Chapter 22, Problem 4APSA

To determine

22-4A Part 1

Note: All the parts of the question are related with each other. Solution of one part is used as a base for solving / analyzing other Parts of the question.

Introduction:

Sales budget represent the quantities which will be sold in the specified period along with amount recovered from sales.

To Determine:

Monthly sales budget foe month ended April, May and June of 2018

Answer to Problem 4APSA

Solution:

Zigby Manufacturing

Sales budget for the month ended

	April	May	June
Sale in units	20500	19500	20000
Amounts per unit	23.85	23.85	23.85
Sale in amounts	488925	465075	477000

Explanation of Solution

As per terms mentioned in question:

Expected sales for above mentioned three months mention in question which is sold at the rate of $ 23.85 per unit. Further, sales amounts computed by multiplying sales units with amount per unit.

Conclusion

Budgeted sales quantity for the month ended April, May and June 18 will be 20500, 19500 and 20000 units amounting $ 488,925, $ 465,075and $ 477,000.

To determine

22-4A Part 2

Introduction:

Production budget represents the quantities to be produced in the specified period. This budget defined in quantities however one more column can be add to represent amount i.e. at what amount quantities to be produced.

To Determine:

Quantities to be produced in Quarter 2

Answer to Problem 4APSA

Solution:

Zigby Manufecturing

Production Budget for the month ended

	April	May	June
sales	20500	19500	20000
closing stock	15600	16000	16400
less: Opening stock	-16400	-15600	-16000
	19700	19900	20400

Explanation of Solution

As per terms mentioned in question:

Formula: Units to be produced

Sales units	XX
Add: Closing stock	XX
Less: Opening stock	XX
	XX

It can be interpreted as:

We can say that units to be produced is the sum total of units to be sold and closing stock, because for selling and keeping product as inventory, we have to produce the total of them. Out of which, quantities already in our stock, which have already produced say Opening stock will be reduced to arrive net quantity which will be produced.

In the question as all the figures are already mentioned. So with the help of formula as shown above and also in the part “solution” with “quantities”

Conclusion

Budgeted Production quantities will be 19,700 units, 19,900 units, 20,400 units in the month April, May and June 18 respectively.

To determine

22-4A Part 3

Introduction:

Direct material is the material to be used in manufacturing finished product. Direct material budget represent the quantities of direct material to be used in manufacturing finished product along with cost of purchasing direct material.

To Determine:

Direct material quantities to be used in producing finished product in Quarter 1

Answer to Problem 4APSA

Solution:

Zigby Manufacturing

Raw material Budget for the month ended

	April	May	June
Raw material required	9850	9950	10200
Closing raw material stock	4975	5100	4000
Less: opening raw material	-4925	-1975	-5100
Raw material to be purchased	9900	13075	9100
Rate per unit of Raw material (in $)	20	20	20
Purchase (in $)	198000	261500	182000

Explanation of Solution

As per terms mentioned in question:

Formula: Direct material units to be purchase

Material required to produce required finished product	XX
Add: Closing stock of raw material	XX
Less: Opening stock of raw material	XX
	XX

It can be interpreted as:

We can say that Direct material units to be purchase is the sum total of raw material required to produce finished product and closing stock of raw material. Out of which, raw material quantities already in our stock, which have already produced say Opening stock will be reduced to arrive net quantity which will be purchase.

In the question as all the figures are already mentioned. So with the help of formula as shown above and also in the part “solution” with “quantities”

Formula: Quantities require for producing finished product multiplied by nos of finished product

April - - 19700 multiplied by .5

= 9850 units

Further, Total cost of purchase of Carbon fiber is computed by:

Cost of one quantity of Raw material multiplied by quantity of Raw material

$20 multiplied by 9900

= $ 198,000/-

Conclusion

Raw material purchase in month April, May and June will be 9900 units, 13075 units and 9100 units respectively.

To determine

22-4A Part 4

Introduction:

Direct labour budget represent the nos. of hours required to produce required finished goods units along with total labour cost.

To Determine:

Budgeted labour cost in Q2 of 2018

Answer to Problem 4APSA

Solution:

Zigby Manufacturing

Direct labour budget for the month ended

	April	May	June
Hour required to produce one unit	0.5	0.5	0.5
Labour hour required (Hour required to produce one unit* nos. of units produced)	9850	9950	10200
cost per labour hour (Given in question)(in $)	15	15	15
Total labour cost (cost per labour hour* nos. of labour hour)(in $)	147750	149250	153000

Explanation of Solution

As per terms mentioned in question:

Solution is self-explainable as all relevant formulas incorporated in solution itself.

Conclusion

Direct labour budget will be 9850 Hours, 9950 Hours and 10200 hours amounting $ 147750, $ 149,250, $ 153,000 in the month April, May and June respectively.

To determine

22-4A Part 5

Introduction:

Factory overheads indicate indirect expenses which include variable as well as fixed overheads.

To Determine:

Budgeted Factory overheads in Quarter 2

Answer to Problem 4APSA

Solution:

Zigby Manufacturing

Factory overheads for the month ended

	April	May	June
Variable Overheads	26595	26865	27540
Fixed Overheads ( in the form of Depreciation, No cash Outflow)	20000	20000	20000
Total Overheads	46595	46865	47540

Explanation of Solution

Formula: Variable overheads is equal to

Variable overheads per direct labor hour multiplied by direct labor hour

= $ 2.70 multiplied by 9850 (As computed in part 4 of April month)

= 26,595 (April month)

(As question prescribes the method of computing variable overheads, so computed in that way)

Same process continues in May and June month.

Fixed overheads are same as mentioned in question at the rate of $ 20,000 per month in the form of depreciation..

Conclusion

Budgeted factory overheads will be $ 46595, $ 46,865, $ 47,540 in the month April, May and June 18 respectively.

To determine

22-4A Part 6

Introduction:

Selling expenses budget represent the amount that how much amount spent on selling or product.

To Determine:

Budgeted selling expenses in Quarter 2 of 2018

Answer to Problem 4APSA

Solution:

Zigby Manufecturing

Selling Expenses Budget for the month ended

	April	May	June
Sales (In $)	488925	465075	477000
Sales commission	39114	37206	38160
(8% of sales)
Salaries	3000	3000	3000
	42114	40206	41160

Explanation of Solution

As per terms mentioned in question:

General and administrative expenses is sum total of Administrative salaries and maintenance expenses as mentioned in question.

Conclusion

General and administrative expenses will be $ 14,000 in the month April, May and June 18 each respectively.

To determine

22-4A Part 7

Introduction:

General and administrative expenses budget represent the amount that to be incurred for administrative purpose.

To Determine:

Budgeted general and administrative expenses in quarter 2 of 2018

Answer to Problem 4APSA

Solution:

Zigby Manufecturing

General and Administrative expense Budget for the month ended

	April	May	June
Administrative salaries	12000	12000	12000
Monthly interest on long term note payable	4500	4500	4500
	16500	16500	16500

Explanation of Solution

As per terms mentioned in question:

General and administrative expenses is sum total of Administrative salaries and interest paid on long term loan as mentioned in question.

Conclusion

General and administrative expenses will be $ 16,500 in the month April, May and June 18 each respectively.

To determine

22-4A Part 8

Introduction:

Cash budget represents the budgeted cash inflow as well as outflow from whatever source i.e. whether it’s operational or non- operational. Inflow can be from sales or other receipts. Outflow can be in the form of purchase cost or other cost. It is different from cash receipts budget in the form that earlier one contains only receipt. On the other hand, later one contains inflow as well as outflow. It represents the net of inflow and outflow of cash.

To Determine:

Preparation of cash budget for Quarter 2 of 2018

Answer to Problem 4APSA

Solution:

Zigby Manufecturing

Cash Budget for the month ended

Cash budgets	April	May	June
	$	$	$
Opening cash balance	40000	83346	124295
Receipts:
Cash Sales (30% of total sales)	146677	139522	143100
Recovery of credit sales ( 70% In the following month of sale as in part 1)	342248	342248	325553
Loan (For maintaining minimum balance of $ 40000)			76752
Expenditure:
Purchase (in the following month of purchase)	-200500	-198000	-261500
Interest on loan	-120
General and administrative expenses	-16500	-16500	-16500
Selling expenses	-42114	-40206	-41160
Purchase of equipment			-130000
Overheads ( only variable covered as no cash outflow of fixed overheads)	-26595	-26865	-27540
Direct labour cost	-147750	-149250	-153000
Dividend paid		-10000
Loan payable (as excess cash available)	-12000
Closing Cash balance	83346	124295	40000

Explanation of Solution

As said earlier it represent the net of cash inflow and outflow or say how much cash remained in our hands at the end of specified period. It can be computed by using formula:

Opening cash balance at the beginning of period:	XXX
Add: receipts during that period	XXX
Less: Expensed during that period	XXX
Closing balance at the end of period	XXX

All receipts and payment are computed as per terms mentioned in question. As question suggest loan can be taken at the end of any month to maintain a minimum balance of $ 25,000. No need is arisen in respect of loan as sufficient cash was available.

As question contains $ 12000 balance as loan payable in March end will be treated opening balance of loan in April month on which at the rate of 1% per month applied as interest computed by multiplying loan figure with interest rate as follows:

$ 12000 multiplied by 1%

= $ 120

Further such loan is returned in April, no more interest charged.

Other parts of budget are self- Explainable.

Conclusion

Budgeted cash remains at the end of April, May and June 18 will be $ 83,346, $ 124,295 and $ 40,000 respectively.

To determine

22-4A Part 9

Introduction:

A budgeted income statement represents the budgeted income as well as budgeted expenses occurred during the year. The net result is represented by either income or loss. Result can be interpreted by how much income or loss earned in specified period say month, quarter or year.

To Determine:

Budgeted Income statement for the quarter ended June 2018

Answer to Problem 4APSA

Solution:

Zigby Manufacturing

Budgeted income statement for the quarter ended June 2018

Expenses	$	Income		$
Opening stock	424040
Purchase—Part 3	641500	Sales—Part 1		1431000
Selling expenses—Part 6	123480	Closing stock-Finished goods—Part 2		325540
Administrative expenses—Part 7	49500	Closing stock-Raw material—Part 3		80000
Direct labour cost—Part 4	450000	(4000 unit at the rate of $ 20)
Overheads—Part 5	81000	Loss before tax		3100
Interest on loan—Part 8	120	Tax on Loss		0
Depreciation—Part 5	60000	Loss after tax		3100
Dividend paid-- Given	10000
	1839640			1839640

Explanation of Solution

Income statement drafted as per terms mentioned in question. However income statement is also self -explainable as all figure put in income statement put from question or other parts of solution.

Eg. Closing stock finished goods taken from Part 2 is 16400 units at the rate of $ 19.85 per unit.

Conclusion

Budgeted Loss for the month ended March 2018 will be $ 3100.

To determine

22-4A Part 10

Introduction:

A budgeted Balance sheet represents the statement of affairs of the company at the end of specified period represented by two sides named Asset and Liabilities. On the one hand, where income statement are prepared for the period, the said statement made at the end of that period as mentioned “as at Period” on the head of balance sheet.

To Determine:

Budgeted Balance sheet as of June 2018

Answer to Problem 4APSA

Solution:

Zigby Manufecturing

Budgeted Balance sheet as of 30^th June 2018

Assets		$	Liabilities		$
cash		40000	Account payable		182000
Account Receivable		333900	Tax payable		0
closing stock-FG		325540	short term note payable		76752
closing stock-RM		80000	long term note payable		500000
Equipment	600000		Shareholder's equity	543788
Less: Accumulated Depreciation	210000		Less: Current Loss	3100	540688
Add: Purchase during period	130000	520000
		1299440			1299440

Explanation of Solution

Balance sheet drafted as per terms mentioned in question. All figure put in Balance sheet taken from question or other parts of solution. As asset side represent what we have and Liability side represent what we have to pay.

As no tax will be paid July due to loss, so the amount shown in our liability is Nil in June end.

As usual, our account receivable and account payable stands in respective side. One addition in asset side in the form of land purchased in January to March period computed as below:

Opening balance of equipment:	600000
Add: Purchase	130000
Less: Depreciation	210000
Closing balance	520000

Conclusion

Our Assets and Liability side represent $ 1,299,440.