Q1) Sales are budgeted at $360,000 for November, $380,000 for December, and $370,000 for January. The cost of goods sold is 74% of sales. The company desires an ending merchandise inventory equal to 75% of the cost of goods sold in the following month. Payment for merchandise is made in the month following the purchase. Other monthly expenses to be paid in cash are $22,400. Monthly depreciation is $22,200. Ignore taxes. Balance Sheet October 31 Assets Cash $ 23,200 Accounts receivable 84,200 Merchandise inventory 199,800 Property, plant and equipment (net of $606,000 accumulated depreciation) 1,016,000 Total assets $ 1,323,200 Liabilities and Stockholders' Equity Accounts payable $ 197,200 Common stock 610,000 Retained earnings 516,000 Total liabilities and stockholders' equity $ 1,323,200 Required: (need these two parts) d. Prepare Budgeted Income Statements for November and December. e. Prepare a Budgeted Balance Sheet for the end of December
Master Budget
A master budget can be defined as an estimation of the revenue earned or expenses incurred over a specified period of time in the future and it is generally prepared on a periodic basis which can be either monthly, quarterly, half-yearly, or annually. It helps a business, an organization, or even an individual to manage the money effectively. A budget also helps in monitoring the performance of the people in the organization and helps in better decision-making.
Sales Budget and Selling
A budget is a financial plan designed by an undertaking for a definite period in future which acts as a major contributor towards enhancing the financial success of the business undertaking. The budget generally takes into account both current and future income and expenses.
Q1)
- Sales are budgeted at $360,000 for November, $380,000 for December, and $370,000 for January.
- The cost of goods sold is 74% of sales.
- The company desires an ending merchandise inventory equal to 75% of the cost of goods sold in the following month.
- Payment for merchandise is made in the month following the purchase.
- Other monthly expenses to be paid in cash are $22,400.
- Monthly
depreciation is $22,200. - Ignore taxes.
| Balance Sheet October 31 |
||
| Assets | ||
| Cash | $ | 23,200 |
| 84,200 | ||
| Merchandise inventory | 199,800 | |
| Property, plant and equipment (net of $606,000 accumulated depreciation) | 1,016,000 | |
| Total assets | $ | 1,323,200 |
| Liabilities and |
||
| Accounts payable | $ | 197,200 |
| Common stock | 610,000 | |
| 516,000 | ||
| Total liabilities and stockholders' equity | $ | 1,323,200 |
Required:
(need these two parts)
d. Prepare
e. Prepare a Budgeted Balance Sheet for the end of December
Q2)
Zwinger Nursery plans to sell a similar fertilizer/weedkiller compound through its regional nursery chain under its own private label. Zwinger does not have manufacturing facilities of its own, so it has asked Wesco (and several other companies) to submit a bid for manufacturing and delivering a 34,000-pound order of the private brand compound to Zwinger. While the chemical composition of the Zwinger compound differs from that of GrowNWeed, the manufacturing processes are very similar. The Zwinger compound would be produced in 1,000-pound lots. Each lot would require 30 direct labor-hours and the following chemicals:
| Chemicals | Quantity in Pounds |
| AG-5 | 300 |
| KL-2 | 290 |
| CW-7 | 200 |
| DF-6 | 210 |
The first three chemicals (AG-5, KL-2, and CW-7) are all used in the production of GrowNWeed. DF-6 was used in another compound that Wesco discontinued several months ago. The supply of DF-6 that Wesco had on hand when the other compound was discontinued was not discarded. Wesco could sell its supply of DF-6 at the prevailing market price less $0.11 per pound selling and handling expenses.Wesco also has on hand a chemical called BH-3, which was manufactured for use in another product that is no longer produced. BH-3, which cannot be used in GrowNWeed, can be substituted for AG-5 on a one-for-one basis without affecting the quality of the Zwinger compound. The BH-3 in inventory has a salvage value of $470. Inventory and cost data for the chemicals that can be used to produce the Zwinger compound are shown below:
| Raw Material | Pounds in Inventory |
Actual Price per Pound When Purchased |
Current Market Price per Pound |
||
| AG-5 | 18,000 | $ | 0.63 | $ | 0.73 |
| KL-2 | 5,000 | $ | 0.45 | $ | 0.50 |
| CW-7 | 7,900 | $ | 1.37 | $ | 1.57 |
| DF-6 | 5,640 | $ | 0.53 | $ | 0.55 |
| BH-3 | 4,500 | $ | 0.62 | (Salvage) | |
The current direct labor wage rate is $18 per hour. The predetermined overhead rate is based on direct labor-hours (DLH). The predetermined overhead rate for the current year, based on a two-shift capacity with no overtime, is as follows:
| Variable manufacturing overhead | $ | 4.20 | per DLH |
| Fixed manufacturing overhead | 7.30 | per DLH | |
| Combined predetermined overhead rate | $ | 11.50 | per DLH |
Wesco’s production manager reports that the present equipment and facilities are adequate to manufacture the Zwinger compound. Therefore, the order would have no effect on total fixed manufacturing overhead costs. However, Wesco is within 130 hours of its two-shift capacity this month. Any additional hours beyond the 130 hours must be done in overtime. If need be, the Zwinger compound could be produced on regular time by shifting a portion of GrowNWeed production to overtime. Wesco’s direct labor wage rate for overtime is $27 per hour. There is no allowance for any overtime premium in the predetermined overhead rate.
Required:
1. Wesco has decided to submit a bid for the 34,000 pound order of Zwinger’s new compound. The order must be delivered by the end of the current month. Zwinger has indicated that this is a one-time order that will not be repeated. Calculate the lowest price that Wesco could bid for the order and still exactly cover its incremental
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