Accounting Principles Solution Chapter (23) PDF

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CHAPTER 23Budgetary PlanningASSIGNMENT CLASSIFICATION TABLELearning Objectives Do It! ExercisesA Problems State the essentials of effective budgeting and the components of the master budget. 1 1 Prepare budgets for sales, production, and direct materials. 2 2, 3, 4, 5, 6, 7, 8, 101A, 2A, 3A Prepare ...

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CHAPTER 23 Budgetary Planning ASSIGNMENT CLASSIFICATION TABLE A Problems

Learning Objectives

Do It!

Exercises

1.

State the essentials of effective budgeting and the components of the master budget.

1

1

2.

Prepare budgets for sales, production, and direct materials.

2

2, 3, 4, 5, 6, 7, 8, 10

1A, 2A, 3A

3.

Prepare budgets for direct labor, manufacturing overhead, and selling and administrative expenses, and a budgeted income statement.

3

9, 10, 11, 12, 13

1A, 2A, 6A

4.

Prepare a cash budget and a budgeted balance sheet.

4

14, 15, 16, 17, 18, 19

4A, 6A

5.

Apply budgeting principles to nonmanufacturing companies.

5

19, 20, 21

5A

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23-1

ASSIGNMENT CHARACTERISTICS TABLE Problem Number

Description

Difficulty Level

Time Allotted (min.)

1A

Prepare budgeted income statement and supporting budgets.

Simple

30–40

2A

Prepare sales, production, direct materials, direct labor, and income statement budgets.

Simple

40–50

3A

Prepare sales and production budgets and compute cost per unit under two plans.

Moderate

30–40

4A

Prepare cash budget for two months.

Moderate

30–40

5A

Prepare purchases and income statement budgets for a merchandiser.

Simple

30–40

6A

Prepare budgeted cost of goods sold, income statement, retained earnings and balance sheet.

Complex

40–50

23-2

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Learning Objective

Knowledge Comprehension DI23-1

Application

Synthesis

Evaluation

E23-1

Weygandt, Accounting Principles, 12//e, Solutions Manual

1.

State the essentials of effective budgeting and the components of the master budget.

2.

Prepare budgets for sales, production, and direct materials.

DI23-2

E23-2 E23-3 E23-4 E23-5 E23-6 E23-7

3.

Prepare budgets for direct labor, manufacturing overhead, and selling and administrative expenses, and a budgeted income statement.

DI23-3

E23-9 P23-2A E23-10 P23-6A E23-11 E23-12 E23-13 P23-1A

4.

Prepare a cash budget and a budgeted balance sheet.

DI23-4 E23-15 P23-4A E23-14 E23-17 P23-6A E23-18 E23-19

5.

Apply budgeting principles to nonmanufacturing companies.

DI23-5 E23-19

Broadening Your Perspective

Analysis

P23-3A

E23-8 E23-10 P23-1A P23-2A

E23-16

E23-20 E23-21 P23-5A BYP23-2 BYP23-3 BYP23-4

BYP23-1

BYP23-5 BYP23-6 BYP23-7

BLOOM’S TAXONOMY TABLE

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Correlation Chart between Bloom’s Taxonomy, Learning Objectives and End-of-Chapter Exercises and Problems

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23-3

SOLUTIONS FOR DO IT! REVIEW EXERCISES DO IT! 23-1 1. 2. 3. 4. 5. 6.

Operating budgets Master budget Participative budgeting Financial budgets Sales forecast Long-range plans

DO IT! 23-2 PARGO COMPANY Sales Budget For the Year Ending December 31, 2017 Quarter 1 Expected unit sales Unit selling price Total sales

23-4

2

3

4

Year

250,000 250,000 300,000 1,000,000 200,000 X $40 X $40 X $40 X $45 — $8,000,000 $10,000,000 $10,000,000 $13,500,000 $41,500,000

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DO IT! 23-2 (Continued) PARGO COMPANY Production Budget For the Year Ending December 31, 2017 Quarter 1 200,000 Expected unit sales Add: Desired ending finished 62,500 goods units 262,500 Total required units Less: Beginning finished goods units 50,000** Required production units 212,500

2

3

4

250,000

250,000

300,000

62,500 312,500

75,000 325,000

60,000* 360,000

62,500 250,000

62,500 262,500

75,000 285,000

Year

1,010,000

*Estimated first-quarter 2018 sales volume 200,000 + (200,000 X 20%) = 240,000: 240,000 X 25%. **25% of estimated first-quarter 2017 sales units (200,000 X 25%).

PARGO COMPANY Direct Materials Budget For the Year Ending December 31, 2017 Quarter 1

2

3

4

Year

212,500 Units to be produced 285,000 250,000 262,500 X 2 X 2 X 2 X 2 Direct materials per unit Total pounds needed for 570,000 production 525,000 500,000 425,000 Add: Desired ending direct materials *45,000 57,000 52,500 50,000 (pounds) 615,000 582,000 552,500 475,000 Total materials required Less: Beginning direct 57,000 52,500 50,000 **42,500 materials (pounds) Direct materials 558,000 529,500 purchases 502,500 432,500 X $12 X $12 X $12 X $12 Cost per pound Total cost of direct materials purchases $5,190,000 $6,030,000 $6,354,000 $6,696,000 $24,270,000

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23-5

*Estimated first-quarter 2018 production requirements 450,000 X 10% = 45,000 **10% of estimated first-quarter pounds needed for production.

DO IT! 23-3 (a)

Total unit cost: Cost Element

Quantity

Direct materials............................... 2 pounds Direct labor....................................... 0.3 hours Manufacturing overhead................. 0.3 hours Total unit cost......................... (b)

Unit Cost

Total

$12.00 $15.00 $20.00

$24.00 4.50 6.00 $34.50

PARGO COMPANY Budgeted Income Statement For the Year Ending December 31, 2017 Sales (1,000,000) units from sales budget, page 23-10..... $41,500,000 Cost of goods sold (1,000,000 X $34.50/unit)................... 34,500,000 Gross profit......................................................................... 7,000,000 Selling and administrative expenses................................ 6,000,000 Net income.......................................................................... $ 1,000,000

DO IT! 23-4 BATISTA COMPANY Cash Budget April Beginning cash balance.............................................................. Add: Cash receipts for April....................................................... Total available cash...................................................................... Less: Cash disbursements in April............................................ Excess of available cash over cash disbursements................. Add: Financing ($25,000 – $15,000)........................................... Ending cash balance....................................................................

$ 25,000 245,000 270,000 255,000 15,000 10,000 $ 25,000

To maintain the desired minimum cash balance of $25,000, Batista Company must borrow $10,000.

23-6

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23-7

DO IT! 23-5 Zeller COMPANY Merchandise Purchases Budget For the Six Months Ending June 30, 2017 Quarter Budgeted cost of goods sold (Sales  .50) Add: Desired ending merchandise inventory (10% of next quarter’s cost of goods sold) Total Less: Beginning merchandise inventory (10% this quarter’s cost of goods sold) Required merchandise purchases

23-8

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1

2

$20,000

$24,000

2,400 22,400

2,900 26,900

2,000 $20,400

2,400 $24,500

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Six Months

$44,900

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SOLUTIONS TO EXERCISES EXERCISE 23-1 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 generally 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 correlating 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. Copyright © 2015 John Wiley & Sons, Inc.

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23-9

EXERCISE 23-2

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EDINGTON ELECTRONICS INC. Sales Budget For the Six Months Ending June 30, 2017

Product

Units

XQ-103 XQ-104 Totals

20,000 12,000 32,000

Quarter 1 Selling Total Price Sales $15 25

$300,000 300,000 $600,000

Units 22,000 15,000 37,000

Quarter 2 Selling Total Price Sales $15 25

$330,000 375,000 $705,000

Units 42,000 27,000 69,000

Six Months Selling Total Price Sales $15 25

$ 630,000 675,000 $1,305,000

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EXERCISE 23-3

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THOME AND CREDE, CPAs Sales Revenue Budget For the Year Ending December 31, 2017

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Dept. Auditing Tax Consulting Totals

Dept. Auditing Tax Consulting Totals a

Billable Hours 2,300 3,000 1,500

Billable Hours 8,300a 9,700b 6,000c

Quarter 1 Billable Total Rate Rev. $ 80 $184,000 90 270,000 110 165,000 $619,000

Year Billable Rate $ 80 90 110

2,300 + 1,600 + 2,000 + 2,400 3,000 + 2,200 + 2,000 + 2,500 c 1,500  4 b

Billable Hours 1,600 2,200 1,500

Total Rev. $ 664,000 873,000 660,000 $2,197,000

Quarter 2 Billable Rate $ 80 90 110

Total Rev. 128,000 198,000 165,000 $491,000

Billable Hours 2,000 2,000 1,500

Quarter 3 Billable Total Rate Rev. $ 80 $160,000 90 180,000 110 165,000 $505,000

Billable Hours 2,400 2,500 1,500

Quarter 4 Billable Total Rate Rev. $ 80 $192,000 90 225,000 110 165,000 $582,000

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EXERCISE 23-4 TURNEY COMPANY Production Budget For the Year Ending December 31, 2017 Product HD-240 Quarter Expected unit sales Add: Desired ending finished goods units(1) Total required units Less: Beginning finished goods units Required production units (1) (2)

1

2

5,000

7,000

8,000

3

4

2,800 7,800

3,200 10,200

4,000 12,000

2,500 (2) 12,500

2,000 5,800

2,800 7,400

3,200 8,800

4,000 8,500

Year

10,000

30,500

40% of next quarter’s sales. 40% X (5,000 X 125%).

23-12

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EXERCISE 23-5 DEWITT INDUSTRIES Direct Materials Purchases Budget For the Quarter Ending March 31, 2017

Units to be produced Direct materials per unit Total pounds needed for production Add: Desired ending direct materials (pounds)* Total materials required Less: Beginning direct materials (pounds) Direct materials purchases Cost per pound Total cost of direct materials purchases

January

February

March

10,000 X 2 20,000

8,000 X 2 16,000

5,000 X 2 10,000

3,200 23,200

2,000 18,000

1,600 11,600

4,000 19,200 X $3

3,200 14,800 X $3

2,000 9,600 X $3

$57,600

$44,400

$28,800

*20% of next month’s production needs. EXERCISE 23-6 (a)

HARDIN COMPANY Production Budget For the Six Months Ending June 30, 2017 Quarter Expected unit sales Add: Desired ending finished goods units Total required units Less: Beginning finished goods units Required production units

Six Months

1 5,000

2 6,000

1,500 (1) 6,500 1,250 (3) 5,250

1,750 (2) 7,750 1,500 6,250 11,500

(1)

25% X 6,000. 25% X 7,000. (3) 25% X 5,000. (2)

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23-13

EXERCISE 23-6 (Continued) (b)

HARDIN COMPANY Direct Materials Budget For the Six Months Ending June 30, 2017

Units to be produced Direct materials per unit Total pounds needed for production Add: Desired ending direct materials (pounds) Total materials required Less: Beginning direct materials (pounds) Direct materials purchases Cost per pound Total cost of direct materials Purchases (1) 40% X 18,750. (2) 7,200 X (3 X 40%). (3) 40% X 15,750.

Quarter 1 2 5,250 6,250 X 3 X 3 18,750 15,750 7,500 (1) 23,250

Six Months

8,640(2) 27,390

7,500 6,300 (3) 19,890 16,950 X $4 X $4

0000,000

$79,560

$147,360

$67,800

EXERCISE 23-7 Finished goods: Sales......................................................................... Plus: Ending inventory............................................ Total required................................................................ Less: Beginning inventory..................................... Production required..................................................... Direct materials per unit.............................................. Units of direct material required for production........ Plus: Ending inventory................................................ Total required................................................................ Less: Beginning inventory..................................... Purchases of direct material required........................ Cost per unit................................................................. Total cost of materials.................................................

2,675 2,200 4,875 2,230 2,645 X

2 5,290 2,500 (a) 7,790 2,645 (b) 5,145 X $4 $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

23-14

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(b)

2,675 + 2,200 – 2,230 = 2,645; 2,645 X 2 X .50 = 2,645

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23-15

EXERCISE 23-8 (a)

FUQUA COMPANY Production Budget For the Two Months Ending February 28, 2017 ______________________________________________________________ January Expected unit sales............................................. 10,000 Add: Desired ending finished goods inventory................................................... 2,400* Total required units.............................................. 12,400 Less: Beginning finished goods inventory...... 2,000** Required production units.................................. 10,400

February 12,000 2,600*** 14,600 2,400 12,200

*20% X next month’s expected sales or 12,000 X 20% **20% X 10,000 ***20% X 13,000 (b)

FUQUA COMPANY Direct Materials Budget For the Month Ending January 31, 2017 _______________________________________________________________ Units to be produced.............................................................. Direct material pounds per unit............................................. Total pounds needed for production.................................... Add: desired pounds in ending materials inventory.......... Total materials required......................................................... Less: beginning direct materials (pounds).......................... Direct materials purchases.................................................... Cost per pound....................................................................... Total cost of direct materials purchases.............................. *(12,200 X 4) X 40%

23-16

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January 10,400 X 4 41,600 19,520* 61,120 16,640** 44,480 X $2 $88,960

**(10,400 X 4) X 40%

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EXERCISE 23-9 RODRIQUEZ, INC. Direct Labor Budget For the Year Ending December 31, 2017 Quarter 1 Units to be produced Direct labor time (hours) per unit Total required direct labor hours Direct labor cost per hour Total direct labor cost

2

20,000 X