Chapter 14, Problem 14.23P

To determine

Concept Introduction:

Sales Budget-

A sales budget is a budget which is used to estimate the expected units of sales in dollars and also helps to determine the estimated earnings during a period.

Requirement 1-

To prepare: units for October = 12,000

Sales units for November = 14,000

Sales units for December = 20,000

Selling price per unit = $60

Sales budget

Answer to Problem 14.23P

Soprano Co.
Sales budget
	April	May	June	Quarter
Sales in units	7,000	10,000	8,000	25,000
Selling price per unit	$40	$40	$40	$40
Dollar sales value($)	$280,000	$400,000	$320,000	$1,000,000

Explanation of Solution

Given,

• Sales units for April = 7,000
• Sales units for May = 10,000
• Sales units for June = 8,000
• Selling price per unit = $40

  $\begin{array}{l}\begin{array}{l}Salesunitsforquarter=Aprilsales+Maysales+Junesales\hfill \\ Salesunitsforquarter=7,000+10,000+8,000\hfill \end{array}\\ Salesunitsforquarter=25,000\end{array}$

Dollar sales value for each month is calculated as follows-

  $\begin{array}{l}Dollarsalesvalue=Salesinunits\times Sellingpriceperunit\hfill \\ DollarsalesvalueforApril=7,000\times \$40\hfill \\ \begin{array}{l}DollarsalesvalueforApril=\$280,000\\ \\ \begin{array}{l}DollarsalesvalueforMay=10,000\times \$40\hfill \\ \begin{array}{l}DollarsalesvalueforMay=\$400,000\\ \\ DollarsalesvalueforJune=8,000\times \$40\\ DollarsalesvalueforJune=\$320,000\\ \\ DollarsalesvalueforQuarter=25,000\times \$40\\ DollarsalesvalueforQuarter=\$1,000,000\end{array}\hfill \end{array}\end{array}\hfill \end{array}$

Conclusion:

Thus, the sales budget has been prepared.

To determine

Concept Introduction:

Schedule of expected cash collection-

Schedule of expected cash collection is a schedule which represents all the cash collections from sales during a period. It is a part of master budget. It is prepared after preparing of sales budget but before preparing of cash budget.

Requirement 2-

To prepare:

Schedule of expected cash collection

Answer to Problem 14.23P

Soprano Co.
Schedule of expected cash collection
Cash collections from-	April	May	June	Total
March sales	132,000			132,000
April sales	112,000	154,000		266,000
May sales		160,000	220,000	380,000
June sales			128,000	128,000
Total cash collections	$244,000	$314,000	$348,000	$906,000

Explanation of Solution

Given, Sales (Calculated in requirement 1)

• April sales = $280,000
• May sales = $400,000
• June sales = $320,000
April-

  $\begin{array}{l}CashcollectionsfromMarchsales=Marchsalesunits*Salespriceperunit*55\%\hfill \\ CashcollectionsfromMarchsales=6,000units*\$40*55\%\hfill \\ \begin{array}{l}CashcollectionsfromMarchsales=\$132,000\\ \end{array}\hfill \\ CashcollectionsfromAprilsales=Aprilsales*40\%\hfill \\ CashcollectionsfromAprilsales=\$280,000*40\%\hfill \\ CashcollectionsfromAprilsales=\$112,000\hfill \end{array}$

Total cash collections of April-

  $\begin{array}{l}Totalcashcollections=CashcollectionsfromMarchsales+CashcollectionsfromAprilsales\hfill \\ Totalcashcollections=\$132,000+\$112,000\hfill \\ Totalcashcollections=\$244,000\hfill \end{array}$

May-

  $CashcollectionsfromAprilsales=Aprilsales*\text{ 55}\%$

  $CashcollectionsfromAprilsales=\$280,000*55\%$

  $CashcollectionsfromAprilsales=\$154,000$

  $\begin{array}{l}CashcollectionsfromMaysales=Maysales*\text{ 40}\%\\ CashcollectionsfromMaysales=400,000*\text{ 40}\%\\ CashcollectionsfromMaysales=\$160,000\end{array}$

Total cash collections of May-

  $\begin{array}{l}Totalcashcollections=CashcollectionsfromAprilsales+CashcollectionsfromMaysales\hfill \\ Totalcashcollections=\$154,000+\$160,000\hfill \\ Totalcashcollections=\$314,000\hfill \end{array}$

June-

  $\begin{array}{l}\begin{array}{l}CashcollectionsfromMaysales=Maysales*55\%\hfill \\ CashcollectionsfromMaysales=\$400,000*55\%\hfill \\ \begin{array}{l}CashcollectionsfromMaysales=\$220,000\\ \end{array}\hfill \\ CashcollectionsfromJunesales=Junesales*40\%\hfill \\ CashcollectionsfromJunesales=\$320,000*40\%\hfill \end{array}\\ CashcollectionsfromJunesales=\$128,000\end{array}$

Total cash collections of June-

  $\begin{array}{l}Totalcashcollections=CashcollectionsfromMaysales+CashcollectionsfromJunesales\hfill \\ Totalcashcollections=\$220,000+\$128,000\hfill \\ Totalcashcollections=\$348,000\hfill \end{array}$

Conclusion:

Thus, schedule of cash collections is prepared.

To determine

Concept Introduction:

Production Budget-

Production budget is a budget which shows the number of units to be produced or manufactured during a period of time.

Requirement 3-

To prepare:

Production Budget

Answer to Problem 14.23P

Soprano Co.
Production budget
	April	May	June	Total
Quantity to be sold	7,000	10,000	8,000	25,000
Desired ending inventory of finished goods	5,000	4,000	4,500	4,500
Goods available for sale	12,000	14,000	12,500	29,500
Beginning inventory of finished goods	(3,500)	(5,000)	(4,000)	(3,500)
Units to be produced	8,500	9,000	8,500	26,000

Explanation of Solution

Given,

Beginning inventory of April − 3,500 units

Quantity to be sold-

• April − 7,000 units
• May − 10,000 units
• June − 8,000 units
• July − 9,000 units

  $Desiredendinginventoryoffinishedgoods=50\%*Nextmonth’ssales$

April-

  $\begin{array}{l}Desiredendinginventoryoffinishedgoods=50\%*Maysales\hfill \\ Desiredendinginventoryoffinishedgoods=50\%*10,000\hfill \\ Desiredendinginventoryoffinishedgoods=5,000\hfill \end{array}$

May-

  $\begin{array}{l}Desiredendinginventoryoffinishedgoods=50\%*Junesales\hfill \\ Desiredendinginventoryoffinishedgoods=50\%*8,000\hfill \\ Desiredendinginventoryoffinishedgoods=4,000\hfill \end{array}$

June-

  $\begin{array}{l}Desiredendinginventoryoffinishedgoods=50\%*Julysales\hfill \\ Desiredendinginventoryoffinishedgoods=50\%*9,000\hfill \\ Desiredendinginventoryoffinishedgoods=4,500\hfill \end{array}$

Beginning inventory of finished goods

• Ending inventory of finished goods of the previous month shall be the beginning inventory of finished goods
• April − 3,500 units
• May − 5,000 units
• June − 4,000 units
Now, we need to calculate units to be produced-

  $\begin{array}{l}Unitstobeproduced=Quantityofgoodssold+Endinginventoryoffinishedgoods\\ -Beginninginventoryoffinishedgoods\end{array}$

  $\begin{array}{l}April=7,000+5,000-3,500=8,500units\hfill \\ May=10,000+4,000-5,000=9,000units\hfill \\ June=8,000+4,500-4,000=8,500units\hfill \end{array}$

Conclusion:

Thus, Production budget is prepared.

To determine

Concept Introduction:

Materials purchase budget-

Material purchase budget is a budget which shows the material to be purchased during a period of time in order to fulfill the requirement of production budget.

Requirement 4-

To prepare:

Material purchase budget

Answer to Problem 14.23P

Soprano Co.
Material purchase budget
	April	May	June	Total
Budgeted production (units)	8,500	9,000	8,500	26,000
Material requirements per unit (pounds)	3	3	3	3
Quantity of raw materials to be used in production	25,500	27,000	25,500	78,000
Add: Desired ending inventory of raw materials	10,800	10,200	9,000	9,000
Raw materials available for use	36,300	37,200	34,500	87,000
Less: Beginning inventory of raw materials	(10,200)	(10,800)	(10,200)	(10,200)
Purchase of raw materials	26,100	26,400	24,300	76,800

Explanation of Solution

Given,

• Production Budget = Calculated in Req.3
• Material requirements per unit= 3
• Beginning inventory of raw materials of April = 10,200 units
Quantity of raw materials to be used in production-

  $\begin{array}{l}Quantityofrawmaterialstobeusedinproduction=ProductionBudget*Materialrequirementsperunit\hfill \\ April=8,500*3=25,500\hfill \\ May=9,000*3=27,000\hfill \\ June=8,500*3=25,500\hfill \end{array}$

Desired ending inventory of raw materials = 40%*Next month's Quantity of raw materials to be used in production

April-

  $\begin{array}{l}Desiredendinginventoryofrawmaterials=40\%*Mayrawmaterialstobeusedinproduction\hfill \\ Desiredendinginventoryofrawmaterials=40\%*27,000\hfill \\ Desiredendinginventoryofrawmaterials=10,800\hfill \end{array}$

May-

  $\begin{array}{l}Desiredendinginventoryofrawmaterials=40\%*Junerawmaterialstobeusedinproduction\hfill \\ Desiredendinginventoryofrawmaterials=40\%*25,500\hfill \\ Desiredendinginventoryofrawmaterials=10,200\hfill \end{array}$

June-

  $\begin{array}{l}Desiredendinginventoryofrawmaterials=40\%*Julyrawmaterialstobeusedinproduction\hfill \\ Desiredendinginventoryofrawmaterials=40\%*\left(7,500*3\right)\hfill \\ Desiredendinginventoryofrawmaterials=40\%*22,500\hfill \\ Desiredendinginventoryofrawmaterials=9,000\hfill \end{array}$

Beginning inventory of raw materials

• Ending inventory of raw materials of the previous month shall be the beginning inventory of raw materials
• April − 10,200 units
• May − 10,800 units
• June − 10,200 units
Now, we need to calculate units to be purchased-

  $\begin{array}{l}\begin{array}{l}Purchaseofrawmaterials=Quantityofrawmaterialstobeusedinproduction\\ +Desiredendinginventoryofrawmaterials\\ -Beginninginventoryofrawmaterials\end{array}\hfill \\ April=25,500+10,800-10,200=26,100\hfill \\ May=27,000+10,200-10,800=26,400\hfill \\ June=25,500+9,000-10,200=24,300\hfill \end{array}$

Conclusion:

Thus, Purchase budget is prepared.

To determine

Concept Introduction:

Schedule of cash payments for material-

Schedule of expected cash payment is a schedule which represents all the cash payments to suppliers for purchases during a period. It is a part of master budget. It is prepared after preparing of purchase budget but before preparing of cash budget.

Requirement 5-

To prepare:

Schedule of expected cash payment

Answer to Problem 14.23P

Soprano Co.
Schedule of expected cash payment
Cash payments for-	April	May	June	Total
March purchases	26,280			26,280
April purchases	125,280	31,320		156,600
May purchases		126,720	31,680	158,400
June purchases			116,640	116,640
Total cash payments	151,560	158,040	148,320	457,920

Explanation of Solution

Given,

• Cash payments for March purchases- $26,280
• Purchases (Calculated in req.4)
April - 26,100 units

May - 26,400 units

June − 24,300 units

• Cost per pound of raw material = $6
April-

  $\begin{array}{l}CashpaymentsforAprilpurchases=Aprilpurchaseunits*Costperpoundofrawmaterial*80\%\hfill \\ CashpaymentsforAprilpurchases=26,100*\$6*80\%\hfill \\ CashpaymentsforAprilpurchases=\$125,280\hfill \end{array}$

Total cash payments for April-

  $\begin{array}{l}TotalcashpaymentsforApril=CashpaymentsforMarchpurchases+CashpaymentsforAprilpurchases\hfill \\ TotalcashpaymentsforApril=\$26,280+\$125,280\hfill \\ TotalcashpaymentsforApril=\$151,560\hfill \end{array}$

May-

  $\begin{array}{l}CashpaymentsforAprilpurchases=Aprilpurchaseunits*Costperpoundofrawmaterial*20\%\hfill \\ CashpaymentsforAprilpurchases=26,100*\$6*20\%\hfill \\ \begin{array}{l}CashpaymentsforAprilpurchases=\$31,320\\ \end{array}\hfill \\ CashpaymentsforMaypurchases=Maypurchaseunits*Costperpoundofrawmaterial*80\%\hfill \\ CashpaymentsforMaypurchases=26,400*\$6*80\%\hfill \\ CashpaymentsforMaypurchases=\$126,720\hfill \end{array}$

Total cash payments for May-

  $\begin{array}{l}\begin{array}{l}TotalcashpaymentsforMay=CashpaymentsforAprilpurchases+CashpaymentsforMaypurchases\hfill \\ TotalcashpaymentsforMay=\$31,320+\$126,720\hfill \end{array}\\ TotalcashpaymentsforMay=\$158,040\end{array}$

June-

  $\begin{array}{l}CashpaymentsforMaypurchases=Maypurchaseunits*Costperpoundofrawmaterial*20\%\hfill \\ CashpaymentsforMaypurchases=26,400*\$6*20\%\hfill \\ \begin{array}{l}CashpaymentsforMaypurchases=\$31,680\\ \end{array}\hfill \\ CashpaymentsforJunepurchases=Junepurchaseunits*Costperpoundofrawmaterial*80\%\hfill \\ CashpaymentsforJunepurchases=24,300*\$6*80\%\hfill \\ CashpaymentsforJunepurchases=\$116,640\hfill \end{array}$

Total cash payments for June-

  $\begin{array}{l}TotalcashpaymentsforJune=CashpaymentsforMaypurchases+CashpaymentsforJunepurchases\hfill \\ TotalcashpaymentsforJune=\$31,680+\$116,640\hfill \\ TotalcashpaymentsforJune=\$148,320\hfill \end{array}$

Conclusion:

Thus, Schedule of expected cash payment is prepared.