CH 09
CH 09
CH 09
Budgetary Planning
Brief A
Learning Objectives Questions Exercises Do It! Exercises Problems
3. Prepare budgets for direct labor, 14, 15, 16, 5, 6, 7, 8 3 9, 10, 11, 1A, 2A, 6A
manufacturing overhead, and 17, 18 12, 13
selling and administrative
expenses, and a budgeted
income statement.
Copyright © 2018 John Wiley & Sons, Inc. Weygandt, Managerial Accounting, 8/e, Solutions Manual (For Instructor Use Only) 9-1
ASSIGNMENT CHARACTERISTICS TABLE
3A Prepare sales and production budgets and compute cost Moderate 30–40
per unit under two plans.
9-2 Copyright © 2018 John Wiley & Sons, Inc. Weygandt, Managerial Accounting, 8/e, Solutions Manual (For Instructor Use Only)
BLOOM’S TAXONOMY TABLE
Correlation Chart between Bloom’s Taxonomy, Learning Objectives and End-of-Chapter Exercises and Problems
Copyright © 2018 John Wiley & Sons, Inc. Weygandt, Managerial Accounting, 8/e, Solutions Manual (For Instructor Use Only) 9-3
ANSWERS TO QUESTIONS
1. (a) A budget is a formal written statement of management’s plans for a specified future time period,
expressed in financial terms.
(b) A budget aids management in planning because it represents the primary method of commu-
nicating agreed-upon objectives throughout the organization. Once adopted, a budget becomes
an important basis for evaluating performance.
LO1 BT: C Difficulty: Easy TOT: 4 min. AACSB: None AICPA FC: Decision Modeling IMA: Budget Preparation
3. The essentials of effective budgeting are: (1) a sound organizational structure, (2) research and
analysis, and (3) acceptance by all levels of management.
LO1 BT: C Difficulty: Easy TOT: 2 min. AACSB: None AICPA FC: Decision Modeling IMA: Budget Preparation
4. (a) Disagree. Accounting information makes major contributions to the budgeting process. Accounting
provides the starting point of budgeting by providing historical data on revenues, costs, and
expenses. An accountant becomes the translator of the budget and communicates the budget
to all areas of responsibility. Accountants also prepare periodic budget reports that compare
actual results with planned objectives and provide a basis for evaluating performance.
(b) The budget itself, and the administration of the budget, are the responsibility of management.
LO1 BT: C Difficulty: Easy TOT: 5 min. AACSB: None AICPA FC: Decision Modeling IMA: Budget Preparation
5. The budget period should be long enough to provide an attainable goal under normal business
conditions. The budget period should minimize the impact of seasonal and cyclical business
fluctuations, but it should not be so long that reliable estimates are impossible. The most common
budget period is one year.
LO1 BT: C Difficulty: Easy TOT: 3 min. AACSB: None AICPA FC: Decision Modeling IMA: Budget Preparation
6. Disagree. Long-range planning usually encompasses a period of at least five years. It involves
the selection of strategies to achieve long-term goals and the development of policies and plans to
implement the strategies. In addition, long-range planning reports contain considerably less detail
than budget reports.
LO1 BT: C Difficulty: Easy TOT: 3 min. AACSB: None AICPA FC: Decision Modeling IMA: Budget Preparation
7. Participative budgeting involves the use of a “bottom-to-top” approach, which requires input from
lower level management during the budgeting process so as to involve employees from various
levels and areas within the company. The potential benefits of this approach are lower-level
managers have more detailed knowledge of the specifics of their job, and thus should
be able to provide better budgetary estimates. In addition, by involving lower-level managers in
the process, it is more likely that they will perceive the budget as being fair and reasonable. One
disadvantage of participative budgeting is that it takes more time, and thus costs more. Another
9-4 Copyright © 2018 John Wiley & Sons, Inc. Weygandt, Managerial Accounting, 8/e, Solutions Manual (For Instructor Use Only)
disadvantage of participative budgeting is that it may enable managers to game the system
through such practices as budgetary slack.
LO1 BT: C Difficulty: Easy TOT: 5 min. AACSB: None AICPA FC: Decision Modeling IMA: Budget Preparation
Copyright © 2018 John Wiley & Sons, Inc. Weygandt, Managerial Accounting, 8/e, Solutions Manual (For Instructor Use Only) 9-5
Questions Chapter 9 (Continued)
8. Budgetary slack is the amount by which a manager intentionally underestimates budgeted
revenues or overestimates budgeted expenses in order to make it easier to achieve budgetary
goals. Managers may have an incentive to create budgetary slack in order to increase the likelihood of
receiving a bonus, or decrease the likelihood of losing their job.
LO1 BT: C Difficulty: Easy TOT: 3 min. AACSB: None AICPA FC: Decision Modeling IMA: Budget Preparation
9. A master budget is a set of interrelated budgets that constitutes a plan of action for a specified
time period. The master budget is developed within the framework of a sales forecast.
LO1 BT: C Difficulty: Easy TOT: 2 min. AACSB: None AICPA FC: Decision Modeling IMA: Budget Preparation
10. The sales budget is the starting point in preparing the master budget. An inaccurate sales budget
may adversely affect net income. An overly optimistic sales budget may result in excessive
inventories and a very conservative sales budget may lead to inventory shortages.
LO1 BT: C Difficulty: Easy TOT: 2 min. AACSB: None AICPA FC: Decision Modeling IMA: Budget Preparation
11. The statement is false. The production budget only shows the units that must be produced to meet
anticipated sales and ending inventory requirements.
LO2 BT: C Difficulty: Easy TOT: 2 min. AACSB: None AICPA FC: Decision Modeling IMA: Budget Preparation
12. The required units of production are 155,000 (160,000 + 15,000 = 175,000 – 20,000 = 155,000).
LO2 BT: AP Difficulty: Easy TOT: 2 min. AACSB: Analytic AICPA FC: Decision Modeling IMA: Budget Preparation
(160,000 + 15,000 – 20,000 = 155,000)
(Bud. sales + Desired end. inv. – Beg. inv. = Req. units of production)
13. The desired ending direct materials units are 21,000 (64,000 + 9,000 = 73,000 – 52,000 = 21,000).
LO2 BT: AP Difficulty: Easy TOT: 2 min. AACSB: Analytic AICPA FC: Decision Modeling IMA: Budget Preparation
(64,000 + 9,000 – 52,000 = 21,000)
(Req. purch. + Beg. inv. – Req. for production = Desired end. inv.)
14. Total budgeted direct labor costs are $960,000 (80,000 X .75 X $16 = $960,000).
LO3 BT: AP Difficulty: Easy TOT: 2 min. AACSB: Analytic AICPA FC: Decision Modeling IMA: Budget Preparation
(80,000 x .75 x $16 = $960,000)
(Fin. units to be produced x % of hr./unit x DL rate/hr. = Tot. bud. DL costs)
15. (a) Manufacturing overhead rate based on direct labor cost is 48% [$198,000 + $162,000 =
$360,000; $360,000 ÷ (150,000 X 1/3 X $15/hr.) = 48%].
[($198,000 + $162,000) ÷ (150,000 x 1/3 x $15/hr.) = 48%]
[(Tot. VOH costs + Tot. FOH casts) ÷ (Units to be produced x Fraction of hr./unit x DL rate/hr.) = Predet. OH rate]
(b) Manufacturing overhead rate per direct labor hour is $7.20 ($360,000 ÷ 50,000).
LO3 BT: AP Difficulty: Easy TOT: 4 min. AACSB: Analytic AICPA FC: Decision Modeling IMA: Budget Preparation
16. The first quarter budgeted selling and administrative expenses are $74,000 [(12% X $200,000) +
$50,000]. The second quarter total is $78,800 [(12% X $240,000) + $50,000].
LO3 BT: AP Difficulty: Easy TOT: 4 min. AACSB: Analytic AICPA FC: Decision Modeling IMA: Budget Preparation
[1st Qtr.: (12% x $200,000) + $50,000 = $74,000]
[1st Qtr.:(Var. S&A % of sales x Bud. sales) + Fix. S&A = Tot. bud. S&A exp.]
17. The budgeted cost per unit of product is $46 ($10 + $20 + $16). Gross profit per unit is $19 ($65 – $46).
Total budgeted gross profit is $475,000 (25,000 X $19).
LO3 BT: AP Difficulty: Easy TOT: 4 min. AACSB: Analytic AICPA FC: Decision Modeling IMA: Budget Preparation
[($10 + $20 + ($20 x 80%) = $46); ($65 - $46 = $19); (25,000 x $19 = $475,000)]
[(DM/unit + DL/unit + (DL/unit x Mfg. OH as % of DL/unit) = Bud. cost /unit); (USP – Unit cost = GP/ unit); (Units sold x GP/unit = Tot. bud.
GP)]
18. The supporting schedules are the budgets for sales, direct materials, direct labor, and manufacturing
overhead.
LO3 BT: C Difficulty: Easy TOT: 2 min. AACSB: None AICPA FC: Decision Modeling IMA: Budget Preparation
9-6 Copyright © 2018 John Wiley & Sons, Inc. Weygandt, Managerial Accounting, 8/e, Solutions Manual (For Instructor Use Only)
Questions Chapter 9 (Continued)
19. The three sections of a cash budget are: (1) cash receipts, (2) cash disbursements, and (3) financing.
The cash budget also shows the beginning and ending cash balances.
LO4 BT: K Difficulty: Easy TOT: 2 min. AACSB: None AICPA FC: Decision Modeling IMA: Budget Preparation
21. The formula is: Budgeted cost of goods sold plus desired ending merchandise inventory minus
beginning merchandise inventory equals required merchandise purchases.
LO5 BT: K Difficulty: Easy TOT: 2 min. AACSB: None AICPA FC: Decision Modeling IMA: Budget Preparation
22. In a service company, expected revenues can be obtained from expected output or expected
input. The former is based on anticipated billings of clients for services provided. The latter is based
on expected billable time of the professional staff.
LO4 BT: K Difficulty: Easy TOT: 2 min. AACSB: None AICPA FC: Decision Modeling IMA: Budget Preparation
Copyright © 2018 John Wiley & Sons, Inc. Weygandt, Managerial Accounting, 8/e, Solutions Manual (For Instructor Use Only) 9-7
SOLUTIONS TO BRIEF EXERCISES
Sales
Budget
Production
Budget
Selling and
Administrative
Expense
Budget
Budgeted
Income
Statement
Capital Budgeted
Financial
Expenditure Cash Budget Balance
Budgets
Budget Sheet
LO1 BT: AN Difficulty: Easy TOT: 10 min. AACSB: Analytic AICPA FC: Decision Modeling IMA: Budget
Preparation
9-8 Copyright © 2018 John Wiley & Sons, Inc. Weygandt, Managerial Accounting, 8/e, Solutions Manual (For Instructor Use Only)
BRIEF EXERCISE 9-2
PAIGE COMPANY
Sales Budget
For the Year Ending December 31, 2020
Quarter
1 2 3 4 Year
Expected
unit 10,000 14,000 15,000 18,000 57,000
sales
Unit selling X $70 X $70 X $70 X $70 X $70
price $700,000 $980,000 $1,050,000 $1,260,000 $3,990,000
Total sales
LO2 BT: AP Difficulty: Easy TOT: 4 min. AACSB: Analytic AICPA FC: Decision Modeling IMA: Budget
Preparation
PAIGE COMPANY
Production Budget
For the Six Months Ending June 30, 2020
Quarter Six
1 2 Months
Expected unit sales 10,000 14,000
Add: Desired ending finished goods 3,500 a 3,750 c
Total required units 13,500 17,750
Less: Beginning finished goods inventory 2,500 b 3,500
Required production units 11,000 14,250 25,250
a b c
14,000 X .25 10,000 X .25 15,000 X .25
LO2 BT: AP Difficulty: Easy TOT: 4 min. AACSB: Analytic AICPA FC: Decision Modeling IMA: Budget
Preparation
[(Qtr. 1: 10,000 + (14,000 x .25) – (10,000 x .25) = 11,000); (Qtr. 2: 14,000 + (15,000 x .25) – 3,500 = 14,250)]
[(Qtr. 1: Exp. unit sales + (Qtr. 2 exp. unit sales x Desired % on hand) – (Qtr. 1 exp. unit sales x Desired % on
hand) = Req. production units); (Qtr. 2: Exp. unit sales + (Qtr. 3 exp. unit sales x Desired % on hand) – Qtr. 1
desired end. inv. = Req. production units)]
Copyright © 2018 John Wiley & Sons, Inc. Weygandt, Managerial Accounting, 8/e, Solutions Manual (For Instructor Use Only) 9-9
BRIEF EXERCISE 9-4
PERINE COMPANY
Direct Materials Budget
For the Month Ending January 31, 2020
GUNDY COMPANY
Direct Labor Budget
For the Six Months Ending June 30, 2020
Quarter Six
1 2 Months
Units to be produced 5,000 7,000
Direct labor time (hours) per unit X 1.6 X 1.6
Total required direct labor hours 8,000 11,200
Direct labor cost per hour X $15 X $15
Total direct labor cost $120,000 $168,000 $288,000
LO3 BT: AP Difficulty: Easy TOT: 4 min. AACSB: Analytic AICPA FC: Decision Modeling IMA: Budget
Preparation
9-10 Copyright © 2018 John Wiley & Sons, Inc. Weygandt, Managerial Accounting, 8/e, Solutions Manual (For Instructor Use Only)
BRIEF EXERCISE 9-6
ROCHE INC.
Manufacturing Overhead Budget
For the Year Ending December 31, 2020
Quarter
1 2 3 4 Year
Variable costs $20,000 $25,000 $30,000 $35,000 $110,000
Fixed costs 40,000 40,000 40,000 40,000 160,000
Total manufacturing overhead $60,000 $65,000 $70,000 $75,000 $270,000
LO3 BT: AP Difficulty: Easy TOT: 4 min. AACSB: Analytic AICPA FC: Decision Modeling IMA: Budget
Preparation
ELBERT COMPANY
Selling and Administrative Expense Budget
For the Year Ending December 31, 2020
Quarter
1 2 3 4 Year
Variable expenses $24,000 $28,000 $32,000 $36,000 $120,000
Fixed expenses 40,000 40,000 40,000 40,000 160,000
Total selling and
administrative $64,000 $68,000 $72,000 $76,000 $280,000
expenses
LO3 BT: AP Difficulty: Easy TOT: 4 min. AACSB: Analytic AICPA FC: Decision Modeling IMA: Budget
Preparation
NORTH COMPANY
Budgeted Income Statement
For the Year Ending December 31, 2020
Sales.................................................................................... $2,250,000
Cost of goods sold (50,000 X $25).................................... 1,250,000
Gross profit........................................................................ 1,000,000
Selling and administrative expenses............................... 300,000
Income from operations.................................................... 700,000
Copyright © 2018 John Wiley & Sons, Inc. Weygandt, Managerial Accounting, 8/e, Solutions Manual (For Instructor Use Only) 9-11
Interest expense................................................................. 10,000
Income before income taxes............................................. 690,000
Income tax expense........................................................... 200,000
Net income.......................................................................... $ 490,000
9-12 Copyright © 2018 John Wiley & Sons, Inc. Weygandt, Managerial Accounting, 8/e, Solutions Manual (For Instructor Use Only)
BRIEF EXERCISE 9-8 (Cont’d)
LO3 BT: AP Difficulty: Easy TOT: 4 min. AACSB: Analytic AICPA FC: Decision Modeling IMA: Budget
Preparation
Copyright © 2018 John Wiley & Sons, Inc. Weygandt, Managerial Accounting, 8/e, Solutions Manual (For Instructor Use Only) 9-13
SOLUTIONS FOR DO IT! EXERCISES
DO IT! 9-1
1. Operating budgets
2. Master budget
3. Participative budgeting
4. Financial budgets
5. Sales forecast
6. Long-range plans
LO1 BT: K Difficulty: Easy TOT: 3 min. AACSB: None AICPA FC: Decision Modeling IMA: Budget Preparation
DO IT! 9-2
PARGO COMPANY
Sales Budget
For the Year Ending December 31, 2020
Quarter
1 2 3 4 Year
PARGO COMPANY
Production Budget
For the Year Ending December 31, 2020
Quarter
1 2 3 4 Year
9-14 Copyright © 2018 John Wiley & Sons, Inc. Weygandt, Managerial Accounting, 8/e, Solutions Manual (For Instructor Use Only)
*Estimated first-quarter 2021 sales volume 200,000 + (200,000 X 20%) = 240,000: 240,000 X 25%.
**25% of estimated first-quarter 2020 sales units (200,000 X 25%).
[(Qtr. 1: (1,000,000 x 20%) + (250,000 x 25%) – (200,000 x 20%) = 212,500); (Qtr. 4: (1,000,000 x 30%) +
(200,000 x 120% x 25%) – (300,000 x 25%) = 285,000)]
DO IT! 9-2 (Continued)
[(Qtr. 1: Exp. unit sales + (Qtr. 2 exp. unit sales x desired end. inv. %) – (Qtr. 1 exp. unit sales x desired end. inv.
%) = Req. production units); (Qtr. 4: Exp. unit sales + ((Qtr. 1 exp. unit sales x Exp. % incr.) x Desired end. inv. %)
– (Qtr. 4 exp. unit sales x Desired end. inv. %) = Req. production units)]
PARGO COMPANY
Direct Materials Budget
For the Year Ending December 31, 2020
Quarter
1 2 3 4 Year
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DO IT! 9-3
DO IT! 9-4
BATISTA COMPANY
Cash Budget
April
9-16 Copyright © 2018 John Wiley & Sons, Inc. Weygandt, Managerial Accounting, 8/e, Solutions Manual (For Instructor Use Only)
Ending cash balance.................................................................... $ 25,000
DO IT! 9-5
Zeller COMPANY
Merchandise Purchases Budget
For the Six Months Ending June 30, 2020
Quarter Six
1 2 Months
Budgeted cost of goods sold
(Sales .50) $20,000 $24,000
Add: Desired ending merchandise
inventory (10% of next
quarter’s cost of goods sold) 2,400 2,900
Total 22,400 26,900
Less: Beginning merchandise
inventory (10% this quarter’s
cost of goods sold) 2,000 2,400
Required merchandise purchases $20,400 $24,500 $44,900
LO5 BT: AP Difficulty: Easy TOT: 8 min. AACSB: Analytic AICPA FC: Decision Modeling IMA: Budget
Preparation
[(Qtr. 1: ($40,000 x 50%) + ($48,000 x 50% x 10%) – ($40,000 x 50% x 10%) = $20,400); (Qtr. 2: ($48,000 x 50%)
+ ($58,000 x 50% x 10%) – ($48,000 x 50% x 10%) = $24,500)]
[(Qtr. 1: (Qtr. 1 sales x CGS %) + (Qtr. 2 sales x CGS % x End. inv. %) – (Qtr. 1 sales x CGS % x End. inv. %) =
Req. merch. purch.); (Qtr. 2 sales x CGS %) + (Qtr. 3 sales x CGS % x End. inv. %) – (Qtr. 2 sales x CGS % x
End. inv. %) = Req. merch. purch.)]
Copyright © 2018 John Wiley & Sons, Inc. Weygandt, Managerial Accounting, 8/e, Solutions Manual (For Instructor Use Only) 9-17
SOLUTIONS TO EXERCISES
EXERCISE 9-1
MEMO
To Jim Dixon
From: Student
Re: Budgeting
I am glad Trusler Company is considering preparing a formal budget. There are
many benefits derived from budgeting, as I will discuss later in this memo.
A budget is a formal written statement of management’s plans for a specified
future time period, expressed in financial terms. The master budget gener-
ally consists of operating budgets such as the sales budget, production
budget, direct materials budget, direct labor budget, manufacturing overhead
budget, selling and administrative expense budget, and budgeted income
statement; and financial budgets such as the capital expenditure budget,
cash budget, and budgeted balance sheet.
The primary benefits of budgeting are:
1. It requires all levels of management to plan ahead and to formalize
goals on a recurring basis.
2. It provides definite objectives for evaluating performance at each
level of responsibility.
3. It creates an early warning system for potential problems, so that
management can make changes before things get out of hand.
4. It facilitates the coordination of activities within the business by cor-
relating the goals of each segment with overall company objectives.
5. It results in greater management awareness of the entity’s overall
operations and the impact of external factors such as economic
trends.
6. It motivates personnel throughout the organization to meet planned
objectives.
In order to maximize these benefits, it is essential that budgeting take place
within a sound organizational structure, so authority and responsibility for all
phases of operations are clearly defined. Also, the budget should be based on
research and analysis that results in realistic goals. Finally, the effectiveness
of a budget program is directly related to its acceptance by all levels of
management.
If you want further explanation of any of these topics, please contact me.
9-18 Copyright © 2018 John Wiley & Sons, Inc. Weygandt, Managerial Accounting, 8/e, Solutions Manual (For Instructor Use Only)
LO1 BT: C Difficulty: Easy TOT: 15 min. AACSB: None AICPA FC: Reporting AICPA PC: Communication
IMA: Budget Preparation, Reporting
Copyright © 2018 John Wiley & Sons, Inc. Weygandt, Managerial Accounting, 8/e, Solutions Manual (For Instructor Use Only) 9-19
Copyright © 2018 John Wiley & Sons, Inc. Weygandt, Managerial Accounting, 8/e, Solutions Manual (For Instructor Use Only)
EXERCISE 9-2
EDINGTON ELECTRONICS INC.
Sales Budget
For the Six Months Ending June 30, 2020
XQ-103 20,000 $15 $300,000 22,000 $15 $330,000 42,000 $15 $ 630,000
XQ-104 12,000 25 300,000 15,000 25 375,000 27,000 25 675,000
Totals 32,000 $600,000 37,000 $705,000 69,000 $1,305,000
9-17
9-18
EXERCISE 9-3
Copyright © 2018 John Wiley & Sons, Inc. Weygandt, Managerial Accounting,8 /e, Solutions Manual (For Instructor Use Only)
Year
Billable Billable Total
Dept. Hours Rate Rev.
Auditing 8,300a $ 80 $ 664,000
Tax 9,700b 90 873,000
Consulting 6,000c 110 660,000
Totals $2,197,000
a
2,300 + 1,600 + 2,000 + 2,400
b
3,000 + 2,200 + 2,000 + 2,500
c
1,500 4
LO2 BT: AP Difficulty: Easy TOT: 12 min. AACSB: Analytic AICPA FC: Decision Modeling IMA: Budget Preparation
EXERCISE 9-4
TURNEY COMPANY
Production Budget
For the Year Ending December 31, 2020
Product HD-240
Quarter
1 2 3 4 Year
Expected unit sales 5,000 7,000 8,000 10,000
Add: Desired ending
finished goods units(1) 2,800 3,200 4,000 2,500 (2)
Total required units 7,800 10,200 12,000 12,500
Less: Beginning finished
goods units 2,000 2,800 3,200 4,000
Required production units 5,800 7,400 8,800 8,500 30,500
(1)
40% of next quarter’s sales.
(2)
40% X (5,000 X 125%).
LO2 BT: AP Difficulty: Easy TOT: 6 min. AACSB: Analytic AICPA FC: Decision Modeling IMA: Budget
Preparation
[(Qtr. 1: 5,000 + (7,000 x 40%) – (5,000 x 40%) = 5,800); (Qtr. 4: 10,000 + (5,000 x 125% x 40%) – (10,000 x
40%) = 8,500)]
[(Qtr. 1: Qtr. 1 exp. unit sales + (Qtr. 2 exp. unit sales x end. inv. %) – (Qtr. 1 exp. unit sales x end. inv. %) = Req.
production units); (Qtr. 4: Qtr. 4 exp. unit sales + (2021 Qtr. 1 exp. unit sales x end. inv. %) – (Qtr. 4 exp. unit
sales x end. inv. %) = Req. production units)]
9-22 Copyright © 2018 John Wiley & Sons, Inc. Weygandt, Managerial Accounting, 8/e, Solutions Manual (For Instructor Use Only)
EXERCISE 9-5
DEWITT INDUSTRIES
Direct Materials Purchases Budget
For the Quarter Ending March 31, 2020
EXERCISE 9-6
Quarter Six
1 2 Months
Expected unit sales 5,000 6,000
Add: Desired ending finished goods
units 1,500 (1) 1,750 (2)
Total required units 6,500 7,750
Less: Beginning finished goods units 1,250 (3) 1,500
Required production units 5,250 6,250 11,500
(1)
25% X 6,000. (2)25% X 7,000. (3)25% X 5,000.
Copyright © 2018 John Wiley & Sons, Inc. Weygandt, Managerial Accounting, 8/e, Solutions Manual (For Instructor Use Only) 9-23
EXERCISE 9-6 (Continued)
(b) HARDIN COMPANY
Direct Materials Budget
For the Six Months Ending June 30, 2020
Quarter Six
1 2 Months
Units to be produced 5,250 6,250
Direct materials per unit X 3 X 3
Total pounds needed for production 15,750 18,750
Add: Desired ending direct
materials (pounds) 7,500 (1) 8,640 (2)
Total materials required 23,250 27,390
Less: Beginning direct materials
(pounds) 6,300 (3) 7,500
Direct materials purchases 16,950 19,890
Cost per pound X $4 X $4 0000,000
Total cost of direct materials
Purchases $67,800 $79,560 $147,360
(1)
40% X 18,750.
(2)
7,200 X (3 X 40%).
(3)
40% X 15,750.
[(Qtr. 1: (5,250 x 3) + (6,250 x 3 x 40%) – (5,250 x 3 x 40%) = 16,950); (Qtr. 2: (6,250 x 3) + (7,200 x 3 x 40%) –
(6,250 x 3 x 40%) = 19,890)]
[(Qtr. 1: (Qtr. 1 units to be produced x DM/unit) + (Qtr. 2 units to be produced x DM/unit x End. inv. %) - (Qtr. 1
units to be produced x DM/unit) x End. inv. % = DM purch.): (Qtr. 2: (Qtr. 2 units to be produced x DM/unit) + (Qtr.
3 units to be produced x DM/unit x End. inv. %) - (Qtr. 2 units to be produced x DM/unit x End. inv. %) = DM
purch.)]
LO2 BT: AP Difficulty: Easy TOT: 12 min. AACSB: Analytic AICPA FC: Decision Modeling IMA: Budget
Preparation
9-24 Copyright © 2018 John Wiley & Sons, Inc. Weygandt, Managerial Accounting, 8/e, Solutions Manual (For Instructor Use Only)
EXERCISE 9-7
Finished goods:
Sales......................................................................... 2,675
Plus: Ending inventory............................................ 2,200
Total required............................................................... 4,875
Less: beginning inventory..................................... 2,230
Production required..................................................... 2,645
Direct materials per unit.............................................. X 2
Units of direct material required for production........ 5,290
Plus: ending inventory................................................. 2,500(a)
Total required............................................................... 7,790
Less: beginning inventory..................................... 2,645(b)
Purchases of direct material required........................ 5,145
Cost per unit................................................................. X $4
Total cost of materials................................................. $20,580
The May raw material purchases would be $20,580.
(a)
2,390 + 2,310 – 2,200 = 2,500; 2,500 X 2 X .50 = 2,500
(b)
2,675 + 2,200 – 2,230 = 2,645; 2,645 X 2 X .50 = 2,645
LO2 BT: AP Difficulty: Easy TOT: 8 min. AACSB: Analytic AICPA FC: Decision Modeling IMA: Budget
Preparation
[((2,675 + 2,200 – 2,230) x 2) + ((2,390 + 2,310 – 2,200) x 2 x 50%) – ((2,675 + 2,200 – 2,230) x 2 x 50%) =
5,145]
[((Sales + End. inv. – Beg. inv.) x DM/unit) + ((June sales + June end. inv. – May end. inv.) x DM/unit x DM end.
inv. %) – ((May sales + May end. inv. – Apr. end. inv.) x DM/unit x DM end. inv. %) = Req. DM purch.]
EXERCISE 9-8
Copyright © 2018 John Wiley & Sons, Inc. Weygandt, Managerial Accounting, 8/e, Solutions Manual (For Instructor Use Only) 9-25
EXERCISE 9-8 (Continued)
EXERCISE 9-9
RODRIQUEZ, INC.
Direct Labor Budget
For the Year Ending December 31, 2020
Quarter
1 2 3 4 Year
Units to be produced 20,000 25,000 35,000 30,000 110,000
Direct labor time
(hours) per unit X 1.5 X 1.5 X 1.5 X 1.5 .2
Total required direct
labor hours 30,000 37,500 52,500 45,000
Direct labor cost per
hour X $16 X $16 X $18 X $18
Total direct labor $480,000 $600,000 $945,000 $810,000 $2,835,000
cost
9-26 Copyright © 2018 John Wiley & Sons, Inc. Weygandt, Managerial Accounting, 8/e, Solutions Manual (For Instructor Use Only)
LO3 BT: AP Difficulty: Easy TOT: 4 min. AACSB: Analytic AICPA FC: Decision Modeling IMA: Budget
Preparation
EXERCISE 9-10
LOWELL COMPANY
Production Budget
For the Quarter Ending March 31, 2020
LOWELL COMPANY
Direct Labor Budget
For the Quarter Ending March 31, 2020
Copyright © 2018 John Wiley & Sons, Inc. Weygandt, Managerial Accounting, 8/e, Solutions Manual (For Instructor Use Only) 9-27
EXERCISE 9-11
ATLANTA COMPANY
Manufacturing Overhead Budget
For the Year Ending December 31, 2020
Quarter
1 2 3 4 Year
Variable costs
Indirect materials ($.80/hour) $12,000 $ 14,400 $ 16,800 $ 19,200 $ 62,400
Indirect labor ($1.20/hour) 18,000 21,600 25,200 28,800 93,600
Maintenance ($.50/hour) 7,500 9,000 10,500 12,000 39,000
Total variable 37,500 45,000 52,500 60,000 195,000
Fixed costs
Supervisory salaries 35,000 35,000 35,000 35,000 140,000
Depreciation 15,000 15,000 15,000 15,000 60,000
Maintenance 12,000 12,000 12,000 12,000 48,000
Total fixed 62,000 62,000 62,000 62,000 248,000
Total manufacturing overhead $99,500 $107,000 $114,500 $122,000 $443,000
*(10,000 X 1.5)
LO3 BT: AP Difficulty: Easy TOT: 6 min. AACSB: Analytic AICPA FC: Decision Modeling IMA: Budget
Preparation
[Qtr. 1: (10,000 x 1.5 = 15,000); ((15,000 x $.80) + (15,000 x $1.20) + (15,000 x $.50) = $37,500); ($35,000 +
$15,000 + $12,000 = $62,000)]
[Qtr. 1: (Units produced x DLH/unit = DLHs); ((DLHs x Ind. Mat/hr.) + (DLHs x Ind. Labor/hr.) + (DLHs x Maint./hr.)
= Tot. VC); (Super. sal. + Depr. + Maint. = Tot. FC)]
9-28 Copyright © 2018 John Wiley & Sons, Inc. Weygandt, Managerial Accounting, 8/e, Solutions Manual (For Instructor Use Only)
EXERCISE 9-12
KIRKLAND COMPANY
Selling and Administrative Expense Budget
For the Six Months Ending June 30, 2020
Quarter
Six
1 2 Months
Fixed expenses
Sales salaries 12,000 12,000 24,000
Office salaries 8,000 8,000 16,000
Depreciation 4,200 4,200 8,400
Insurance 1,500 1,500 3,000
Utilities 800 800 1,600
Repairs expense 500 500 1,000
Total fixed 27,000 27,000 54,000
Total selling and administrative
expenses $67,000 $71,000 $138,000
(1) Variable costs per dollar of sales are: Sales commissions (5%), Delivery
expense (2%), and Advertising (3%).
*(20,000 X $20 X 5%)
LO3 BT: AP Difficulty: Easy TOT: 6 min. AACSB: Analytic AICPA FC: Decision Modeling IMA: Budget
Preparation
[Qtr. 1: ((20,000 x $20 x 5%) + (20,000 x $20 x 2%) + (20,000 x $20 x 3%) = $40,000); ($12,000 + $8,000 +
$4,200 + $1,500 + $800 + $500 = $27,000)]
[Qtr. 1: ((Units sold x USP x Sales comm. %) + (Units sold x USP x Del. exp. %) + (Units sold x USP x Advert. %)
= Tot. VC); (Sales sal. + Off. sal. + Depr. + Ins. + Util. + Repairs exp. = Tot. FC)]
Copyright © 2018 John Wiley & Sons, Inc. Weygandt, Managerial Accounting, 8/e, Solutions Manual (For Instructor Use Only) 9-29
EXERCISE 9-13
(a)
FULTZ COMPANY
Computation of Cost of Goods Sold
For the Year Ending December 31, 2020
(b)
FULTZ COMPANY
Budgeted Income Statement
For the Year Ending December 31, 2020
LO3 BT: AP Difficulty: Easy TOT: 6 min. AACSB: Analytic AICPA FC: Decision Modeling IMA: Budget
Preparation
[(30,000 x $85) – (30,000 x ($5 + $45 + $15)) - $170,000 - $30,000 – ($400,000 x 30%) = $280,000]
[(Units sold x USP) – (Units sold x (DM/unit + DL/unit + Mfg. OH/unit)) – Sell. % admin. exp. – Int. exp. – (Inc.
before inc. tax. x tax rate) = Net inc.]
9-30 Copyright © 2018 John Wiley & Sons, Inc. Weygandt, Managerial Accounting, 8/e, Solutions Manual (For Instructor Use Only)
EXERCISE 9-14
DANNER COMPANY
Cash Budget
For the Two Months Ending February 28, 2020
January February
Beginning cash balance........................................... $ 45,000 $ 27,500
Add: Receipts
Collections from customers........................ 85,000 150,000
Sale of marketable securities...................... 12,000 0
Total receipts................................................ 97,000 150,000
Total available cash.................................................. 142,000 177,500
Less: Disbursements
Direct materials............................................ 50,000 75,000
Direct labor................................................... 30,000 45,000
Manufacturing overhead*............................ 19,500 23,500
Selling and administrative expenses.......... 15,000 20,000
Total disbursements.................................... 114,500 163,500
Excess (deficiency) of available cash over cash
disbursements........................................................ 27,500 14,000
Financing
Add: Borrowings...................................................... 0 6,000
Less: Repayments.................................................... 0 0
Ending cash balance................................................ $ 27,500 $ 20,000
Copyright © 2018 John Wiley & Sons, Inc. Weygandt, Managerial Accounting, 8/e, Solutions Manual (For Instructor Use Only) 9-31
EXERCISE 9-15
DEITZ CORPORATION
Cash Budget
For the Quarter Ended March 31, 2020
9-32 Copyright © 2018 John Wiley & Sons, Inc. Weygandt, Managerial Accounting, 8/e, Solutions Manual (For Instructor Use Only)
EXERCISE 9-16
Copyright © 2018 John Wiley & Sons, Inc. Weygandt, Managerial Accounting, 8/e, Solutions Manual (For Instructor Use Only) 9-33
EXERCISE 9-17
March
March cash sales (30% X $250,000)...................................... $ 75,000
Collection of March credit sales
[(70% X $250,000) X 10%]..................................................... 17,500
Collection of February credit sales
[(70% X $220,000) X 50%]..................................................... 77,000
Collection of January credit sales
[(70% X $200,000) X 36%]..................................................... 50,400
Total collections......................................................... $219,900
[($250,000 x 30%) + ($250,000 x 70% x 10%) + ($220,000 x 70% x 50%) + ($200,000 x 70% x 36%) = $219,900]
[(Mar. sales x Cash %) + (Mar. sales x Credit sales % x Collect. % in mo. of sale) + (Feb. sales x Credit sales % x
Collect. % in mo. after sale) + (Jan. sales x Credit sales % x Collect. % in 2 nd mo. after sale) = Tot. collect.]
March
March cash purchases (50% X $38,000)............................... $19,000
Payment of March credit purchases
[(50% X $38,000) X 40%]....................................................... 7,600
Payment of February credit purchases
[(50% X $36,000) X 60%]....................................................... 10,800
Total payments........................................................... $37,400
LO4 BT: AP Difficulty: Easy TOT: 6 min. AACSB: Analytic AICPA FC: Decision Modeling IMA: Budget
Preparation
9-34 Copyright © 2018 John Wiley & Sons, Inc. Weygandt, Managerial Accounting, 8/e, Solutions Manual (For Instructor Use Only)
EXERCISE 9-18
(a) (1)
GREEN LANDSCAPING INC.
Schedule of Expected Collections From Clients
For the Quarter Ending March 31, 2020
(2)
GREEN LANDSCAPING INC.
Schedule of Expected Payments for Landscaping Supplies
For the Quarter Ending March 31, 2020
_________________________________________________________
January February March Quarter
December ($14,000)...............................................
$ 5,600 $ 5,600
January ($12,000)...................................................
7,200 $ 4,800 12,000
February ($15,000).................................................
9,000 $ 6,000 15,000
March ($18,000)...................................................... 10,800 10,800
Total payments.................................................
$12,800 $13,800 $16,800 $43,400
Copyright © 2018 John Wiley & Sons, Inc. Weygandt, Managerial Accounting, 8/e, Solutions Manual (For Instructor Use Only) 9-35
EXERCISE 9-19
9-36 Copyright © 2018 John Wiley & Sons, Inc. Weygandt, Managerial Accounting, 8/e, Solutions Manual (For Instructor Use Only)
EXERCISE 9-20
Sales........................................................................................ $500,000
Cost of goods sold (75% x $500,000)................................... 375,000
Gross profit............................................................................. $125,000
LO5 BT: AP Difficulty: Easy TOT: 5 min. AACSB: Analytic AICPA FC: Decision Modeling IMA: Budget
Preparation
EXERCISE 9-21
9-38 Copyright © 2018 John Wiley & Sons, Inc. Weygandt, Managerial Accounting, 8/e, Solutions Manual (For Instructor Use Only)
SOLUTIONS TO PROBLEMS
PROBLEM 9-1A
Quarter Six
1 2 Months
Expected unit sales...................... 40,000 56,000 96,000
Unit selling price.......................... X $60 X $60 X $60
Total sales.................................... $2,400,000 $3,360,000 $5,760,000
Quarter Six
1 2 Months
Expected unit sales............................................. 40,000 56,000
Add: Desired ending finished goods
units.......................................................... 15,000 18,000
Total required units............................................. 55,000 74,000
Less: Beginning finished goods units............. 8,000 15,000
Required production units................................. 47,000 59,000 106,000
Copyright © 2018 John Wiley & Sons, Inc. Weygandt, Managerial Accounting, 8/e, Solutions Manual (For Instructor Use Only) 9-39
PROBLEM 9-1A (Continued)
Quarter Six
1 2 Months
Units to be produced..................................... 47,000 59,000
Direct materials per unit................................ X 4 X 4
Total pounds needed for production........... 188,000 236,000
Add: Desired ending direct materials
(pounds).............................................. 10,000 13,000
Total materials required................................ 198,000 249,000
Less: Beginning direct materials
(pounds)............................................. 9,000 10,000
Direct materials purchases........................... 189,000 239,000
Cost per pound.............................................. X $3.80 X $3.80
Total cost of direct materials
purchases..................................................... $718,200 $908,200 $1,626,400
[Qtr. 1: ((47,000 x 4) + 10,000 – 9,000) x $3.80 = $718,200]
[Qtr. 1: ((Units to be produced x DM/unit) + DM end. inv. – DM beg. inv.) x Cost/DM lb. = Tot. cost of DM purch.]
Quarter
Six
1 2 Months
Units to be produced............................. 47,000 59,000
Direct labor time (hours) per unit......... X 1/4 X 1/4
Total required direct labor hours......... 11,750 14,750
Direct labor cost per hour..................... X $16 X $16
Total direct labor cost........................... $188,000 $236,000 $424,000
9-40 Copyright © 2018 John Wiley & Sons, Inc. Weygandt, Managerial Accounting, 8/e, Solutions Manual (For Instructor Use Only)
PROBLEM 9-1A (Continued)
Quarter Six
1 2 Months
Budgeted sales in units 40,000 56,000 96,000
Sales.............................................................................................. $5,760,000
Cost of goods sold (96,000 X $33.20)*........................................ 3,187,200
Gross profit................................................................................... 2,572,800
Selling and administrative expenses.......................................... 1,214,000
Income from operations............................................................... 1,358,800
Interest expense........................................................................... 100,000
Income before income tax........................................................... 1,258,800
Income tax expense (30% x $1,258,800)..................................... 377,640
Net income.................................................................................... $ 881,160
*Cost Per Bag
Copyright © 2018 John Wiley & Sons, Inc. Weygandt, Managerial Accounting, 8/e, Solutions Manual (For Instructor Use Only) 9-41
LO2, 3 BT: AP Difficulty: Simple TOT: 40 min. AACSB: Analytic AICPA FC: Decision Modeling, Reporting
IMA: Budget Preparation
9-42 Copyright © 2018 John Wiley & Sons, Inc. Weygandt, Managerial Accounting, 8/e, Solutions Manual (For Instructor Use Only)
PROBLEM 9-2A
JB 50 JB 60 Total
Expected unit sales.............. 400,000 200,000
Unit selling price................... X $20 X $25 000,000,0
Total sales............................. $8,000,000 $5,000,000 $13,000,000
JB 50 JB 60
Expected unit sales............................... 400,000 200,000
Add: Desired ending finished
goods units................................. 30,000 15,000
Total required units............................... 430,000 215,000
Less: Beginning finished goods
units............................................. 25,000 10,000
Required production units.................... 405,000 205,000
Copyright © 2018 John Wiley & Sons, Inc. Weygandt, Managerial Accounting, 8/e, Solutions Manual (For Instructor Use Only) 9-43
PROBLEM 9-2A (Continued)
JB 50 JB 60 Total
Units to be produced....................... 405,000 205,000
Direct materials per unit................. X 2 X 3
Total pounds needed for
production...................................... 810,000 615,000
Add: Desired ending direct
materials (pounds)............... 30,000 10,000
Total materials required.................. 840,000 625,000
Less: Beginning direct
materials (pounds)............... 40,000 15,000
Direct materials purchases............ 800,000 610,000
Cost per pound................................ X $3 X $4
Total cost of direct materials
purchases..................................... $2,400,000 $2,440,000 $4,840,000
[(JB 50: ((405,000 x 2) + 30,000 – 40,000) x $3 = $2,400,000); (JB 60: ((205,000 x 3) + 10,000 – 15,000) x $4 =
$2,440,000)]
[(JB 50: ((Units to be produced x DM/unit) + DM end. inv. – DM beg. inv.) x Cost/lb. = Tot. cost of DM purch.); (JB
60: ((Units to be produced x DM/unit) + DM end. inv. – DM beg. inv.) x Cost/lb. = Tot. cost of DM purch.)]
JB 50 JB 60 Total
Units to be produced....................... 405,000 205,000 650,000
Direct labor time (hours) per
unit X .4 X .6 —
Total required direct labor
hours............................................... 162,000 123,000 301,000
Direct labor cost per hour............... X $12 X $12 X $10
Total direct labor cost..................... $1,944,000 $1,476,000 $3,420,000
9-44 Copyright © 2018 John Wiley & Sons, Inc. Weygandt, Managerial Accounting, 8/e, Solutions Manual (For Instructor Use Only)
PROBLEM 9-2A (Continued)
JB 50 JB 60 Total
Sales....................................... $8,000,000 $5,000,000 $13,000,000
(1)
Cost of goods sold................ 5,200,000 4,000,000 (2) 9,200,000
Gross profit............................ 2,800,000 1,000,000 3,800,000
Operating expenses
Selling expenses................. 560,000 360,000 920,000
Administrative
expenses............................ 540,000 340,000 880,000
Total operating
expenses........................ 1,100,000 700,000 1,800,000
Income from operations....... $1,700,000 $ 300,000 2,000,000
Interest expense.................... 150,000
Income before income
taxes..................................... 1,850,000
Income tax expense
(30% x $1,850,000)............... 555,000
Net income............................. $ 1,295,000
(1)
400,000 X $13.
(2)
200,000 X $20.
[(JB 50: $8,000,000 – (400,000 x $13) – ($560,000 + $540,000) = $1,700,000); (JB 60: $5,000,000 – (200,000 x
$20) – ($360,000 + $340,000) = $300,000)]
[(JB 50: Sales – (Units sold x Unit cost) – (Sell. exp. + Admin. exp.) = Inc. from oper.); (JB 60: Sales – (Units sold
x Unit cost) – (Sell. exp. + Admin. exp.) = Inc. from oper.)]
LO2, 3 BT: AP Difficulty: Simple TOT: 50 min. AACSB: Analytic AICPA FC: Decision Modeling, Reporting
IMA: Budget Preparation
Copyright © 2018 John Wiley & Sons, Inc. Weygandt, Managerial Accounting, 8/e, Solutions Manual (For Instructor Use Only) 9-45
PROBLEM 9-3A
Plan A Plan B
Expected unit sales..................................... 765,000 (1) 950,000 (2)
Unit selling price......................................... X $8.40 X $7.50 (3)
Total sales.................................................... $6,426,000 $7,125,000
(1)
$6,800,000 ÷ $8 = 850,000 X 90% = 765,000.
(2)
850,000 + 100,000 = 950,000.
(3)
$8.00 – $0.50
[(Plan A: (($6,800,000 ÷ $8) x 90%) x $8.40 = $6,426,000); (Plan B: ((850,000 + 100,000) x ($8.00 - $.50)) =
$7,125,000)]
[(Plan A: ((Tot. sales ÷ USP) x % of 2019 level) x 2020 USP = Tot. sales); (Plan B: ((2019 sales units + exp. incr.)
x (2019 USP – USP decr.)) = $7,125,000)]
Plan A Plan B
Expected unit sales............................................... 765,000 950,000
(1)
Add: Desired ending finished goods units........ 38,250 60,000
Total required units............................................... 803,250 1,010,000
Less: Beginning finished goods units................ 40,000 40,000
Required production units.................................... 763,250 970,000
(1)
765,000 X 5%
(c) Variable costs = $4.40 per unit ($1.80 + $1.40 + $1.20) for both plans.
Plan A Plan B
Total variable costs $3,358,300 (763,250 X $4.40) $4,268,000 (970,000 X $4.40)
Total fixed costs 1,895,000 1,895,000
Total costs (a) $5,253,300 $6,163,000
9-46 Copyright © 2018 John Wiley & Sons, Inc. Weygandt, Managerial Accounting, 8/e, Solutions Manual (For Instructor Use Only)
PROBLEM 9-3A (Continued)
The difference is due to the fact that fixed costs are spread over a larger
number of units (206,750) in Plan B.
[(Plan A: ((763,250 x ($1.80 + $1.40 + $1.20)) + $1,895,000 = $5,253,300); ($5,253,300 ÷ 763,250 = $6.88));
(Plan B: ((970,000 x ($1.80 + $1.40 + $1.20)) + $1,895,000 = $6,163,000); ($6,163,000 ÷ 970,000 = $6.35)]
[(Plan A: ((Units to be produced x (DL/unit + DM/unit + VOH/unit)) + FC = Tot. costs); (Tot. costs ÷ Units to be
produced = Unit cost)); (Plan B: ((Units to be produced x (DL/unit + DM/unit + VOH/unit)) + FC = Tot. costs); (Tot.
costs ÷ Units to be produced = Unit cost)]
Plan A Plan B
Sales $6,426,000 $7,125,000
Cost of goods sold 5,263,200 (765,000 X $6.88) 6,032,500 (950,000 X $6.35)
Gross profit $1,162,800 $1,092,500
Copyright © 2018 John Wiley & Sons, Inc. Weygandt, Managerial Accounting, 8/e, Solutions Manual (For Instructor Use Only) 9-47
PROBLEM 9-4A
January February
November ($250,000)................................. $ 50,000 $ 0
December ($320,000)................................. 96,000 64,000
January ($360,000)..................................... 180,000 108,000
February ($400,000)................................... . 200,000
Total collections............................... $326,000 $372,000
[(Jan.: ($250,000 x 20%) + ($320,000 x 30%) + ($360,000 x 50%) = $326,000); (Feb.: ($320,000 x 20%) +
($360,000 x 30%) + ($400,000 x 50%) = $372,000)]
[(Jan.: (Nov. sales x 2nd mo. after sale %) + (Dec. sales x 1st mo. after sale %) + (Jan. sales x Mo. of sale %) =
Tot. collect.); (Feb.: Dec. sales x 2nd mo. after sale %) + (Jan. sales x 1st mo. after sale %) + (Feb. sales x Mo. of
sale %) = Tot. collect.)]
January February
December ($100,000)................................. $ 40,000 $ 0
January ($120,000)..................................... 72,000 48,000
February ($125,000)................................... . 75,000
Total payments................................. $112,000 $123,000
[(Jan.: ($100,000 x 40%) + ($120,000 x 60%) = $112,000); (Feb.: ($120,000 x 40%) + ($125,000 x 60%) =
$123,000)]
[(Jan.: (Dec. DM purch. x Mo. after purch. %) + (Jan. DM purch. x Mo. of purch. %) = Tot. pmts.); (Feb.: Jan. DM
purch. x Mo. after purch. %) + (Feb. DM purch. x Mo. of purch. %) = Tot. pmts.)]
9-48 Copyright © 2018 John Wiley & Sons, Inc. Weygandt, Managerial Accounting, 8/e, Solutions Manual (For Instructor Use Only)
PROBLEM 9-4A (Continued)
January February
Beginning cash balance................................... $ 60,000 $ 51,000
Add: Receipts
Collections from customers................ 326,000 372,000
[See Schedule (1)]
Notes receivable.................................. 15,000
Sale of securities................................. 6,000
Total receipts.................................... 341,000 378,000
Total available cash.......................................... 401,000 429,000
Less: Disbursements
Direct materials................................... 112,000 123,000
[See Schedule 2]
Direct labor.......................................... 90,000 100,000
Manufacturing overhead.................... 70,000 75,000
Selling and administrative
expenses*.......................................... 78,000 84,000
Cash dividend..................................... 6,000
Total disbursements....................... 350,000 388,000
Excess (deficiency) of available cash
over cash disbursements............................... 51,000 41,000
Financing
Add: Borrowings ($50,000 - $41,000)............. 0 9,000
Less: Repayments............................................ 0 0
Ending cash balance......................................... $ 51,000 $ 50,000
Copyright © 2018 John Wiley & Sons, Inc. Weygandt, Managerial Accounting, 8/e, Solutions Manual (For Instructor Use Only) 9-49
PROBLEM 9-5A
May June
Budgeted cost of goods sold........................... $600,000 $630,000 (1)
Add: Desired ending merchandise inventory..... 63,000 (2) 66,150 (3)
Total.................................................................... 663,000 696,150
(4)
Less: Beginning merchandise inventory......... 60,000 63,000
Required merchandise purchases................... $603,000 $633,150
(1)
$800,000 X 105% = $840,000; $840,000 X 75% = $630,000.
(2)
$630,000 X 10% = $63,000.
(3)
$840,000 X 105% = $882,000; $882,000 X 75% = $661,500; $661,500 X
10% = $66,150.
(4)
$600,000 X 10% = $60,000.
[(May: ($800,000 x 75%) + ($800,000 x 105% x 75% x 10%) – ($800,000 x 75% x 10%) = $603,000); (Jun.:
($800,000 x 105% x 75%) + ($800,000 x 105% x 105% x 75% x 10%) – ($800,000 x 105% x 75% x 10%) =
$633,150)]
[(May: (May sales x CGS %) + (May sales x monthly % incr. x CGS % x End. inv. %) – (May sales x CGS % x
End. inv. %) = Req. merch. purch.); (Jun.: (May sales x Monthly % incr. x CGS %) + (May sales x Monthly % incr.
x Monthly % incr. x CGS % x End. inv. %) – (May sales x Monthly % incr. x CGS % x End. inv. %) = Req. merch.
purch.)]
9-50 Copyright © 2018 John Wiley & Sons, Inc. Weygandt, Managerial Accounting, 8/e, Solutions Manual (For Instructor Use Only)
PROBLEM 9-5A (Continued)
May June
Sales.................................................................... $800,000 $840,000
Cost of goods sold
Beginning inventory................................... 60,000 63,000
Purchases.................................................... 603,000 633,150
Cost of goods available for sale................ 663,000 696,150
Less: Ending inventory............................. 63,000 66,150
Cost of goods sold.............................. 600,000 630,000
Gross profit......................................................... 200,000 210,000
Operating expenses
Sales salaries.............................................. 35,000 35,000
Advertising*................................................. 48,000 50,400
Delivery**..................................................... 16,000 16,800
Sales commissions***................................ 40,000 42,000
Rent.............................................................. 5,000 5,000
Depreciation................................................ 800 800
Utilities......................................................... 600 600
Insurance..................................................... 500 500
Total..................................................... 145,900 151,100
Income from operations..................................... 54,100 58,900
Interest expense................................................. 2,000 2,000
Income before income taxes............................. 52,100 56,900
Income tax expense (30%)................................. 15,630 17,070
Net income.......................................................... $ 36,470 $ 39,830
*6% of sales.
**2% of sales.
***5% of sales.
LO5 BT: AP Difficulty: Simple TOT: 40 min. AACSB: Analytic AICPA FC: Reporting IMA: Budget Preparation
Copyright © 2018 John Wiley & Sons, Inc. Weygandt, Managerial Accounting, 8/e, Solutions Manual (For Instructor Use Only) 9-51
PROBLEM 9-6A
KRAUSE INDUSTRIES
Budgeted Cost of Goods Sold
For the Year Ending December 31, 2020
KRAUSE INDUSTRIES
Budgeted Income Statement
For the Year Ending December 31, 2020
KRAUSE INDUSTRIES
Budgeted Retained Earnings Statement
For the Year Ending December 31, 2020
9-52 Copyright © 2018 John Wiley & Sons, Inc. Weygandt, Managerial Accounting, 8/e, Solutions Manual (For Instructor Use Only)
Deduct: Dividends..................................................... 8,000
Retained earnings 12/31/20...................................... $38,900
Copyright © 2018 John Wiley & Sons, Inc. Weygandt, Managerial Accounting, 8/e, Solutions Manual (For Instructor Use Only) 9-53
PROBLEM 9-6A (Continued)
KRAUSE INDUSTRIES
Budgeted Balance Sheet
December 31, 2020
Assets
Current assets
Cash....................................................................... $ 5,880
Accounts receivable ($76,800 X 40%)................. 30,720
Finished goods inventory
(2,500 X $18)........................................................ 45,000
Total current assets...................................... $81,600
Stockholders’ equity
Common stock...................................................... $40,000
Retained earnings................................................. 38,900
Total stockholders’ equity............................ 78,900
Total liabilities and stockholders’
equity............................................................ $116,600
*$17,000 X 50%
9-54 Copyright © 2018 John Wiley & Sons, Inc. Weygandt, Managerial Accounting, 8/e, Solutions Manual (For Instructor Use Only)
PROBLEM 9-6A (Continued)
Copyright © 2018 John Wiley & Sons, Inc. Weygandt, Managerial Accounting, 8/e, Solutions Manual (For Instructor Use Only) 9-55
CD9 CURRENT DESIGNS
CURRENT DESIGNS
Production Budget
For the Year Ending December 31, 2020
Quarter 1 Quarter 2 Quarter 3 Quarter 4 Total
Expected unit sales 1,000 1,500 750 750 4,000
Add: desired ending
finished goods units 300* 150* 150* 220** 220
Total required units 1,300 1,650 900 970 4,220
Less: Beginning finished
goods units 200*** 300 150 150 200
Required production units 1,100 1,350 750 820 4,020
*(20% of next quarter’s sales)
**20% X 1,100
***given in problem
[Qtr. 1: 1,000 + (1,500 x 20%) – (1,000 x 20%) = 1,100]
[Qtr. 1: Exp. unit sales + (Qtr. 2 exp. unit sales x End. inv. %) – (Qtr. 1 unit sales x End. inv. %) = Req. production
units]
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CD9 (Continued)
CURRENT DESIGNS
Direct Materials Budget
For the Year Ending December 31, 2020
Quarter 1 Quarter 2 Quarter 3 Quarter 4 Total
Units to be produced 1,100 1,350 750 820 4,020
Pounds of polyethylene
powder per unit X 54 X 54 X 54 X 54 X 54
Total pounds needed for
production 59,400 72,900 40,500 44,280 217,080
Add: desired ending
inventory of powder 18,225* 10,125* 11,070* 15,930** 15,930
Total pounds of powder
required 77,625 83,025 51,570 60,210 233,010
Less: Beginning inventory
of powder 19,400*** 18,225 10,125 11,070 19,400
Pounds of Polyethylene
powder to be purchased 58,225 64,800 41,445 49,140 213,610
Cost per pound X $1.50 X $1.50 X $1.50 X $1.50 X $1.50
Cost of polyethylene
powder to be purchased $ 87,337.50 $ 97,200.00 $ 62,167.50 $ 73,710.00 $ 320,415.00
Cost of required finishing
kits
(one kit per kayak 187,000.00 229,500.00 127,500.00 139,400.00 683,400.00
manufactured) @$170 each
Total costs for direct $274,337.50 $326,700.00 $189,667.50 $213,110.00 $1,003,815.00
materials
*25% of needs for next quarter
**Desired ending inventory for Quarter 4 = 25% of amount needed for first
quarter of 2021 production.
Production for first quarter of 2021 = 1,100 + 300 – 220 = 1,180 units
Desired ending inventory for Quarter 4 of 2020 = 25%
*(1,180 units X 54 pounds per unit x 25%) = 15,930 pounds
***given in problem
[Qtr. 1: ((1,100 x 54) + (1,350 x 54 x 25%) – 19,400 = 58,225); ((58,225 x $1.50) + (1,100 x $170) = $274,337.50)]
[Qtr. 1: ((Qtr. 1 units to be produced x Lbs. of powder/unit) + (Qtr. 2 units to be produced x Lbs. of powder/unit x
End. inv. %) – Beg. inv. of powder = Lbs. of powder to be purch.); ((Lbs. of powder to be purch. x Cost/Lb.) + (No.
of finishing kits needed x Cost/kit) = Tot. cost of DM purch.)]
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CD9 (Continued)
CURRENT DESIGNS
Direct Labor Budget
For the Year Ending December 31, 2020
Quarter 1 Quarter 2 Quarter 3 Quarter 4 Total
Units to be produced 1,100 1,350 750 820 4,020
Number of hours of more skilled
labor/unit X 2 X 2 X 2 X 2 X 2
Total number of hours of more
skilled labor 2,200 2,700 1,500 1,640 8,040
Hourly rate for more skilled labor X $15 X $15 X $15 X $15 X $15
Total cost of more skilled labor $33,000 $40,500 $22,500 $24,600 $120,600
CURRENT DESIGNS
Manufacturing Overhead Budget
For the Year Ending December 31, 2020
Quarter 1 Quarter 2 Quarter 3 Quarter 4 Total
Total costs for direct
labor $72,600 $89,100 $49,500 $54,120 $265,320
Manufacturing
overhead rate per
direct labor dollar X 150% X 150% X 150% X 150% X 150%
Manufacturing
overhead costs $108,900 $133,650 $74,250 $81,180 $397,980
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CD 9 (Continued)
CURRENT DESIGNS
Selling and Administrative Expense Budget
For the Year Ending December 31, 2020
Quarter 1 Quarter 2 Quarter 3 Quarter 4 Total
Expected unit sales 1,000 1,500 750 750 4,000
Variable selling and
administrative costs
at $45 per unit sold $45,000 $67,500 $33,750 $33,750 $180,000
Fixed selling and
administrative costs 7,500 7,500 7,500 7,500 30,000
Total selling and
administrative costs $52,500 $75,000 $41,250 $41,250 $210,000
LO2, 3 BT: AP Difficulty: Moderate TOT: 50 min. AACSB: Analytic AICPA FC: Reporting IMA: Budget
Preparation
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CT 9-1 DECISION-MAKING ACROSS THE ORGANIZATION
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CT 9-1 (Continued)
(c) The functional areas should not necessarily be expected to cut costs
when sales volume falls below budget. The time frame of the budget
(one year) is short enough so that many costs are relatively fixed in
amount. For those costs which are fixed, there is little hope for a
reduction as a consequence of short-run changes in volume. However, the
functional areas should be expected to cut costs should sales volume
fall below target when:
2. Budgeted costs were more than adequate for the originally targeted
sales; i.e., slack was present.
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CT 9-2 MANAGERIAL ANALYSIS
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CT 9-3 REAL-WORLD FOCUS
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CT 9-4 COMMUNICATION ACTIVITY
Date 2020
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CT 9-4 (Continued)
However, even if you raised prices, you will find that you need additional
cash as long as the business continues to expand. It certainly does not
mean that you and Sue are doing anything wrong. It just means that you
will be investing additional funds as long as you continue to grow.
In my opinion, the best way to make sure these kits are available to as
many families as possible is for you and Sue to have a consultant evaluate
and determine the size of the market for you. Then you can decide whether
to expand to meet the need, or whether to keep your own business small
and allow competitors to imitate your product.
Sincerely,
Ima Student
Best and Superior, Certified Public Accountants
LO4 BT: AN Difficulty: Moderate TOT: 35 min. AACSB: Communication AICPA PC: Communication IMA:
Budget Preparation, Reporting
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CT 9-5 ETHICS CASE
(a) At best, if you disclose the errors in your calculations, you will be
embarrassed. At worst, you will be dismissed without a recommendation
for another job.
(b) The president will continue making presentations using data that are
grossly overstated. In time, your error may be detected when the events
you projected do not materialize.
(c) The most ethical scenario would be to admit your error, let the president
know about the error, provide the president with corrected projections,
and allow the president to decide how to alter his presentations during
the second week of his speech-making.
LO N/A BT: E Difficulty: Easy TOT: 20 min. AACSB: Ethics AICPA PC: Professional Demeanor,
Communication IMA: Business Applications
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CT 9-6 ALL ABOUT YOU
Personal Budget
Typical Month
Income:
Wages earned.................................................... $2,500
Interest income................................................. 50
Income subtotal............................................................ 2,550
Income tax withheld..................................................... 300
Spendable income............................................ $2,250
Expenses:
Rent............................................................................... 500
Utilities
Electricity........................................................... 85
Telephone and Internet.................................... 125
Food:
Groceries........................................................... 100
Eating out.......................................................... 150
Insurance...................................................................... 100
Transportation.............................................................. 150
Student loan payments................................................ 375
Entertainment............................................................... 250
Savings......................................................................... 50
Miscellaneous............................................................... 210
Total investments and expenses............... 2,095
Surplus/Shortage......................................................... $ 155
LO N/A BT: E Difficulty: Easy TOT: 20 min. AACSB: Technology, Analytic AICPA FC: Reporting IMA: Budget
Preparation
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CT 9-7 CONSIDERING YOUR COSTS AND BENEFITS
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