1.

Sales Budget
The sales budget outlines the expected sales in units and revenue.

Sales Selling Price Total Sales

Quarter
(Units) (Birr) Revenue (Birr)
1st
700 9.00 6,300
Quarter
2nd
850 9.00 7,650
Quarter
3rd
1,000 9.00 9,000
Quarter
4th
1,150 9.00 10,350
Quarter
Total 3,700 33,300

2. Cost of Goods Sold Budget

This budget calculates the cost of goods sold based on production
needs.

Production Needs

 Next Year’s 1st Quarter Needs: 1,280 units

 Ending Inventory Calculation: 35% of next month’s production
needs.

Beginni Total
Producti Ending
ng Need
Quart on Invento COGS
Invento s
er Needs ry (Birr)
ry (Unit
(Units) (Units)
(Units) s)
1st
Quarte 700 200 448 948 1,900.00
r
2nd
Quarte 850 448 560 1,158 2,200.00
r
3rd
Quarte 1,000 560 700 1,700 3,200.00
r
4th 1,150 700 896 2,746 5,300.00
 Beginni Total
Producti Ending
ng Need
Quart on Invento COGS
Invento s
er Needs ry (Birr)
ry (Unit
(Units) (Units)
(Units) s)
Quarte
r
12,600.
Total 3,700
00

3. Selling Expense Budget

This budget includes variable and fixed selling expenses.

Amount
Expense Type
(Birr)
Variable Commission (5% of
1,665.00
Sales)
Fixed Rent (1,200/4) 300.00
Fixed Advertising (400/4) 100.00
Fixed Telephone (800/4) 200.00
Depreciation Expense (500/4) 125.00
Total Selling Expenses 2,390.00

4. Administrative Expense Budget

This includes variable and fixed administrative expenses.

Amount
Expense Type
(Birr)
Variable Bad Debts (1% of
333.00
Sales)
Fixed Salaries (6,000/4) 1,500.00
Fixed Insurance (440/4) 110.00
Fixed Telephone (800/4) 200.00
Fixed Supplies (200/4) 50.00
Other Fixed Expenses (400/4) 100.00
 Amount
Expense Type
(Birr)
Total Administrative
2,393.00
Expenses

5. Production Budget
This budget summarizes the production requirements.

Production Needs COGS

Quarter
(Units) (Birr)
1st
700 1,900.00
Quarter
2nd
850 2,200.00
Quarter
3rd
1,000 3,200.00
Quarter
4th
1,150 5,300.00
Quarter
Total 3,700 12,600.00

6. Budgeted Income Statement

This summarizes the expected revenues and expenses.

Amount
Description
(Birr)
Total Sales Revenue 33,300
Less: COGS (12,600)
Gross Profit 20,700
Less: Selling Expenses (2,390)
Less: Administrative
(2,393)
Expenses
Net Income Before Tax 15,917
Less: Income Tax (25%) (3,979.25)
Net Income 11,937.75
7. Cash Budget
This budget outlines expected cash inflows and outflows.

Ending
Cash Cash Net Cash
Quarte Cash
Inflows Outflows Flow
r Balance
(Birr) (Birr) (Birr)
(Birr)
1st
6,300 8,000 (1,700) 8,300
Quarter
2nd
7,650 8,000 (350) 7,950
Quarter
3rd
9,000 10,000 (1,000) 6,950
Quarter
4th
10,350 10,000 350 7,300
Quarter

8. Budgeted Balance Sheet

This summarizes the financial position at the end of the year.

Amount
Assets
(Birr)
Cash 7,300
Accounts
3,000
Receivable
Inventory 896
Equipment 20,000
Building 148,000
Total Assets 179,196
Amount
Liabilities & Equity
(Birr)
Accounts Payable 300
Long-term Debt 0
Retained Earnings 51,717.50
Capital Stock 90,000
Total Liabilities & 179,196
 Amount
Liabilities & Equity
(Birr)
Equity

1. Sales Budget
Formula:

 Total Sales Revenue = Sales (Units) × Selling Price per Unit

Example Calculation:

 For the 1st Quarter:

 Sales (Units) = 700
 Selling Price = Birr 9.00
 Total Sales Revenue = 700 × 9 = Birr 6,300

2. Cost of Goods Sold (COGS) Budget

 Formula:

 COGS = (Direct Material Cost + Direct Labor Cost +

Manufacturing Overhead) × Production Needs
Direct Costs:

 Direct Material: Birr 0.05/unit

 Direct Labor: Birr 1.75/unit
 Manufacturing Overhead: Birr 0.75/unit
Example Calculation:

 For the 1st Quarter:

 Production Needs = 700 units
 COGS = (0.05 + 1.75 + 0.75) × 700 = 2.55 × 700 = Birr 1,785

3. Selling Expense Budget

Variable Selling Expenses:

 Commission = Total Sales Revenue × 5%

Fixed Selling Expenses:

 Rent, Advertising, Telephone, and Depreciation are divided by 4 for

quarterly amounts.
Example Calculation:

 Variable Commission for 1st Quarter:

 Total Sales Revenue = Birr 6,300
 Commission = 6,300 × 0.05 = Birr 315
 Total Fixed Selling Expenses = (1,200 + 400 + 800 + 500) / 4
= Birr 475

4. Administrative Expense Budget

Variable Administrative Expenses:

 Bad Debts = Total Sales Revenue × 1%

Fixed Administrative Expenses:

 Similar to selling expenses, divide fixed costs by 4.

Example Calculation:

 Bad Debts for 1st Quarter:

 Bad Debts = 6,300 × 0.01 = Birr 63
 Total Fixed Administrative Expenses = (6,000 + 440 + 800 + 200 +
400) / 4 = Birr 2,215

5. Production Budget
Formula:

 Total Production Needs = Sales + Ending Inventory -

Beginning Inventory
Ending Inventory Calculation:

 Ending Inventory = 35% of next month’s production needs

Example Calculation:

 For the 1st Quarter:

 Sales = 700 units
 Beginning Inventory = 200 units
 Ending Inventory = 35% of 850 (2nd Quarter Sales) = 297.5 ≈ 300
units
 Total Production Needs = 700 + 300 - 200 = 800 units

6. Budgeted Income Statement

Formula:

 Net Income = Total Sales Revenue - COGS - Selling Expenses

- Administrative Expenses - Income Tax
Example Calculation:

 For the 1st Quarter:

 Gross Profit = Total Sales Revenue - COGS
 Income Tax = 25% of Net Income Before Tax

7. Cash Budget
Formula:

 Net Cash Flow = Cash Inflows - Cash Outflows

 Ending Cash Balance = Beginning Cash Balance + Net Cash
Flow
Example Calculation:

 For the 1st Quarter:

 Cash Inflows = Total Sales Revenue
 Cash Outflows = Sum of all expenses and cash payments
 8. Budgeted Balance Sheet
Assets and Liabilities:

 Sum total of cash, accounts receivable, inventory, and fixed assets

for assets.
 Sum total of liabilities (accounts payable, loans) and equity
(retained earnings, capital stock).
Example Calculation:

 Total Assets = Cash + Accounts Receivable + Inventory +

Fixed Assets
 Total Liabilities & Equity = Accounts Payable + Long-term
Debt + Retained Earnings + Capital Stock

7. Direct Materials Budget

The Direct Materials Budget outlines the quantity and cost of
materials needed for production.

Direct Materials Needed for Production

Formula:

 Direct Materials Needed = Production Needs × Direct

Material Cost per Unit
Direct Material Cost:

 Direct Material Cost per Unit: Birr 0.05

Calculation
 Production Needs Direct Materials Needed
Quarter
(Units) (Birr)
1st
800 800 × 0.05 = 40.00
Quarter
2nd
900 900 × 0.05 = 45.00
Quarter
3rd
1,098 1,098 × 0.05 = 54.90
Quarter
4th
1,362 1,362 × 0.05 = 68.10
Quarter
Total 4,160 207.00

Schedule of Expected Cash Disbursements for Direct

Materials

Assumption: Half of the purchases are paid in the quarter of

purchase and half in the following quarter.

Direct Materials Needed Cash Disbursements

Quarter
(Birr) (Birr)
1st
40.00 20.00
Quarter
2nd
45.00 22.50
Quarter
3rd
54.90 27.45
Quarter
4th
68.10 34.05
Quarter
Total 207.00 104.00

8. Direct Labor Budget

The Direct Labor Budget outlines the labor costs associated with
production.

Direct Labor Cost

Formula:

 Direct Labor Cost = Production Needs × Direct Labor Cost

per Unit
 Direct Labor Cost per Unit:

 Direct Labor Cost per Unit: Birr 1.75

Calculation

Production Needs Direct Labor Cost

Quarter
(Units) (Birr)
1st
800 800 × 1.75 = 1,400.00
Quarter
2nd
900 900 × 1.75 = 1,575.00
Quarter
3rd 1,098 × 1.75 =
1,098
Quarter 1,922.50
4th 1,362 × 1.75 =
1,362
Quarter 2,381.50
Total 4,160 7,279.00

9. Manufacturing Overhead Budget

The Manufacturing Overhead Budget includes all manufacturing
costs other than direct materials and direct labor.

Manufacturing Overhead Costs

Fixed Overhead:

 Depreciation: Birr 200/year (Birr 50/quarter)

Variable Overhead:

 Manufacturing Overhead Cost per Unit: Birr 0.75

Calculation

Production Variable Fixed Total

Quarte
Needs Overhead Overhead Overhead
r
(Units) (Birr) (Birr) (Birr)
1st 800 × 0.75
800 50 650.00
Quarter = 600.00
2nd 900 × 0.75
900 50 725.00
Quarter = 675.00
3rd 1,098 1,098 × 50 873.50
 Production Variable Fixed Total
Quarte
Needs Overhead Overhead Overhead
r
(Units) (Birr) (Birr) (Birr)
0.75 =
Quarter
823.50
1,362 ×
4th
1,362 0.75 = 50 1,071.50
Quarter
1,021.50
Total 4,160 3,090.00 200.00 3,290.00

Summary of Budgets
 Direct Materials Budget Total: Birr 207.00
 Direct Labor Budget Total: Birr 7,279.00
 Manufacturing Overhead Budget Total: Birr 3,290.00

1. Sales Budget
Formula:
Total Sales=Units Sold×Selling PriceTotal Sales=Units Sold×Selling Price

Quarterly Sales Calculation:



1st Quarter:

 Units Sold: 700
 Selling Price: Birr 9.00
 Total Sales: 700×9=6,300700×9=6,300


2nd Quarter:

 Units Sold: 850
 Total Sales: 850×9=7,650850×9=7,650


3rd Quarter:

 Units Sold: 1,000
 Total Sales: 1,000×9=9,0001,000×9=9,000


4th Quarter:

 Units Sold: 1,150
 Total Sales: 1,150×9=10,3501,150×9=10,350
Total Sales Budget:

Total Sales
Quarter
(Birr)
1st
6,300
Quarter
2nd
7,650
Quarter
3rd
9,000
Quarter
4th
10,350
Quarter
Total 33,300

2. Cost of Goods Sold (COGS) Budget

 Formula:
Total COGS=(Direct Material Cost+Direct Labor Cost+Manufacturing Overhead)
×Total Units SoldTotal COGS=(Direct Material Cost+Direct Labor Cost+Manufa
cturing Overhead)×Total Units Sold

Cost per Unit:

 Direct Material: Birr 0.05

 Direct Labor: Birr 1.75
 Manufacturing Overhead: Birr 0.75

Total Cost per Unit: 0.05+1.75+0.75=2.550.05+1.75+0.75=2.55

Total COGS Calculation:

Total COGS=2.55×3,700=9,435Total COGS=2.55×3,700=9,435

3. Selling Expense Budget

Variable Expenses: Commission=0.05×Total SalesCommission=0.05×Total Sales

Fixed Expenses:

 Rent: Birr 1,200/year = 1,2004=30041,200=300 per quarter

 Advertising: Birr 400/year = 4004=1004400=100 per quarter
 Telephone: Birr 800/year = 8004=2004800=200 per quarter
 Depreciation Expense: Birr 500/year = 5004=1254500=125 per quarter
Total Selling Expenses Calculation:

1.

Variable Commission Calculation:

2.
 Total Sales for the year: Birr 33,300
 Total Commission: 0.05×33,300=1,6650.05×33,300=1,665
 Quarterly Commission: 1,6654=416.2541,665=416.25

3.

Total Selling Expenses per Quarter: | Quarter | Variable Expenses (Birr) | Fixed
Expenses (Birr) | Total Selling Expenses (Birr) |
|----------------|---------------------------|------------------------|-------------------------------| |
1st Quarter | 416.25 | 300 + 100 + 200 + 125 = 725 | 1,141.25 | | 2nd Quarter | 416.25 |
725 | 1,141.25 | | 3rd Quarter | 416.25 | 725 | 1,141.25 | | 4th Quarter | 416.25 | 725 |
1,141.25 | | Total | 1,665 | 2,900 | 4,565 |
4.
 4. Administrative Expense Budget
Variable Expenses: Bad Debts=0.01×Total SalesBad Debts=0.01×Total Sales

Fixed Expenses:

 Salaries: Birr 6,000/year = 6,0004=1,50046,000=1,500 per quarter

 Insurance: Birr 440/year = 4404=1104440=110 per quarter
 Telephone: Birr 800/year = 8004=2004800=200 per quarter
 Supplies: Birr 200/year = 2004=504200=50 per quarter
 Other Expenses: Birr 400/year = 4004=1004400=100 per quarter
Total Administrative Expenses Calculation:

1.

Variable Bad Debts Calculation:

2.
 Total Bad Debts: 0.01×33,300=3330.01×33,300=333
 Quarterly Bad Debts: 3334=83.254333=83.25

3.

Total Administrative Expenses per Quarter: | Quarter | Variable Expenses (Birr) |

Fixed Expenses (Birr) | Total Administrative Expenses (Birr) |
|----------------|---------------------------|------------------------|----------------------------------
---| | 1st Quarter | 83.25 | 1,500 + 110 + 200 + 50 + 100 = 1,960 | 2,043.25 | | 2nd
Quarter | 83.25 | 1,960 | 2,043.25 | | 3rd Quarter | 83.25 | 1,960 | 2,043.25 | | 4th
Quarter | 83.25 | 1,960 | 2,043.25 | | Total | 333 | 7,840 | 8,173 |
4.

5. Production Budget
Formula:
Required Production=Sales Units+Desired Ending Inventory−Beginning Inventor
yRequired Production=Sales Units+Desired Ending Inventory−Beginning Invento
ry

Desired Ending Inventory Calculation:

Desired Ending Inventory=0.35×Next Month’s Production NeedsDesired Ending I
nventory=0.35×Next Month’s Production Needs

Quarterly Production Calculation:

1st Quarter:

 Sales Units: 700
 Desired Ending Inventory: 0.35×1,280=4480.35×1,280=448
 Beginning Inventory: 200
 Required Production: 700+448−200=948700+448−200=948


2nd Quarter:

 Sales Units: 850
 Desired Ending Inventory: 0.35×1,000=3500.35×1,000=350
 Beginning Inventory: 448
 Required Production: 850+350−448=752850+350−448=752


3rd Quarter:

 Sales Units: 1,000
 Desired Ending Inventory: 0.35×1,150=4030.35×1,150=403
 Beginning Inventory: 350
 Required Production: 1,000+403−350=1,0531,000+403−350=1,053


4th Quarter:

 Sales Units: 1,150
 Desired Ending Inventory: 0 (no next month’s needs provided)
 Beginning Inventory: 403
 Required Production: 1,150+0−403=7471,150+0−403=747
Total Production Budget:

Desired
Quarte Sales Beginning Required
Ending
r Units Inventory Production
Inventory
1st
700 448 200 948
Quarter
2nd
850 350 448 752
Quarter
3rd
1,000 403 350 1,053
Quarter
4th
1,150 0 403 747
Quarter
Total 3,700 1,401 3,500
 6. Budgeted Income Statement
Formula:

1. Gross
Profit: Gross Profit=Total Sales−Total COGSGross Profit=Total Sales−Total COG
S
2. Net Income Before
Tax: Net Income Before Tax=Gross Profit−Total Selling Expenses−Total Administ
rative ExpensesNet Income Before Tax=Gross Profit−Total Selling Expenses−Tot
al Administrative Expenses
3. Income
Tax: Income Tax=0.25×Net Income Before TaxIncome Tax=0.25×Net Income Bef
ore Tax
4. Net
Income: Net Income=Net Income Before Tax−Income TaxNet Income=Net Income
Before Tax−Income Tax
Calculations:

1.

Gross Profit: 33,300−9,435=23,86533,300−9,435=23,865

2.
3.

Net Income Before Tax:

23,865−4,565−8,173=11,12723,865−4,565−8,173=11,127
4.
5.

Income Tax: 0.25×11,127=2,781.750.25×11,127=2,781.75

6.
7.

Net Income: 11,127−2,781.75=8,345.2511,127−2,781.75=8,345.25

8.
Budgeted Income Statement:

Amount
Description
(Birr)
Total Sales 33,300
Less: Cost of Goods Sold (9,435)
 Amount
Description
(Birr)
Gross Profit 23,865
Less: Selling Expenses (4,565)
Less: Administrative
(8,173)
Expenses
Net Income Before Tax 11,127
Less: Income Tax (2,781.75)
Net Income 8,345.25

7. Direct Materials Budget + Schedule of Expected

Cash Disbursements
Formula:
Total Direct Material Cost=Required Production×Direct Material Cost per UnitTot
al Direct Material Cost=Required Production×Direct Material Cost per Unit

Direct Material Cost per Unit:

 Direct Material: Birr 0.05

Quarterly Direct Materials Calculation:

Direc
t
Requir Cash
Mate
Quar ed Disburse
rial Total Cost (Birr)
ter Produc ments
Cost
tion (Birr)
per
Unit
1st
948×0.05=47.40948×0.05=47
Quar 948 0.05 47.40
.40
ter
2nd
752×0.05=37.60752×0.05=37
Quar 752 0.05 37.60
.60
ter
3rd
1,053×0.05=52.651,053×0.05
Quar 1,053 0.05 52.65
=52.65
ter
4th 747 0.05 747×0.05=37.35747×0.05=37 37.35
 Direc
t
Requir Cash
Mate
Quar ed Disburse
rial Total Cost (Birr)
ter Produc ments
Cost
tion (Birr)
per
Unit
Quar
.35
ter
Tota
3,500 175.00 175.00
l

8. Direct Labor Budget

Formula:
Total Direct Labor Cost=Required Production×Direct Labor Cost per UnitTotal Di
rect Labor Cost=Required Production×Direct Labor Cost per Unit

Direct Labor Cost per Unit:

 Direct Labor: Birr 1.75

Quarterly Direct Labor Calculation:

Direct
Required
Quart Labor
Productio Total Cost (Birr)
er Cost per
n
Unit
1st
Quarte 948 1.75 948×1.75=1,659948×1.75=1,659
r
2nd
Quarte 752 1.75 752×1.75=1,314752×1.75=1,314
r
3rd
Quarte 1,053 1.75 1,053×1.75=1,8471,053×1.75=1,847
r
4th
Quarte 747 1.75 747×1.75=1,309747×1.75=1,309
r
Total 3,500 6,129
 9. Manufacturing Overhead Budget
Formula:
Total Manufacturing Overhead=Required Production×Manufacturing Overhead C
ost per UnitTotal Manufacturing Overhead=Required Production×Manufacturing
Overhead Cost per Unit

Manufacturing Overhead Cost per Unit:

 Manufacturing Overhead: Birr 0.75

Quarterly Manufacturing Overhead Calculation:

Manufacturi
Required ng
Quart
Producti Overhead Total Cost (Birr)
er
on Cost per
Unit
1st
Quarte 948 0.75 948×0.75=711948×0.75=711
r
2nd
Quarte 752 0.75 752×0.75=564752×0.75=564
r
3rd
Quarte 1,053 0.75 1,053×0.75=7901,053×0.75=790
r
4th
Quarte 747 0.75 747×0.75=560747×0.75=560
r
Total 3,500 2,625

10. Cash Budget

Formula:

1. Total Cash
Available: Total
Cash Available=Beginning Cash Balance+Cash CollectionsTotal C
ash Available=Beginning Cash Balance+Cash Collections
2. Ending Cash
Balance: Ending Cash Balance=Total Cash Available−Cash DisbursementsEnding
Cash Balance=Total Cash Available−Cash Disbursements
 Calculations:

 Beginning Cash Balance: Birr 10,000

 Cash Collections (from sales):

 Q1: 90%×6,300+9%×7,650+1%×0=5,670+618.75+0=6,288.7590%×6,300+9%×7,
650+1%×0=5,670+618.75+0=6,288.75
 Q2: 90%×7,650+9%×9,000+1%×6,300=6,885+810+63=7,75890%×7,650+9%×9,0
00+1%×6,300=6,885+810+63=7,758
 Q3: 90%×9,000+9%×10,350+1%×7,650=8,100+931.5+76.5=9,10890%×9,000+9%
×10,350+1%×7,650=8,100+931.5+76.5=9,108
 Q4: 90%×10,350+9%×0+1%×9,000=9,315+0+90=9,40590%×10,350+9%×0+1%×
9,000=9,315+0+90=9,405
Total Cash Available Calculation:

Total
Cash Cash Ending
Quar Beginni Cash
Collecti Disburse Cash
ter ng Cash Availabl
ons ments Balance
e
1st
16,288.7 (9,826.2
Quar 10,000 6,288.75 26,115
5 5)
ter
2nd
(9,826.2 (2,068.2 (28,183.
Quar 7,758 26,115
5) 5) 25)
ter
3rd
(28,183. (19,075. (45,190.
Quar 9,108 26,115
25) 25) 25)
ter
4th
(45,190. (35,785. (61,900.
Quar 9,405 26,115
25) 25) 25)
ter

11. Budgeted Balance Sheet

Assets Calculation:

 Cash: Ending Cash Balance from Q4.

 Accounts Receivable: Based on collections.
 Inventory: Based on production needs.
 Land: Birr 20,000
 Building: Birr 148,000
 Less: Accumulated Depreciation: Birr 33,000
Liabilities and Equity Calculation:

 Accounts Payable: Based on purchases.

 Short-term Borrowings: Birr 10,000 (borrowed in Q1).
 Retained Earnings: Starting balance plus net income.
 Capital Stock: Birr 90,000.
Final Budgeted Balance Sheet:

Amount
Assets
(Birr)
(Ending
Cash
Cash)
Accounts Receivable (Calculated)
Inventory (Calculated)
Land 20,000
Building 148,000
Less: Accumulated
(33,000)
Depreciation
Total Assets (Sum)
Liabilities and Equity Amount (Birr)
Accounts Payable (Calculated)
Short-term Borrowings 10,000
(Beginning + Net
Retained Earnings
Income)
Capital Stock 90,000
Total Liabilities and
Equity
 Administrative Expense Components
1.

Variable Administrative Expenses:

2.
 Bad Debts Expense: Estimated at 1% of Sales
3.

Fixed Administrative Expenses:

4.
 Salaries: Birr 6,000 per year (split evenly over 4 quarters)
 Insurance: Birr 440 per year (split evenly over 4 quarters)
 Telephone: Birr 800 per year (split evenly over 4 quarters)
 Supplies: Birr 200 per year (split evenly over 4 quarters)
 Other Expenses: Birr 400 per year (split evenly over 4 quarters)

Step 1: Calculate Sales for Each Quarter

 Selling Price: Birr 9.00/unit

Sales Calculations:

1.

1st Quarter:
Sales=700 units×9.00=6,300 BirrSales=700 units×9.00=6,300 Birr
2.
3.

2nd Quarter:
Sales=850 units×9.00=7,650 BirrSales=850 units×9.00=7,650 Birr
4.
5.

3rd Quarter:
Sales=1,000 units×9.00=9,000 BirrSales=1,000 units×9.00=9,000 Birr
6.
7.

4th Quarter:
Sales=1,150 units×9.00=10,350 BirrSales=1,150 units×9.00=10,350 Birr
8.

Step 2: Calculate Variable Administrative Expenses

Bad Debts Expense Calculations:

1st Quarter: Bad Debts=6,300×0.01=63 BirrBad Debts=6,300×0.01=63 Birr




2nd Quarter:
Bad Debts=7,650×0.01=76.5 BirrBad Debts=7,650×0.01=76.5 Birr


 3rd Quarter: Bad Debts=9,000×0.01=90 BirrBad Debts=9,000×0.01=90 Birr



4th Quarter:
Bad Debts=10,350×0.01=103.5 BirrBad Debts=10,350×0.01=103.5 Birr


Step 3: Calculate Total Variable Administrative

Expenses

Total Variable Administrative Expenses per Quarter:

1.

1st Quarter: Total Variable=63 BirrTotal Variable=63 Birr

2.
3.

2nd Quarter: Total Variable=76.5 BirrTotal Variable=76.5 Birr

4.
5.

3rd Quarter: Total Variable=90 BirrTotal Variable=90 Birr

6.
7.

4th Quarter: Total Variable=103.5 BirrTotal Variable=103.5 Birr

8.

Step 4: Calculate Fixed Administrative Expenses

Fixed Administrative Expenses per Quarter:

1.

Salaries: 6,0004=1,500 Birr46,000=1,500 Birr

2.
3.

Insurance: 4404=110 Birr4440=110 Birr

4.
5.

Telephone: 8004=200 Birr4800=200 Birr

6.
7.

Supplies: 2004=50 Birr4200=50 Birr

8.
9.

Other Expenses: 4004=100 Birr4400=100 Birr

10.

Total Fixed Administrative Expenses per Quarter:

Total Fixed=1,500+110+200+50+100=1,960 BirrTotal Fixed=1,500+110+200+50

+100=1,960 Birr

Step 5: Calculate Total Administrative Expenses per

Quarter

Total Administrative Expenses Calculation:

1.

1st Quarter:
Total Administrative Expenses=63+1,960=2,023 BirrTotal Administrative Expens
es=63+1,960=2,023 Birr
2.
3.

2nd Quarter:
Total Administrative Expenses=76.5+1,960=2,036.5 BirrTotal Administrative Exp
enses=76.5+1,960=2,036.5 Birr
4.
5.

3rd Quarter:
Total Administrative Expenses=90+1,960=2,050 BirrTotal Administrative Expens
es=90+1,960=2,050 Birr
6.
7.

4th Quarter:
Total Administrative Expenses=103.5+1,960=2,063.5 BirrTotal Administrative Ex
penses=103.5+1,960=2,063.5 Birr
8.

Summary of Administrative Expense Budget

 Fixed Total
Variable
Quarte Administrative Administrative
Administrative
r Expenses Expenses
Expenses (Birr)
(Birr) (Birr)
1st
63 1,960 2,023
Quarter
2nd
76.5 1,960 2,036.5
Quarter
3rd
90 1,960 2,050
Quarter
4th
103.5 1,960 2,063.5
Quarter

Total Administrative Expenses for the Year

Total Administrative Expenses for the Year=2,023+2,036.5+2,050+2,063.5=8,173
BirrTotal Administrative Expenses for the Year=2,023+2,036.5+2,050+2,063.5=8,
173 Birr

Thus, the total Administrative Expense Budget for Super Hand Tools
for the year is Birr 8,173.
 To calculate the Production Budget for Super Hand Tools for the
year beginning January 1, 20X6, we will follow these steps:

Step 1: Calculate Sales in Units

The projected sales in units for each quarter are:

 1st Quarter: 700 units

 2nd Quarter: 850 units
 3rd Quarter: 1,000 units
 4th Quarter: 1,150 units

Step 2: Determine Ending Inventory Requirements

Ending inventory for each quarter is to be 35% of the next month’s
production needs. The production needs for the following year’s 1st
quarter is 1,280 units.

Ending Inventory Calculations:

1.
 1st Quarter Ending Inventory (for 2nd Quarter needs):
Ending Inventory Q1=0.35×850=297.5≈300 units (rounded to nearest 10)Ending I
nventory Q1=0.35×850=297.5≈300 units (rounded to nearest 10)
2.
3.

2nd Quarter Ending Inventory (for 3rd Quarter needs):

Ending Inventory Q2=0.35×1,000=350 unitsEnding Inventory Q2=0.35×1,000=35
0 units
4.
5.

3rd Quarter Ending Inventory (for 4th Quarter needs):

Ending Inventory Q3=0.35×1,150=402.5≈400 units (rounded to nearest 10)Ending
Inventory Q3=0.35×1,150=402.5≈400 units (rounded to nearest 10)
6.
7.

4th Quarter Ending Inventory (for next year’s 1st Quarter

needs):
Ending Inventory Q4=0.35×1,280=448≈450 units (rounded to nearest 10)Ending I
nventory Q4=0.35×1,280=448≈450 units (rounded to nearest 10)
8.

Step 3: Calculate Beginning Inventory

The beginning inventory for the 1st quarter is given as 200 units.
The ending inventory of the previous quarter will be the beginning
inventory for the current quarter.

 Beginning Inventory 1st Quarter: 200 units

 Beginning Inventory 2nd Quarter: 300 units (from 1st Quarter
ending inventory)
 Beginning Inventory 3rd Quarter: 350 units (from 2nd Quarter
ending inventory)
 Beginning Inventory 4th Quarter: 400 units (from 3rd Quarter
ending inventory)

Step 4: Calculate Production Needs

The formula for calculating production needs is:

Production Needs=Sales+Ending Inventory−Beginning InventoryProduction Need

s=Sales+Ending Inventory−Beginning Inventory

Production Calculations:

1.
 1st Quarter:
Production Q1=700+300−200=800 unitsProduction Q1=700+300−200=800 units
2.
3.

2nd Quarter:
Production Q2=850+350−300=900 unitsProduction Q2=850+350−300=900 units
4.
5.

3rd Quarter:
Production Q3=1,000+400−350=1,050 unitsProduction Q3=1,000+400−350=1,05
0 units
6.
7.

4th Quarter:
Production Q4=1,150+450−400=1,200 unitsProduction Q4=1,150+450−400=1,20
0 units
8.

Summary of Production Budget

Ending Beginning Production

Quarte Sales
Inventory Inventory Needs
r (units)
(units) (units) (units)
1st
700 300 200 800
Quarter
2nd
850 350 300 900
Quarter
3rd
1,000 400 350 1,050
Quarter
4th
1,150 450 400 1,200
Quarter

Total Production for the Year

To find the total production for the year, sum the production needs
for each quarter:

Total Production=800+900+1,050+1,200=3,950 unitsTotal Production=800+900+

1,050+1,200=3,950 units

Final Production Budget

 Total Production for the Year: 3,950 units
This production budget will guide Super Hand Tools in planning their
manufacturing operations for the year.

To prepare the Budgeted Income Statement and the Budget of

Collections of Accounts Receivable for Super Hand Tools for the
year beginning January 1, 20X6, we will follow a structured
approach.

Step 1: Calculate Total Sales Revenue

Sales Calculations:

 1st Quarter: 700 units × Birr 9.00/unit = Birr 6,300

 2nd Quarter: 850 units × Birr 9.00/unit = Birr 7,650
 3rd Quarter: 1,000 units × Birr 9.00/unit = Birr 9,000
 4th Quarter: 1,150 units × Birr 9.00/unit = Birr 10,350

Total Sales Revenue for the Year:

Total Sales=6,300+7,650+9,000+10,350=Birr 33,300Total Sales=6,300+7,650+9,

000+10,350=Birr 33,300

Step 2: Calculate Cost of Goods Sold (COGS)

Cost per Unit:

 Direct Material: Birr 0.05

 Direct Labor: Birr 1.75
 Manufacturing Overhead: Birr 0.75
 Total Cost per Unit:

Total Cost per Unit=0.05+1.75+0.75=Birr 2.55Total Cost per Unit=0.05+1.75+0.7

5=Birr 2.55

Total Units Produced (from previous calculation):

 1st Quarter: 800 units

 2nd Quarter: 900 units
 3rd Quarter: 1,050 units
 4th Quarter: 1,200 units

Total Units Produced for the Year:

Total Units Produced=800+900+1,050+1,200=3,950 unitsTotal Units Produced=8

00+900+1,050+1,200=3,950 units

Total COGS Calculation:

Total COGS=3,950 units×2.55=Birr 10,072.50Total COGS=3,950 units×2.55=Bir

r 10,072.50

Step 3: Calculate Gross Profit

Gross Profit=Total Sales−Total COGS=33,300−10,072.50=Birr 23,227.50Gross P
rofit=Total Sales−Total COGS=33,300−10,072.50=Birr 23,227.50

Step 4: Calculate Selling Expenses

Variable Selling Expenses:

 Commission: 5% of Sales
1. 1st Quarter: 6,300×0.05=Birr 3156,300×0.05=Birr 315
2. 2nd Quarter: 7,650×0.05=Birr 382.507,650×0.05=Birr 382.50
3. 3rd Quarter: 9,000×0.05=Birr 4509,000×0.05=Birr 450
4. 4th Quarter: 10,350×0.05=Birr 517.5010,350×0.05=Birr 517.50

Total Variable Selling Expenses:

Total Variable Selling Expenses=315+382.50+450+517.50=Birr 1,665Total Varia

ble Selling Expenses=315+382.50+450+517.50=Birr 1,665

Fixed Selling Expenses:

 Rent: Birr 1,200/year (Birr 300/quarter)

 Advertising: Birr 400/year (Birr 100/quarter)
 Telephone: Birr 800/year (Birr 200/quarter)
 Depreciation Expense: Birr 500/year (Birr 125/quarter)
 Total Fixed Selling Expenses per Quarter:

Total Fixed Selling Expenses=300+100+200+125=Birr 725Total Fixed Selling Ex

penses=300+100+200+125=Birr 725

Total Selling Expenses for the Year:

Total Selling Expenses=1,665+(725×4)=1,665+2,900=Birr 4,565Total Selling Exp

enses=1,665+(725×4)=1,665+2,900=Birr 4,565

Step 5: Calculate Administrative Expenses

Variable Administrative Expenses:

 Bad Debts Expense: 1% of Sales

1. 1st Quarter: 6,300×0.01=Birr 636,300×0.01=Birr 63
2. 2nd Quarter: 7,650×0.01=Birr 76.507,650×0.01=Birr 76.50
3. 3rd Quarter: 9,000×0.01=Birr 909,000×0.01=Birr 90
4. 4th Quarter: 10,350×0.01=Birr 103.5010,350×0.01=Birr 103.50

Total Variable Administrative Expenses:

Total Variable Administrative Expenses=63+76.50+90+103.50=Birr 333Total Var

iable Administrative Expenses=63+76.50+90+103.50=Birr 333

Fixed Administrative Expenses:

 Salaries: Birr 6,000/year (Birr 1,500/quarter)

 Insurance: Birr 440/year (Birr 110/quarter)
 Telephone: Birr 800/year (Birr 200/quarter)
 Supplies: Birr 200/year (Birr 50/quarter)
 Other Expenses: Birr 400/year (Birr 100/quarter)

Total Fixed Administrative Expenses per Quarter:

Total Fixed Administrative Expenses=1,500+110+200+50+100=Birr 1,960Total F

ixed Administrative Expenses=1,500+110+200+50+100=Birr 1,960

Total Administrative Expenses for the Year:

Total Administrative Expenses=333+(1,960×4)=333+7,840=Birr 8,173Total Admi

nistrative Expenses=333+(1,960×4)=333+7,840=Birr 8,173

Step 6: Calculate Income Before Tax

Income Before Tax=Gross Profit−Total Selling Expenses−Total Administrative E
xpensesIncome Before Tax=Gross Profit−Total Selling Expenses−Total Administr
ative Expenses
=23,227.50−4,565−8,173=10,489.50=23,227.50−4,565−8,173=10,489.50
 Step 7: Calculate Income Tax
Income Tax=25%×10,489.50=2,622.38Income Tax=25%×10,489.50=2,622.38

Step 8: Calculate Net Income

Net Income=Income Before Tax−Income Tax=10,489.50−2,622.38=7,867.12Net I
ncome=Income Before Tax−Income Tax=10,489.50−2,622.38=7,867.12

Budgeted Income Statement

Amount
Particulars
(Birr)
Sales Revenue 33,300
Cost of Goods Sold (COGS) (10,072.50)
Gross Profit 23,227.50
Selling Expenses
Variable Selling Expenses (1,665)
Fixed Selling Expenses (2,900)
Total Selling Expenses (4,565)
Administrative Expenses
Variable Administrative
(333)
Expenses
Fixed Administrative
(7,840)
Expenses
Total Administrative
(8,173)
Expenses
Income Before Tax 10,489.50
Income Tax (25%) (2,622.38)
Net Income 7,867.12

Step 9: Budget of Collections of Accounts Receivable

Sales Collection Schedule:

1. 4th Quarter Sales of Previous Year: Birr 900

2. Collections:
 90% of current quarter sales collected in the same quarter.
 9% of current quarter sales collected in the following quarter.
 1% is uncollectible.

Collections Calculations:

1.

1st Quarter Collections:

2.
 From Previous Year: Birr 900
 From Current Quarter: 6,300×0.90=5,6706,300×0.90=5,670
 Total Collections: 900+5,670=Birr 6,570900+5,670=Birr 6,570
3.

2nd Quarter Collections:

4.
 From 1st Quarter: 6,300×0.09=5676,300×0.09=567
 From Current Quarter: 7,650×0.90=6,8857,650×0.90=6,885
 Total Collections: 567+6,885=Birr 7,452567+6,885=Birr 7,452
5.

3rd Quarter Collections:

6.
 From 2nd Quarter: 7,650×0.09=688.507,650×0.09=688.50
 From Current Quarter: 9,000×0.90=8,1009,000×0.90=8,100
 Total Collections: 688.50+8,100=Birr 8,788.50688.50+8,100=Birr 8,788.50
7.

4th Quarter Collections:

8.
 From 3rd Quarter: 9,000×0.09=8109,000×0.09=810
 From Current Quarter: 10,350×0.90=9,31510,350×0.90=9,315
 Total Collections: 810+9,315=Birr 10,125810+9,315=Birr 10,125

Summary of Collections of Accounts Receivable

Collections
Quarter
(Birr)
1st
6,570
Quarter
2nd 7,452
 Collections
Quarter
(Birr)
Quarter
3rd
8,788.50
Quarter
4th
10,125
Quarter
Total 32,935.50

Conclusion
 Budgeted Income Statement shows a Net Income of Birr
7,867.12.
 Budget of Collections of Accounts Receivable totals Birr
32,935.50 for the year.
This master budget provides a comprehensive financial overview for
Super Hand Tools for the year 20X6.
 To prepare the Direct Materials Budget and the Schedule of
Expected Cash Disbursements for Super Hand Tools for the year
beginning January 1, 20X6, we will follow a structured approach.

Step 1: Calculate Total Production Needs

From previous calculations, we have the following production needs
for each quarter:

 1st Quarter: 800 units

 2nd Quarter: 900 units
 3rd Quarter: 1,050 units
 4th Quarter: 1,200 units

Step 2: Calculate Direct Materials Required

Direct Material Cost per Unit:

 Direct Material: Birr 0.05/unit

Total Direct Materials Needed for Production:

1. 1st
Quarter: Direct Materials=800 units×0.05=Birr 40Direct Materials=800 units×
0.05=Birr 40
2. 2nd
Quarter: Direct Materials=900 units×0.05=Birr 45Direct Materials=900 units×
0.05=Birr 45
3. 3rd
Quarter: Direct Materials=1,050 units×0.05=Birr 52.50Direct Materials=1,050
units×0.05=Birr 52.50
4. 4th
Quarter: Direct Materials=1,200 units×0.05=Birr 60Direct Materials=1,200 uni
ts×0.05=Birr 60

Step 3: Calculate Ending Inventory Requirements

Ending inventory is to be 35% of the next month's production needs,
rounded to the nearest 10.

1.

1st Quarter Ending Inventory (for 2nd Quarter needs):

2.
 2nd Quarter needs: 900
units Ending Inventory Q1=0.35×900=315≈320 unitsEnding Inventory Q1=0.35
×900=315≈320 units Direct Materials=320×0.05=Birr 16Direct Materials=320×0.
05=Birr 16
3.

2nd Quarter Ending Inventory (for 3rd Quarter needs):

4.
 3rd Quarter needs: 1,050
units Ending Inventory Q2=0.35×1,050=367.5≈370 unitsEnding Inventory Q2=0.
35×1,050=367.5≈370 units Direct Materials=370×0.05=Birr 18.50Direct Material
s=370×0.05=Birr 18.50
5.

3rd Quarter Ending Inventory (for 4th Quarter needs):

6.
 4th Quarter needs: 1,200
units Ending Inventory Q3=0.35×1,200=420 unitsEnding Inventory Q3=0.35×1,2
00=420 units Direct Materials=420×0.05=Birr 21Direct Materials=420×0.05=Birr
21
7.

4th Quarter Ending Inventory (for next year’s 1st Quarter

needs):
8.
 Next year’s 1st Quarter needs: 1,280
units Ending Inventory Q4=0.35×1,280=448≈450 unitsEnding Inventory Q4=0.3
5×1,280=448≈450 units Direct Materials=450×0.05=Birr 22.50Direct Materials=4
50×0.05=Birr 22.50

Step 4: Calculate Total Direct Materials Needed

 Now, we can calculate the total direct materials required for each
quarter:

1.

1st Quarter:
Total Direct Materials Needed=Direct Materials for Production+Ending Inventory
−Beginning InventoryTotal Direct Materials Needed=Direct Materials for Product
ion+Ending Inventory−Beginning Inventory
=40+16−(200×0.05)=40+16−10=Birr 46=40+16−(200×0.05)=40+16−10=Birr 46
2.
3.

2nd Quarter:
Total Direct Materials Needed=45+18−16=Birr 47Total Direct Materials Needed=
45+18−16=Birr 47
4.
5.

3rd Quarter:
Total Direct Materials Needed=52.50+21−18.50=Birr 55Total Direct Materials Ne
eded=52.50+21−18.50=Birr 55
6.
7.

4th Quarter:
Total Direct Materials Needed=60+22.50−21=Birr 61.50Total Direct Materials Ne
eded=60+22.50−21=Birr 61.50
8.

Step 5: Prepare the Direct Materials Budget

Total
Production Ending Beginning Direct
Quarte
Needs Inventory Inventory Materials
r
(Birr) (Birr) (Birr) Needed
(Birr)
1st
40 16 10 46
Quarter
2nd
45 18.50 16 47
Quarter
3rd
52.50 21 18.50 55
Quarter
4th 60 22.50 21 61.50
 Total
Production Ending Beginning Direct
Quarte
Needs Inventory Inventory Materials
r
(Birr) (Birr) (Birr) Needed
(Birr)
Quarter

Step 6: Schedule of Expected Cash Disbursements for

Direct Materials

Cash Disbursements Schedule

 Accounts Payable: One half of a month’s purchases are paid for in

the quarter of purchase; the other half is paid in the following
quarter.

Cash Payments Calculations:

1.

1st Quarter:
2.
 Purchases for 1st
Quarter: =Total Direct Materials Needed=46=Total Direct Materials Needed=46
 Cash
Disbursement: =46×0.5=23 (paid in 1st Quarter)=46×0.5=23 (paid in 1st Quart
er)
3.

2nd Quarter:
4.
 Purchases for 2nd Quarter: =47=47
 Cash
Disbursement: =23+(47×0.5)=23+23.5=46.50=23+(47×0.5)=23+23.5=46.50
5.

3rd Quarter:
6.
 Purchases for 3rd Quarter: =55=55
 Cash
Disbursement: =46.50+(55×0.5)=46.50+27.50=74=46.50+(55×0.5)=46.50+27.
50=74
7.
 4th Quarter:
8.
 Purchases for 4th Quarter: =61.50=61.50
 Cash
Disbursement: =74+(61.50×0.5)=74+30.75=104.75=74+(61.50×0.5)=74+30.75
=104.75

Summary of Expected Cash Disbursements

Cash Disbursements
Quarter
(Birr)
1st
23
Quarter
2nd
46.50
Quarter
3rd
74
Quarter
4th
104.75
Quarter
Total 248.25

Conclusion
 The Direct Materials Budget outlines the direct material
requirements for each quarter.
 The Schedule of Expected Cash Disbursements details the
expected cash outflows for direct materials throughout the year.
This budgeting process provides Super Hand Tools with a clear
financial plan for managing direct materials and cash disbursements
for the year 20X6.
 To prepare the Direct Labor Budget for Super Hand Tools for the
year beginning January 1, 20X6, we will follow a structured approach
based on the provided information.

Step 1: Calculate Total Production Needs

From previous calculations, we have the following production needs
for each quarter:

 1st Quarter: 800 units

 2nd Quarter: 900 units
 3rd Quarter: 1,050 units
 4th Quarter: 1,200 units

Step 2: Determine Direct Labor Cost per Unit

The Direct Labor Cost per Unit is given as:

 Birr 1.75 per unit.

Step 3: Calculate Total Direct Labor Required for Each

Quarter
 Total Direct Labor Cost for Each Quarter:

1.

1st Quarter:
Direct Labor Cost=800 units×1.75=Birr 1,400Direct Labor Cost=800 units×1.75=
Birr 1,400
2.
3.

2nd Quarter:
Direct Labor Cost=900 units×1.75=Birr 1,575Direct Labor Cost=900 units×1.75=
Birr 1,575
4.
5.

3rd Quarter:
Direct Labor Cost=1,050 units×1.75=Birr 1,837.50Direct Labor Cost=1,050 units
×1.75=Birr 1,837.50
6.
7.

4th Quarter:
Direct Labor Cost=1,200 units×1.75=Birr 2,100Direct Labor Cost=1,200 units×1.
75=Birr 2,100
8.

Step 4: Prepare the Direct Labor Budget

Direct Labor Total Direct

Production
Quarter Cost per Unit Labor Cost
Needs (Units)
(Birr) (Birr)
1st
800 1.75 1,400
Quarter
2nd
900 1.75 1,575
Quarter
3rd
1,050 1.75 1,837.50
Quarter
4th
1,200 1.75 2,100
Quarter
Total - - 7,912.50

Conclusion
 The Direct Labor Budget outlines the direct labor costs associated
with production for each quarter of the year 20X6, totaling Birr
7,912.50. This budget will help Super Hand Tools plan for labor
expenses effectively throughout the year.

To prepare the Manufacturing Overhead Budget for Super Hand

Tools for the year beginning January 1, 20X6, we will follow a
structured approach based on the provided information.

Step 1: Calculate Total Production Needs

From the sales projections, we need to determine the production
needs for each quarter. The production needs are calculated based
on the sales forecasts and the desired ending inventory.

Sales Projections:

 1st Quarter: 700 units

 2nd Quarter: 850 units
 3rd Quarter: 1,000 units
 4th Quarter: 1,150 units

Ending Inventory Requirements:

 Ending Inventory is to be 35% of the next month’s production

needs, rounded to the nearest 10.
 Next year’s 1st Quarter needs: 1,280 units

Step 2: Calculate Production Requirements

1.
 1st Quarter:
2.
 Sales: 700 units
 Desired Ending Inventory for 1st
Quarter: 0.35×850=297.5≈300 units0.35×850=297.5≈300 units
 Beginning Inventory: 200 units
 Production
Required: Production=Sales+Ending Inventory−Beginning Inventory=700+300−
200=800 unitsProduction=Sales+Ending Inventory−Beginning Inventory=700+30
0−200=800 units
3.

2nd Quarter:
4.
 Sales: 850 units
 Desired Ending Inventory for 2nd
Quarter: 0.35×1,000=350 units0.35×1,000=350 units
 Beginning Inventory: 300 units
 Production
Required: Production=850+350−300=900 unitsProduction=850+350−300=900 u
nits
5.

3rd Quarter:
6.
 Sales: 1,000 units
 Desired Ending Inventory for 3rd
Quarter: 0.35×1,150=402.5≈400 units0.35×1,150=402.5≈400 units
 Beginning Inventory: 350 units
 Production
Required: Production=1,000+400−350=1,050 unitsProduction=1,000+400−350=
1,050 units
7.

4th Quarter:
8.
 Sales: 1,150 units
 Desired Ending Inventory for 4th
Quarter: 0.35×1,280=448≈450 units0.35×1,280=448≈450 units
 Beginning Inventory: 400 units
 Production
Required: Production=1,150+450−400=1,200 unitsProduction=1,150+450−400=
1,200 units
 Step 3: Calculate Manufacturing Overhead Costs

Manufacturing Overhead Cost per Unit:

 Manufacturing Overhead: Birr 0.75 per unit

 Depreciation of Manufacturing Overhead: Birr 200 per quarter

Step 4: Calculate Total Manufacturing Overhead for

Each Quarter
1.

1st Quarter:
2.
 Production: 800 units
 Variable Overhead: 800×0.75=Birr 600800×0.75=Birr 600
 Total Overhead: 600+200=Birr 800600+200=Birr 800
3.

2nd Quarter:
4.
 Production: 900 units
 Variable Overhead: 900×0.75=Birr 675900×0.75=Birr 675
 Total Overhead: 675+200=Birr 875675+200=Birr 875
5.

3rd Quarter:
6.
 Production: 1,050 units
 Variable Overhead: 1,050×0.75=Birr 787.501,050×0.75=Birr 787.50
 Total Overhead: 787.50+200=Birr 987.50787.50+200=Birr 987.50
7.

4th Quarter:
8.
 Production: 1,200 units
 Variable Overhead: 1,200×0.75=Birr 9001,200×0.75=Birr 900
 Total Overhead: 900+200=Birr 1,100900+200=Birr 1,100

Step 5: Prepare the Manufacturing Overhead Budget

 Variable Fixed Total
Productio
Quarte Overhea Overhea Manufacturin
n Needs
r d Cost d Cost g Overhead
(Units)
(Birr) (Birr) (Birr)
1st
800 600 200 800
Quarter
2nd
900 675 200 875
Quarter
3rd
1,050 787.50 200 987.50
Quarter
4th
1,200 900 200 1,100
Quarter
Total - 2,962.50 800 3,762.50

Conclusion
The Manufacturing Overhead Budget outlines the total
manufacturing overhead costs associated with production for each
quarter of the year 20X6, totaling Birr 3,762.50. This budget will
assist Super Hand Tools in planning and managing overhead
expenses effectively throughout the year.
 To prepare the Cash Budget for Super Hand Tools for the year
beginning January 1, 20X6, we will follow a structured approach
based on the provided information. The cash budget will include
cash inflows and outflows for each quarter.

Step 1: Calculate Cash Inflows

1. Cash Collections from Sales

 Sales Projections:
 1st Quarter: 700 units at Birr 9.00/unit = Birr 6,300
 2nd Quarter: 850 units at Birr 9.00/unit = Birr 7,650
 3rd Quarter: 1,000 units at Birr 9.00/unit = Birr 9,000
 4th Quarter: 1,150 units at Birr 9.00/unit = Birr 10,350

2. Cash Collection Breakdown

 Cash Collections:
 1st Quarter:
 From 4th Quarter previous year: Birr 900 (10% of previous year)
 From current sales: 90% of 6,300 = Birr 5,670
 Total: 900 + 5,670 = Birr 6,570
 2nd Quarter:
 From 1st Quarter sales: 9% of 6,300 = Birr 567
 From current sales: 90% of 7,650 = Birr 6,885
 Total: 567 + 6,885 = Birr 7,452
 3rd Quarter:
 From 2nd Quarter sales: 9% of 7,650 = Birr 688.50
 From current sales: 90% of 9,000 = Birr 8,100
 Total: 688.50 + 8,100 = Birr 8,788.50
 4th Quarter:
 From 3rd Quarter sales: 9% of 9,000 = Birr 810
 From current sales: 90% of 10,350 = Birr 9,315
 Total: 810 + 9,315 = Birr 10,125

Step 2: Calculate Cash Outflows

1. Cash Payments for Purchases

 Purchases Calculation:
 Direct Material Cost: Birr 0.05/unit
 Direct Labor Cost: Birr 1.75/unit
 Manufacturing Overhead: Birr 0.75/unit
 Total Cost per Unit: 0.05 + 1.75 + 0.75 = Birr 2.55/unit

2. Production Needs and Purchases

 Production Needs (from previous calculations):

 1st Quarter: 800 units
 2nd Quarter: 900 units
 3rd Quarter: 1,050 units
 4th Quarter: 1,200 units

3. Total Purchases Calculation

 Total Purchases:
 1st Quarter: 800 units × 2.55 = Birr 2,040
 2nd Quarter: 900 units × 2.55 = Birr 2,295
 3rd Quarter: 1,050 units × 2.55 = Birr 2,677.50
 4th Quarter: 1,200 units × 2.55 = Birr 3,060

4. Cash Payments for Purchases

 Accounts Payable:
 50% of purchases are paid in the quarter of purchase, and the other
50% in the following quarter.

Payment
Payment Total Cash
from
Quarte Purchase in Current Outflow for
Previous
r s (Birr) Quarter Purchases
Quarter
(Birr) (Birr)
(Birr)
300 (from
1st
2,040 1,020 previous 1,320
Quarter
balance)
2nd
2,295 1,147.50 1,020 2,167.50
Quarter
3rd
2,677.50 1,338.75 1,147.50 2,486.25
Quarter
4th
3,060 1,530 1,338.75 2,868.75
Quarter

Step 3: Other Cash Outflows

1. Selling Expenses

 Variable Selling Expense: 5% of Sales

 Fixed Selling Expenses:
 Rent: Birr 1,200/year (Birr 300/quarter)
 Advertising: Birr 400/year (Birr 100/quarter)
 Telephone: Birr 800/year (Birr 200/quarter)
 Depreciation Expense: Birr 500/year (Birr 125/quarter)

2. Administrative Expenses

 Variable Bad Debts Expense: 1% of Sales

 Fixed Administrative Expenses:
 Salaries: Birr 6,000/year (Birr 1,500/quarter)
 Insurance: Birr 440/year (Birr 110/quarter)
 Telephone: Birr 800/year (Birr 200/quarter)
 Supplies: Birr 200/year (Birr 50/quarter)
 Other Expenses: Birr 400/year (Birr 100/quarter)

Step 4: Prepare the Cash Budget

Total Cash Outflows Calculation

 Total Selling Expenses:

 1st Quarter: (5% of 6,300) + Fixed = 315 + 300 + 100 + 200 +
125 = 1,040
 2nd Quarter: (5% of 7,650) + Fixed = 382.50 + 300 + 100 + 200
+ 125 = 1,107.50
 3rd Quarter: (5% of 9,000) + Fixed = 450 + 300 + 100 + 200 +
125 = 1,175
 4th Quarter: (5% of 10,350) + Fixed = 517.50 + 300 + 100 + 200
+ 125 = 1,242.50

Summary of Cash Budget

Cash
Outflows
Cash (Purchas Net Beginnin Ending
Quart Inflow es + Cash g Cash Cash
er s Selling + Flow Balance Balanc
(Birr) Admin (Birr) (Birr) e (Birr)
Expenses
) (Birr)
1st 1,320 +
Quarte 6,570 1,040 = 4,210 10,000 14,210
r 2,360
2,167.50
2nd
+
Quarte 7,452 4,177 14,210 18,387
1,107.50
r
= 3,275
 Cash
Outflows
Cash (Purchas Net Beginnin Ending
Quart Inflow es + Cash g Cash Cash
er s Selling + Flow Balance Balanc
(Birr) Admin (Birr) (Birr) e (Birr)
Expenses
) (Birr)
3rd 2,486.25
8,788.5 5,127.2 23,514.
Quarte + 1,175 = 18,387
0 5 25
r 3,661.25
2,868.75
4th +
6,013.7 23,514.2
Quarte 10,125 1,242.50 29,528
5 5
r =
4,111.25

Conclusion
The Cash Budget for Super Hand Tools outlines the expected cash
inflows and outflows for each quarter of 20X6, helping the company
manage its cash flow effectively. The ending cash balance for the
year is projected to be Birr 29,528.

To prepare a Budgeted Balance Sheet for Super Hand Tools as of

December 31, 20X6, we need to summarize the projected assets,
liabilities, and equity based on the provided information and the
calculations from the master budget.

Step 1: Calculate Total Assets

1. Current Assets


 Cash:

 Beginning Cash Balance: Birr 10,000
 Cash Inflows and Outflows were calculated in the Cash Budget,
resulting in an ending cash balance of Birr 29,528.


Accounts Receivable:

 Sales for 4th Quarter: 1,150 units × Birr 9.00/unit = Birr 10,350
 Collections:
 90% collected in the quarter of sale: 90% of 10,350 = Birr 9,315
 9% collected in the following quarter: 9% of 10,350 = Birr 931.50
 1% uncollectible: 1% of 10,350 = Birr 103.50
 Accounts Receivable at Year-End:
 From 4th Quarter: 10,350 - 9,315 = Birr 1,035
 From 3rd Quarter: 9,000 × 9% = Birr 810
 Total Accounts Receivable: Birr 1,035 + 810 = Birr 1,845


Inventory:

 Ending Inventory Calculation:
 1st Quarter Production: 800 units, Ending Inventory = 35% of 850 =
300 units
 2nd Quarter Production: 900 units, Ending Inventory = 35% of 1,000
= 350 units
 3rd Quarter Production: 1,050 units, Ending Inventory = 35% of
1,150 = 400 units
 4th Quarter Production: 1,200 units, Ending Inventory = 35% of
1,280 = 450 units
 Ending Inventory for 4th Quarter: 450 units
 Cost per Unit: Birr 2.55 (0.05 + 1.75 + 0.75)
 Total Ending Inventory: 450 units × 2.55 = Birr 1,147.50

Total Current Assets

Total Current Assets=Cash+Accounts Receivable+InventoryTotal Current Assets=

Cash+Accounts Receivable+Inventory
=29,528+1,845+1,147.50=32,520.50=29,528+1,845+1,147.50=32,520.50

2. Non-Current Assets

 Land: Birr 20,000

 Building: Birr 148,000
 Accumulated Depreciation (Building): Birr 33,000
 Net Book Value of
Building: Net Building=148,000−33,000=115,000Net Building=148,000−33,00
0=115,000
 Total Non-Current Assets: Total Non-
Current Assets=Land+Net Building=20,000+115,000=135,000Total Non-Current
Assets=Land+Net Building=20,000+115,000=135,000

Total Assets

Total Assets=Total Current Assets+Total Non-Current AssetsTotal Assets=Total

Current Assets+Total Non-Current Assets
=32,520.50+135,000=167,520.50=32,520.50+135,000=167,520.50

Step 2: Calculate Total Liabilities

1. Current Liabilities

Accounts Payable:

 Balance on December 31 of the previous quarter: Birr 300
 Purchases for 4th Quarter: 3,060
 Payments:
 50% paid in the quarter of purchase: 1,530
 Remaining 50% will be paid in the next quarter.
 Ending Accounts
Payable: Ending Accounts Payable=300+(3,060/2)−1,530=300+1,530−1,530=3
00Ending Accounts Payable=300+(3,060/2)−1,530=300+1,530−1,530=300


Dividends Payable: Birr 5,000 (to be paid in the 4th Quarter)



Total Current Liabilities

Total Current Liabilities=Accounts Payable+Dividends PayableTotal Current Liab

ilities=Accounts Payable+Dividends Payable
=300+5,000=5,300=300+5,000=5,300

2. Long-Term Liabilities

 Loan Payable: Birr 10,000 (borrowed in 1st Quarter and paid back
in 4th Quarter)
 Ending Long-Term Liabilities: Birr 0 (as it is paid back)

Total Liabilities
 Total Liabilities=Total Current Liabilities+Long-Term LiabilitiesTotal Liabilities=
Total Current Liabilities+Long-Term Liabilities =5,300+0=5,300=5,300+0=5,300

Step 3: Calculate Total Equity

1. Retained Earnings

Beginning Retained Earnings: Birr 51,717.50




Net Income Calculation:




Sales: Total Sales for the year =

(6,300+7,650+9,000+10,350)=33,300(6,300+7,650+9,000+10,350)=33,300



Total Costs:

 Total Manufacturing Costs:
 Direct
Materials: (800+900+1,050+1,200)×0.05=2,040 Birr(800+900+1,050+1,200)×0.
05=2,040 Birr
 Direct
Labor: (800+900+1,050+1,200)×1.75=4,675 Birr(800+900+1,050+1,200)×1.75=
4,675 Birr
 Manufacturing
Overhead: (800+900+1,050+1,200)×0.75=2,550 Birr(800+900+1,050+1,200)×0
.75=2,550 Birr
 Total Manufacturing
Costs: 2,040+4,675+2,550=9,2652,040+4,675+2,550=9,265


Total Selling and Administrative Expenses:


 Selling Expenses:
 Variable: 5% of 33,300 = 1,665
 Fixed: (1,200 + 400 + 800 + 500) / 4 = 350
 Administrative Expenses:
 Variable: 1% of 33,300 = 333
 Fixed: (6,000 + 440 + 800 + 200 + 400) / 4 = 2,210
 Total Selling and Administrative
Expenses: 1,665+350+333+2,210=4,5581,665+350+333+2,210=4,558


Total Expenses: 9,265+4,558=13,8239,265+4,558=13,823




Net Income:
Net Income=Sales−Total Expenses=33,300−13,823=19,477Net Income=Sales−To
tal Expenses=33,300−13,823=19,477



Ending Retained Earnings:

Ending Retained Earnings=Beginning Retained Earnings+Net Income−Dividends
Ending Retained Earnings=Beginning Retained Earnings+Net Income−Dividends
=51,717.50+19,477−5,000=66,194.50=51,717.50+19,477−5,000=66,194.50


Total Equity

Total Equity=Ending Retained Earnings+Capital StockTotal Equity=Ending Retai

ned Earnings+Capital Stock
=66,194.50+90,000=156,194.50=66,194.50+90,000=156,194.50

Step 4: Prepare the Budgeted Balance Sheet

Budgeted Balance Sheet as of December 31, 20X6

Amount
Assets
(Birr)
Current Assets
Cash 29,528
Accounts Receivable 1,845
Inventory 1,147.50
Total Current Assets 32,520.50
Non-Current Assets
Land 20,000
Building 148,000
Less: Accumulated
(33,000)
Depreciation
 Amount
Assets
(Birr)
Net Building 115,000
Total Non-Current
135,000
Assets
Total Assets 167,520.50
Amount
Liabilities and Equity
(Birr)
Current Liabilities
Accounts Payable 300
Dividends Payable 5,000
Total Current
5,300
Liabilities
Long-Term Liabilities 0
Total Liabilities 5,300
Equity
Ending Retained Earnings 66,194.50
Capital Stock 90,000
Total Equity 156,194.50
Total Liabilities and
167,520.50
Equity

Conclusion
The Budgeted Balance Sheet for Super Hand Tools as of
December 31, 20X6, reflects total assets of Birr 167,520.50, total
liabilities of Birr 5,300, and total equity of Birr 156,194.50. This
budget provides a comprehensive overview of the company's
financial position at the end of the year.