gross margin....................................................... 161,500
Selling and administrative expenses*....................  137,300
Net operating income........................................... 24,200
Interest expense..................................................   11,000
Net income.......................................................... $ 13,200
* 380 × $85 + $105,000 = $137,300

Exercise 8-9 (20 minutes)

Academic Copy
Budgeted Balance Sheet
Assets
Current assets:
Cash*................................................ $ 4,400
Accounts receivable............................ 6,500
Supplies inventory..............................   2,100
Total current assets.............................. $13,000
Plant and equipment:
Equipment......................................... 28,000
Accumulated depreciation...................  (9,000)
Plant and equipment, net......................  19,000
Total assets.......................................... $32,000

Liabilities and Stockholders' Equity

Current liabilities:
Accounts payable............................... $ 1,900
Stockholders' equity:
Common stock................................... $ 4,000
Retained earnings#............................  26,100
Total stockholders' equity......................  30,100
Total liabilities and stockholders' equity. . $32,000
* Plug figure.

8-7
# Retained earnings is computed as follows:
Retained earnings, beginning balance. . $21,000
Add net income..................................    8,600
29,600
Deduct dividends................................    3,500
Retained earnings, ending balance...... $26,100

8-8
 Exercise 8-12 (30 minutes)
1.

1
.

1 Harveton Corporation
. Direct Labor Budget
1st 2nd 3rd 4th
Quarter Quarter Quarter Quarter Year
Units to be produced.................... 16,000 15,000 14,000 15,000 60,000
Direct labor time per unit (hours). .    0.80    0.80    0.80    0.80    0.80
Total direct labor-hours needed.... 12,800 12,000 11,200 12,000 48,000
Direct labor cost per hour............. $11.50 $11.50 $11.50 $11.50 $11.50
Total direct labor cost................... $147,200 $138,000 $128,800 $138,000 $552,000

2.

1
.

1 Harveton Corporation
. Manufacturing Overhead Budget
1st 2nd 3rd 4th
Quarter Quarter Quarter Quarter Year

8-9
Budgeted direct labor-hours.......... 12,800 12,000 11,200 12,000 48,000
Variable overhead rate................. $2.50 $2.50 $2.50 $2.50 $2.50
Variable manufacturing overhead. . $ 32,000 $ 30,000 $ 28,000 $ 30,000 $120,000
Fixed manufacturing overhead......   90,000   90,000   90,000   90,000  360,000
Total manufacturing overhead...... 122,000 120,000 118,000 120,000 480,000
Less depreciation.........................   34,000   34,000   34,000   34,000  136,000
Cash disbursements for
manufacturing overhead............ $ 88,000 $ 86,000 $ 84,000 $ 86,000 $344,000

8-10
Exercise 8-13 (45 minutes)
1. Production budget:
July August September October
Budgeted sales (units)........... 40,000 50,000 70,000 35,000
Add desired ending inventory. 20,000 26,000 15,500 11,000
Total needs........................... 60,000 76,000 85,500 46,000
Less beginning inventory........ 17,000 20,000 26,000 15,500
Required production.............. 43,000 56,000 59,500 30,500

2. During July and August the company is building inventories in

anticipation of peak sales in September. Therefore, production exceeds
sales during these months. In September and October inventories are
being reduced in anticipation of a decrease in sales during the last
months of the year. Therefore, production is less than sales during
these months to cut back on inventory levels.

3. Direct materials budget:

Third
July August September Quarter
Required production (units).. 43,000 56,000 59,500 158,500
Material A135 needed per
unit.................................. × 3 lbs. × 3 lbs. × 3 lbs. × 3 lbs.
Production needs (lbs.)........ 129,000 168,000 178,500 475,500
Add desired ending inventory
(lbs.)................................  84,000  89,250  45,750 *  45,750
Total Material A135 needs.... 213,000 257,250 224,250 521,250
Less beginning inventory
(lbs.)................................  64,500  84,000  89,250  64,500
Material A135 purchases
(lbs.)................................ 148,500 173,250 135,000 456,750

* 30,500 units (October production) × 3 lbs. per unit= 91,500 lbs.;

91,500 lbs. × 0.5 = 45,750 lbs.

8-11
As shown in part (1), production is greatest in September. However, as
shown in the raw material purchases budget, the purchases of materials is
greatest a month earlier because materials must be on hand to support
the heavy production scheduled for September.

Problem 8-16 (30 minutes)

1. September cash sales............................................... $ 7,400
September collections on account:
July sales: $20,000 × 18%.................................... 3,600
August sales: $30,000 × 70%................................ 21,000
September sales: $40,000 × 10%..........................    4,000
Total cash collections............................................... $36,000

2. Payments to suppliers:
August purchases (accounts payable)..................... $16,000
September purchases: $25,000 × 20%...................    5,000
Total cash payments................................................ $21,000

3. Calgon Products
Cash Budget
For the Month of September
Cash balance, September 1.................................. $ 9,000
Add cash receipts:
Collections from customers................................  36,000
Total cash available before current financing......... 45,000
Less disbursements:
Payments to suppliers for inventory.................... $21,000
Selling and administrative expenses................... 9,000 *
Equipment purchases........................................ 18,000
Dividends paid..................................................    3,000
Total disbursements.............................................  51,000
Excess (deficiency) of cash available over
disbursements..................................................  (6,000)
Financing:
Borrowings....................................................... 11,000
Repayments...................................................... 0
Interest............................................................          0
Total financing.....................................................  11,000

8-12
 Cash balance, September 30................................ $ 5,000

 *$13,000 – $4,000 = $9,000.

Problem 8-17 (60 minutes)

1. Collections on sales: July August Sept. Quarter

Cash sales............................... $ 8,000 $14,000 $10,000 $ 32,000
Credit sales:
May: $30,000 × 80% × 20%. 4,800 4,800
June: $36,000 × 80% ×
70%, 20%......................... 20,160 5,760 25,920
July: $40,000 × 80% × 10%,
70%, 20%......................... 3,200 22,400 6,400 32,000
Aug.: $70,000 × 80% × 10%,
70%.................................. 5,600 39,200 44,800
Sept.: $50,000 × 80% × 10%
.........................................                            4,000      4,000
Total cash collections............... $36,160 $47,760 $59,600 $143,520

2. a. Merchandise purchases budget:

July August Sept. Oct.
Budgeted cost of goods sold..... $24,000 $42,000 $30,000 $27,000
Add desired ending inventory*.  31,500  22,500  20,250
Total needs............................. 55,500 64,500 50,250
Less beginning inventory..........  18,000  31,500  22,500
Required inventory purchases... $37,500 $33,000 $27,750

*75% of the next month’s budgeted cost of goods sold.

b. Schedule of expected cash disbursements for merchandise purchases:

July August Sept. Quarter
Accounts payable, June 30....... $11,700 $11,700
July purchases......................... 18,750 $18,750 37,500
August purchases.................... 16,500 $16,500 33,000
September purchases...............                          13,875  13,875
Total cash disbursements......... $30,450 $35,250 $30,375 $96,075

Problem 8-17 (continued)

8-13
3. Janus Products, Inc.
Cash Budget
For the Quarter Ended September 30
July August Sept. Quarter
Cash balance, beginning........ $ 8,000 $ 8,410 $ 8,020 $   8,000
Add collections from sales  36,160  47,760  59,600  143,520
Total cash available.............  44,160  56,170  67,620  151,520
Less disbursements:
For inventory purchases...... 30,450 35,250 30,375 96,075
For selling expenses............ 7,200 11,700 8,500 27,400
For administrative expenses. 3,600 5,200 4,100 12,900
For land.............................. 4,500 0 0 4,500
For dividends......................         0          0    1,000     1,000
Total disbursements...............  45,750  52,150  43,975  141,875
Excess (deficiency) of cash
available over
disbursements....................  (1,590)    4,020  23,645     9,645
Financing:
Borrowings......................... 10,000 4,000 14,000
Repayment......................... 0 0 (14,000) (14,000)
Interest..............................          0          0     (380)       (380)
Total financing.......................  10,000    4,000 (14,380)       (380)
Cash balance, ending............. $ 8,410 $ 8,020 $ 9,265 $   9,265

* $10,000 × 1% × 3 = $300
$4,000 × 1% × 2 =    80
$380

8-14
Problem 8-18 (60 minutes)

1. Collections on sales: July August Sept. Quarter

Cash sales............................... $ 8,000 $14,000 $10,000 $ 32,000
Credit sales:
May: $30,000 × 80% × 20%. 4,800 4,800
June: $36,000 × 80% ×
70%, 20%......................... 20,160 5,760 25,920
July: $40,000 × 80% × 25%,
60%, 15%......................... 8,000 19,200 4,800 32,000
August: $70,000 × 80% ×
25%, 60%......................... 14,000 33,600 47,600
September: $50,000 × 80%
× 25%...............................                          10,000    10,000
Total cash collections............... $40,960 $52,960 $58,400 $152,320

2. a. Merchandise purchases budget:

July August Sept. Oct.
Budgeted cost of goods sold..... $24,000 $42,000 $30,000 $27,000
Add desired ending inventory*.  10,500  7,500  6,750
Total needs............................. 34,500 49,500 36,750
Less beginning inventory..........  18,000  10,500   7,500
Required inventory purchases... $16,500 $39,000 $29,250

*25% of the next month’s budgeted cost of goods sold.

b. Schedule of expected cash disbursements for merchandise purchases:

July August Sept. Quarter
Accounts payable, June 30....... $11,700 $11,700
July purchases......................... 8,250 $ 8,250 16,500
August purchases.................... 19,500 $19,500 39,000
September purchases...............                          14,625  14,625
Total cash disbursements......... $19,950 $27,750 $34,125 $81,825

8-15
Problem 8-18 (continued)
3. Janus Products, Inc.
Cash Budget
For the Quarter Ended September 30
July August Sept. Quarter
Cash balance, beginning........ $ 8,000 $13,710 $22,020 $   8,000
Add collections from sales  40,960  52,960  58,400  152,320
Total cash available.............  48,960  66,670  80,420  160,320
Less disbursements:
For inventory purchases...... 19,950 27,750 34,125 81,825
For selling expenses............ 7,200 11,700 8,500 27,400
For administrative expenses. 3,600 5,200 4,100 12,900
For land.............................. 4,500 0 0 4,500
For dividends......................         0          0   1,000     1,000
Total disbursements...............  35,250  44,650  47,725  127,625
Excess (deficiency) of cash
available over
disbursements.................... 13,710  22,020  32,695   32,695
Financing:
Borrowings......................... 0 0 0 0
Repayment......................... 0 0 0 0
Interest..............................          0          0          0           0
Total financing.......................          0          0          0           0
Cash balance, ending............. $13,710 $22,020 $32,695 $ 32,695

4. Collecting accounts receivable sooner and reducing inventory levels

eliminated the company’s need to borrow money and pay interest
during the third quarter.

8-16
Problem 8-19 (60 minutes)
1. The sales budget for the third quarter:
July Aug. Sept. Quarter
Budgeted sales (pairs)..... 6,000 7,000 5,000 18,000
Selling price per pair........ × $50 × $50 × $50 × $50
Total budgeted sales....... $300,000 $350,000 $250,000 $900,000

The schedule of expected cash collections from sales:

July Aug. Sept. Quarter
Accounts receivable,
beginning balance......... $130,000 $130,000
July sales:
$300,000 × 40%, 50%. 120,000 $150,000 270,000
August sales:
$350,000 × 40%, 50%. 140,000 $175,000 315,000
September sales:
$250,000 × 40%..........                             100,000  100,000
Total cash collections....... $250,000 $290,000 $275,000 $815,000

2. The production budget for July through October:

July Aug. Sept. Oct.
Budgeted sales (pairs)...................... 6,000 7,000 5,000 4,000
Add desired ending inventory............    700   500   400   300
Total needs...................................... 6,700 7,500 5,400 4,300
Less beginning inventory...................    600   700   500   400
Required production (pairs)............... 6,100 6,800 4,900 3,900

8-17
Problem 8-19 (continued)
3. The direct materials budget for the third quarter:
July Aug. Sept. Quarter
Required production—pairs
(above)............................ 6,100 6,800 4,900 17,800
Raw materials needs per
pair (lbs.).........................    × 2    × 2    × 2    × 2
Production needs (lbs.)........ 12,200 13,600 9,800 35,600
Add desired ending
inventory..........................    2,720    1,960    1,560 *    1,560
Total needs......................... 14,920 15,560 11,360 37,160
Less beginning inventory    2,440    2,720    1,960    2,440
Raw materials to be
purchased.........................  12,480  12,840    9,400  34,720
Cost of raw materials to be
purchased at $2.50 per lb.. $31,200 $32,100 $23,500 $86,800

*3,900 pairs (October) × 2 lbs. per pair= 7,800 lbs.;

7,800 lbs. × 20% = 1,560 lbs.

The schedule of expected cash disbursements:

July Aug. Sept. Quarter
Accounts payable, beginning
balance................................. $11,400 $11,400
July purchases:
$31,200 × 60%, 40%............ 18,720 $12,480 31,200
August purchases:
$32,100 × 60%, 40%............ 19,260 $12,840 32,100
September purchases:
$23,500 × 60%.....................                          14,100  14,100
Total cash disbursements......... $30,120 $31,740 $26,940 $88,800

8-18
Problem 8-20 (60 minutes)
1. Schedule of cash receipts:
Cash sales—June............................................... $ 60,000
Collections on accounts receivable:
May 31 balance............................................... 72,000
June (50% × 190,000)....................................    95,000
Total cash receipts............................................. $227,000

Schedule of cash payments for purchases:

May 31 accounts payable balance....................... $ 90,000
June purchases (40% × 200,000).......................    80,000
Total cash payments.......................................... $170,000

Phototec, Inc.
Cash Budget
For the Month of June
Cash balance, beginning.................................... $   8,000
Add receipts from customers (above)..................  227,000
Total cash available...........................................  235,000
Less disbursements:
Purchase of inventory (above)......................... 170,000
Selling and administrative expenses................. 51,000
Purchases of equipment..................................     9,000
Total cash disbursements...................................  230,000
Excess of receipts over disbursements................     5,000
Financing:
Borrowings—note............................................ 18,000
Repayments—note.......................................... (15,000)
Interest..........................................................      (500)
Total financing...................................................     2,500
Cash balance, ending......................................... $   7,500

8-19
Problem 8-20 (continued)
2. Phototec, Inc.
Budgeted Income Statement
For the Month of June
Sales...................................................... $250,000
Cost of goods sold:
Beginning inventory.............................. $ 30,000
Purchases............................................  200,000
Goods available for sale........................ 230,000
Ending inventory..................................    40,000
Cost of goods sold................................  190,000
Gross margin.......................................... 60,000
Selling and administrative expenses
($51,000 + $2,000)..............................    53,000
Net operating income.............................. 7,000
Interest expense.....................................        500
Net income............................................. $   6,500

3. Phototec, Inc.
Budgeted Balance Sheet
June 30
Assets
Cash....................................................................... $   7,500
Accounts receivable (50% × 190,000)....................... 95,000
Inventory................................................................ 40,000
Buildings and equipment, net of depreciation
($500,000 + $9,000 – $2,000)...............................  507,000
Total assets............................................................. $649,500

Liabilities and Stockholders’ Equity

Accounts payable (60% × 200,000).......................... $120,000
Note payable........................................................... 18,000
Capital stock............................................................ 420,000
Retained earnings ($85,000 + $6,500)......................    91,500
Total liabilities and equity......................................... $649,500

8-20