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    Royal Company Budgeting - With Additional Details

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    Sonakshi Bhatia
    Royal Company is preparing budgets for the second quarter. They provide budgets for sales of 20,000, 50,000, 30,000, 25,000 and 15,000 units for April through August. Materials, labor, overhead and production are also budgeted based on sales. A cash budget is included that accounts for cash flows from operations, equipment purchases, dividends and borrowing within the $75,000 line of credit. Balance sheets are provided for opening balances and projected ending balances.

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    Royal Company Budgeting - With Additional Details

    Uploaded by

    Sonakshi Bhatia
    167 views3 pages
    Royal Company is preparing budgets for the second quarter. They provide budgets for sales of 20,000, 50,000, 30,000, 25,000 and 15,000 units for April through August. Materials, labor, overhead and production are also budgeted based on sales. A cash budget is included that accounts for cash flows from operations, equipment purchases, dividends and borrowing within the $75,000 line of credit. Balance sheets are provided for opening balances and projected ending balances.

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    Royal Company Budgeting - with additional details

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    Royal Company is preparing budgets for the second quarter. They provide budgets for sales of 20,000, 50,000, 30,000, 25,000 and 15,000 units for April through August. Materials, labor, overhead and production are also budgeted based on sales. A cash budget is included that accounts for cash flows from operations, equipment purchases, dividends and borrowing within the $75,000 line of credit. Balance sheets are provided for opening balances and projected ending balances.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    167 views3 pages

    Royal Company Budgeting - With Additional Details

    Uploaded by

    Sonakshi Bhatia
    Royal Company is preparing budgets for the second quarter. They provide budgets for sales of 20,000, 50,000, 30,000, 25,000 and 15,000 units for April through August. Materials, labor, overhead and production are also budgeted based on sales. A cash budget is included that accounts for cash flows from operations, equipment purchases, dividends and borrowing within the $75,000 line of credit. Balance sheets are provided for opening balances and projected ending balances.

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    © All Rights Reserved
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    of 3

    COMPREHENSIVE BUDGETING EXAMPLE

    ROYAL COMPANY

    Royal Company is preparing budgets for the second quarter ending June

    • Budgeted sales of the company’s only product for the next five months are:
    April .......... 20,000 units
    May ........... 50,000 units
    June ........... 30,000 units
    July............ 25,000 units
    August ....... 15,000 units

    • The selling price is $10 per unit. All sales are on account.
    • The company collects 70% of these credit sales in the month of the sale; 25% are collected
    in the month following sale; and the remaining 5% are uncollectible.
    • The accounts receivable balance on March 31 was $30,000. All of this balance was
    collectible.
     The company desires to have inventory on hand at the end of each month equal to 20% of
    the following month’s budgeted unit sales.
    • On March 31, 4,000 units were on hand.
     5 pounds of material are required per unit of product.
     Management desires to have materials on hand at the end of each month equal to 10%
    of the following month’s production needs.
     The beginning materials inventory was 13,000 pounds.
     The material costs $0.40 per pound.
    • Half of a month’s purchases are paid for in the month of purchase; the other half is paid
    for in the following month.
    • No discounts are given for early payment.
    • The accounts payable balance on March 31 was $12,000.
    • Each unit produced requires 0.05 hour of direct labor.
    • Each hour of direct labor costs the company $10.
    • Management fully adjusts the workforce to the workload each month.
    • Variable manufacturing overhead is $20 per direct labor-hour.
    • Fixed manufacturing overhead is $50,500 per month. This includes $20,500 in
    depreciation, which is not a cash outflow.
    • Royal Company uses absorption costing in its budgeted income statement and balance
    sheet.
    • Manufacturing overhead is applied to units of product on the basis of direct labor-hours.
    • The company has no work in process inventories.
    • Variable selling and administrative expenses are $0.50 per unit sold.
    • Fixed selling and administrative expenses are $70,000 per month and include $10,000 in
    depreciation.

    CASH BUDGET
    Additional data:
    1. A line of credit is available at a local bank that allows the company to borrow up to
    $75,000.
    a. All borrowing occurs at the beginning of the month, and all repayments occur at the
    end of the month.
    b. The interest rate is 1% per month.
    c. The company does not have to make any payments until the end of the quarter.
    2. Royal Company desires a cash balance of at least $30,000 at the end of each month. The
    cash balance at the beginning of April was $40,000.
    3. Cash dividends of $51,000 are to be paid to stockholders in April.
    4. Equipment purchases of $143,700 are scheduled for May and $48,800 for June. This
    equipment will be installed and tested during the second quarter and will not become
    operational until July, when depreciation charges will commence.

    BALANCE SHEET
    1. Some account balances at the beginning of the accounting period is below:
    Opening values for
    Land 400000
    Equipments: Gross 1610000
    Equipments: acc. Depn 750000
    Capital 200000
    Retained earnings 1143200

    Prepare the following components of the Master Budget


    1. Sales budget (with a schedule of expected cash collections).
    2. Production budget.
    3. Direct materials budget (with a schedule of expected cash disbursements for
    materials).
    4. Direct labor budget.
    5. Manufacturing overhead budget.
    6. Ending finished goods inventory budget.
    7. Selling and administrative expense budget.
    8. Cash budget.
    9. Budgeted Income Statement
    10. Budgeted Balance Sheet

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