Chapter 22, Problem 4APSA

To determine

Concept Introduction:

Master Budget-

Master budget is a sum of all lower level budgets which are produced at different functional areas of the company. It helps in providing good coordination among all level managers. It also helps the manager in evaluating the actual performance and comparing it with the standards set by them.

Requirement 1-

To prepare:

Monthly sales budget

Answer to Problem 4APSA

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.

ZIGBY Manufacturing
Monthly sales budget
	April	May	June	Quarter
Sales in units	20,500	19,500	20,000	60,000
Selling price per unit	$23.85	$23.85	$23.85	$23.85
Dollar sales value($)	488,925	465,075	477,000	1,431,000

Explanation of Solution

Given,

• Sales units for April = 20,500
• Sales units for May = 19,500
• Sales units for June = 20,000
• Selling price per unit = $23.85

  $\begin{array}{l}\begin{array}{l}Salesunitsforquarter=Aprilsales+Maysales+Junesales\hfill \\ Salesunitsforquarter=20,500+19,500+20,000\hfill \end{array}\\ Salesunitsforquarter=60,000\end{array}$

Dollar sales value for each month is calculated as follows-

  $\begin{array}{l}Dollarsalesvalue=Salesinunits\times Sellingpriceperunit\hfill \\ DollarsalesvalueforApril=20,500\times \$23.85\hfill \\ \begin{array}{l}DollarsalesvalueforApril=\$488,925\\ \begin{array}{l}DollarsalesvalueforMay=19,500\times \$23.85\hfill \\ \begin{array}{l}DollarsalesvalueforMay=\$465,075\\ DollarsalesvalueforJune=20,000\times \$23.85\\ DollarsalesvalueforJune=\$477,000\\ DollarsalesvalueforQuarter=60,000\times \$23.85\\ DollarsalesvalueforQuarter=\$1,431,000\end{array}\hfill \end{array}\end{array}\hfill \end{array}$

Conclusion:

Thus, the monthly sales budget has been prepared.

To determine

Concept Introduction:

Master Budget-

Master budget is a sum of all lower level budgets which are produced at different functional areas of the company. It helps in providing good coordination among all level managers. It also helps the manager in evaluating the actual performance and comparing it with the standards set by them.

Requirement 2-

To prepare:

Production budget

Answer to Problem 4APSA

ZIGBY Manufacturing
Production budgets
	April	May	June	Quarter
Budgeted Sales for the month	20,500	19,500	20,000
Ending inventory in units	15,600	16,000	16,400
Total Needs	36,100	35,500	36,400
Less: Beginning inventory	(16,400)	(15,600)	(16,000)
Units to be produced	19,700	19,900	20,400	60,000

Explanation of Solution

First, ending inventory in units is required to be calculated-

Calculation of ending inventory in units is as under-

  $\begin{array}{l}Ending\text{ inven}toryrequirement=\text{ 80}\%ofNextMonthsExpectedsalesunits\\ Ending\text{ inven}toryrequirementforApril=80\%XExpectedsalesunitsforMay\\ Ending\text{ inven}toryrequirementforApril=80\%X\text{ 19},500units\\ Ending\text{ inven}toryrequirementforApril=15,600units\\ \\ Ending\text{ inven}toryrequirementforMay=80\%XExpectedsalesunitsforJune\\ Ending\text{ inven}toryrequirementforMay=80\%X\text{ 20,0}00units\\ Ending\text{ inven}toryrequirementforMay=16,000units\\ \\ Ending\text{ inven}toryrequirementforJune=80\%XExpectedsalesunitsforJuly\\ Ending\text{ inven}toryrequirementforJune=80\%X\text{ 20,500}units\\ Ending\text{ inven}toryrequirementforJune\text{ = 16,400 }units\end{array}$

  $\begin{array}{l}Ending\text{ inven}toryrequirement=\text{ 80}\%ofNextMonthsExpectedsalesunits\\ Ending\text{ inven}toryrequirementfor\text{ M}arch=80\%XExpectedsalesunitsforApril\\ Ending\text{ inven}toryrequirementforMarch=80\%X\text{ 20},500units\\ Ending\text{ inven}toryrequirementforMarch=16,400unit\end{array}$

Now, Merchandise purchases required is to be calculated-

  $\begin{array}{l}Requiredmerchandisepurchases\hfill \\ =EndingInventory+Expectedsalesofthemonth–BeginningInventory\hfill \end{array}$

Given, Expected sales of the month-

• April − 20,500 units
• May − 19,500 units
• June − 20,000 units

Ending inventory −

• April − 15,600 units
• May − 16,000 units
• June − 16,400 units

Beginning inventory-

- Ending inventory of the previous month shall be beginning inventory of current month.

• April − 16,400 units
• May − 15,600 units
• June − 16,000 units

Total requirement for the month of April, May and June-

  $\begin{array}{l}Requiredmerchandisepurchases\hfill \\ \begin{array}{l}=EndingInventory+Expectedsalesofthemonth–BeginningInventory\\ RequiredmerchandisepurchasesforApril=20,500units+15,600units–16,400units\\ RequiredmerchandisepurchasesforApril=19,700units\\ \\ RequiredmerchandisepurchasesforMay=19,500units+16,000units–15,600units\\ RequiredmerchandisepurchasesforMay=19,900units\\ \\ \begin{array}{l}RequiredmerchandisepurchasesforJune=20,000units+16,400units–16,000units\hfill \\ RequiredmerchandisepurchasesforJune=20,400units\hfill \end{array}\end{array}\hfill \end{array}$

Conclusion:

Thus, the Production budget has been prepared for the months of April, May and June.

To determine

Concept Introduction:

Master Budget-

Master budget is a sum of all lower level budgets which are produced at different functional areas of the company. It helps in providing good coordination among all level managers. It also helps the manager in evaluating the actual performance and comparing it with the standards set by them.

Requirement 3-

To prepare:

Raw materials Budget

Answer to Problem 4APSA

ZIGBY Manufacturing
Raw Materials budgets
	April	May	June	Quarter
Production Budget	19,700	19,900	20,400
Materials requirement per unit	0.5	0.5	0.5
Materials needed for production	9,850	9,950	10,200
Add: Budgeted ending raw material inventory	4,975	5,100	4,000
Total material requirements (units)	14,825	15,050	14,200
Less: Desired opening raw material inventory	(4,925)	(4,975)	(5,100)
Materials to be purchased	9,900	10,075	9,100	29,075
Materials price per unit	$20	$20	$20	$20
Total cost of direct material purchases	$198,000	$201,500	$182,000	$581,500

Explanation of Solution

Given,

• Materials requirement per unit = 0.5
• Desired opening raw material inventory for April = 4,925 units
• Desired ending raw material inventory for June = 4,000 units
• Materials price per unit = $20
• Production Budget = Calculated in Req.2

  $\begin{array}{l}Materialsneededforproduction=ProductionBudget\times Materialsrequirementperunit\hfill \\ MaterialsneededforproductionforApril=19,700\times 0.5\hfill \\ MaterialsneededforproductionforApril=9,850units\hfill \\ MaterialsneededforproductionforMay=19,900\times 0.5\hfill \\ MaterialsneededforproductionforMay=9,950units\hfill \\ MaterialsneededforproductionforJune=20,400\times 0.5\hfill \\ MaterialsneededforproductionforJune=10,200\hfill \end{array}$

Ending inventory is 50% of next month's Materials requirements-

  $\begin{array}{l}Ending\text{ inven}toryrequirement=\text{ 50}\%ofNextMonthsMaterialsrequirements\\ Ending\text{ inven}toryrequirementforApril=50\%XMaterialsrequirementsforMay\\ Ending\text{ inven}toryrequirementforApril=50\%X9,950units\\ Ending\text{ inven}toryrequirementforApril=4,975units\\ \\ Ending\text{ inven}toryrequirementforMay=50\%XMaterialsrequirementsforJune\\ Ending\text{ inven}toryrequirementforMay=50\%X10,200units\\ Ending\text{ inven}toryrequirementforMay=5,100units\\ \end{array}$

Beginning raw material inventory-

- Ending raw material inventory of the previous month shall be beginning raw material inventory of current month.

• April − 4,925 units
• May − 4,975 units
• June − 5,100 units

Now, we need to calculate Materials to be purchased-

  $\begin{array}{l}\begin{array}{l}Materialstobepurchased\hfill \\ =Materialsneededforproduction+Budgetedendingrawmaterialinventory-Desiredopeningrawmaterialinventory\hfill \\ MaterialstobepurchasedforApril=9,850+4,975-4,925\hfill \\ \begin{array}{l} MaterialstobepurchasedforApril=9,900units\\ \end{array}\hfill \\ MaterialstobepurchasedforMay=9,950+5,100-4,975\hfill \\ \begin{array}{l}MaterialstobepurchasedforMay=10,075\\ \end{array}\hfill \\ MaterialstobepurchasedforJune=10,200+4,000-5,100\hfill \end{array}\\ MaterialstobepurchasedforJune=9,100\end{array}$

Total cost of direct materials purchases is calculated below-

  $\begin{array}{l}\begin{array}{l}Costofdirectmaterialspurchases=Materialstobepurchased\times Materialpriceperunit\hfill \\ CostofdirectmaterialspurchasesforApril=9,900\times \$20\hfill \\ \begin{array}{l}CostofdirectmaterialspurchasesforApril=\$198,000\\ \end{array}\hfill \\ CostofdirectmaterialspurchasesforMay=10,075\times \$20\hfill \\ \begin{array}{l}CostofdirectmaterialspurchasesforMay=\$201,500\\ \end{array}\hfill \\ CostofdirectmaterialspurchasesforJune=9,100\times \$20\hfill \end{array}\\ CostofdirectmaterialspurchasesforJune=\$182,000\end{array}$

Conclusion:

Thus, Raw materials budget has been prepared.

To determine

Concept Introduction:

Master Budget-

Master budget is a sum of all lower level budgets which are produced at different functional areas of the company. It helps in providing good coordination among all level managers. It also helps the manager in evaluating the actual performance and comparing it with the standards set by them.

Requirement 4-

To prepare:

Direct Labor Budget

Answer to Problem 4APSA

ZIGBY Manufacturing
Direct Labor budgets
	April	May	June	Total
Budgeted production (units)	19,700	19,900	20,400
Labor requirements per unit (hours)	0.5	0.5	0.5
Total labor hours needed	9,850	9,950	10,200	30,000
Labor rate (per hour)	$15	$15	$15	$15
Labor Dollars	$147,750	$149,250	153,000	$450,000

Explanation of Solution

Given,

• Production Budget = Calculated in Req.2
• Labor requirements per unit= 0.5
• Labor rate (per hour) = $15

Total labor hours needed is calculated as below-

  $\begin{array}{l}\begin{array}{l}Totallaborhoursneeded=Budgetedproduction\times Budgetedproduction\hfill \\ TotallaborhoursneededforApril=19,700\times 0.5\hfill \\ \begin{array}{l}TotallaborhoursneededforApril=9,850\\ \end{array}\hfill \\ TotallaborhoursneededforMay=19,900\times 0.5\hfill \\ \begin{array}{l}TotallaborhoursneededforMay=9,950\\ \end{array}\hfill \\ TotallaborhoursneededforJune=20,400\times 0.5\hfill \end{array}\\ TotallaborhoursneededforJune=10,200\end{array}$

Now, we need to calculate Labor dollars-

  $\begin{array}{l}LabordollarsforApril=TotallaborhoursneededforApril\times Laborrate\left(perhour\right)\hfill \\ LabordollarsforApril=9,850\times \$15\hfill \\ LabordollarsforApril=\$147,750\hfill \end{array}$

  $\begin{array}{l}LabordollarsforMay=TotallaborhoursneededforMay\times Laborrate\left(perhour\right)\hfill \\ LabordollarsforMay=9,950\times \$15\hfill \\ LabordollarsforMay=\$149,250\hfill \end{array}$

  $\begin{array}{l}LabordollarsforJune=TotallaborhoursneededforJune\times Laborrate\left(perhour\right)\hfill \\ LabordollarsforJune=10,200\times \$15\hfill \\ LabordollarsforJune=\$153,000\hfill \end{array}$

Conclusion:

Thus, Labor budget is prepared.

To determine

Concept Introduction:

Master Budget-

Master budget is a sum of all lower level budgets which are produced at different functional areas of the company. It helps in providing good coordination among all level managers. It also helps the manager in evaluating the actual performance and comparing it with the standards set by them.

Requirement 5-

To prepare:

Factory overhead Budget

Answer to Problem 4APSA

ZIGBY Manufacturing
Factory overhead budget
	April	May	June	Total
Labor hours needed	9,850	9,950	10,200
Variable factory overhead rate	$2.70	$2.70	$2.70
Budgeted variable overhead	$26,595	$26,865	$27,540	$81,000
Budgeted fixed overhead	$20,000	$20,000	$20,000	$60,000
Budgeted total overhead	$46,595	$46,865	$47,540	$141,000

Explanation of Solution

Given,

• Labor hours needed- Calculated in Requirement 4
• Variable factory overhead rate - $2.70
• Budgeted fixed overhead (Depreciation)- $20,000

First we need to calculate Budgeted variable overhead-

Budgeted variable overhead is calculated as under-

  $Budgetedvariableoverhead=Laborhoursneeded\times Variablefactoryoverheadrate$

  $\begin{array}{l}BudgetedvariableoverheadforApril=9,850\times \$2.70\hfill \\ BudgetedvariableoverheadforApril=\$26,595\hfill \end{array}$

  $\begin{array}{l}BudgetedvariableoverheadforMay=9,950*\$2.70\\ BudgetedvariableoverheadforMay=\$26,865\end{array}$

  $\begin{array}{l}BudgetedvariableoverheadforJune=10,200\times \$2.70\\ BudgetedvariableoverheadforJune=\$27,540\end{array}$

Budgeted total overhead-

  $\begin{array}{l}\begin{array}{l}Budgetedtotaloverhead=Budgetedvariableoverhead+Budgetedfixedoverhead\hfill \\ BudgetedtotaloverheadforApril=\$26,595+\$20,000\hfill \\ BudgetedtotaloverheadforApril=\$46,595\hfill \\ BudgetedtotaloverheadforMay=\$26,865+\$20,000\hfill \\ BudgetedtotaloverheadforMay=\$46,865\hfill \\ BudgetedtotaloverheadforJune=\$27,540+\$20,000\hfill \end{array}\\ BudgetedtotaloverheadforJune=\$47,540\end{array}$

Conclusion:

Thus, factory overhead budget is prepared.

To determine

Concept Introduction:

Master Budget-

Master budget is a sum of all lower level budgets which are produced at different functional areas of the company. It helps in providing good coordination among all level managers. It also helps the manager in evaluating the actual performance and comparing it with the standards set by them.

Requirement 6-

To prepare:

Selling expense Budget

Answer to Problem 4APSA

ZIGBY Manufacturing
Selling Expense budgets
	April ($)	May ($)	June ($)	Total ($)
Sales commissions	39,114	37,206	38,160	114,480
Sales salaries	3,000	3,000	3,000	9,000
Selling expenses	42,114	40,206	41,160	123,480

Explanation of Solution

First we need to calculate Sales commissions.

Calculation of sales commission is as under-

• Sales are calculated in Requirement 1

  $\begin{array}{l}SalesCommission=8\%\times Sales\hfill \\ SalesCommissionforApril=8\%\times \$488,925\hfill \\ \begin{array}{l}SalesCommissionforApril=\$39,114\\ \\ SalesCommissionforMay=8\%\times \$465,075\\ SalesCommissionforMay=\$37,206\\ \\ \begin{array}{l}SalesCommissionforJune=8\%\times \$477,000\hfill \\ SalesCommissionforJune=\$38,160\hfill \end{array}\end{array}\hfill \end{array}$

Sales salary for each month- $3,000 (Given)

Selling expense for each month is calculated as under-

  $\begin{array}{l}SellingExpense=SalesCommission+Salessalary\hfill \\ SellingExpenseforApril=\$39,114+\$3,000\hfill \\ \begin{array}{l}SellingExpenseforApril=\$42,114\\ \\ \begin{array}{l}SellingExpenseforMay=\$37,206+\$3,000\hfill \\ \begin{array}{l}SellingExpenseforMay=\$40,206\\ \\ SellingExpenseforJune=\$38,160+\$3,000\\ SellingExpenseforJune=\$41,160\end{array}\hfill \end{array}\end{array}\hfill \end{array}$

Conclusion:

Thus, the selling expense budget is prepared for the month of April, May and June.

To determine

Concept Introduction:

Master Budget-

Master budget is a sum of all lower level budgets which are produced at different functional areas of the company. It helps in providing good coordination among all level managers. It also helps the manager in evaluating the actual performance and comparing it with the standards set by them.

Requirement 7-

To prepare:

General and administrative expense Budget

Answer to Problem 4APSA

ZIGBY Manufacturing
General and administrative budgets
	April	May	June	Total ($)
Salaries	12,000	12,000	12,000	36,000
Interest on long term note	4,500	4,500	4,500	13,500
Total general and administrative expenses	16,500	16,500	16,500	49,500

Explanation of Solution

Given:

• Salaries Expense = $12,000 per month

Interest on long term note-

  $\begin{array}{l}Interestonlongtermnote=Longtermnotepayable\times Interestrate\hfill \\ Interestonlongtermnote=\$500,000\times 0.9\%\hfill \\ Interestonlongtermnote=\$4,500\hfill \end{array}$

Total General and administrative expenses for each month is calculated as under-

  $\begin{array}{l}TotalGeneralandadministrativeexpenses=Salariesexpense+Interestonlongtermnote\hfill \\ TotalGeneralandadministrativeexpenses=\$12,000+\$4,500\hfill \\ TotalGeneralandadministrativeexpenses=\$16,500\hfill \end{array}$

Conclusion:

Thus, the general and administrative expenses budget is prepared for the month of April, May and June. Expense for each month is $16,500.

To determine

Concept Introduction:

Master Budget-

Master budget is a sum of all lower level budgets which are produced at different functional areas of the company. It helps in providing good coordination among all level managers. It also helps the manager in evaluating the actual performance and comparing it with the standards set by them.

Requirement 8-

To prepare:

Cash Budget

Answer to Problem 4APSA

ZIGBY Manufacturing
Cash Budget
	April	May	June
Beginning cash balance	40,000	83,346	124,295
Add: Cash receipts from customers	488,925	481,770	468,653
Total cash available	528,925	565,116	592,948
Less: Cash disbursements
Payment for raw materials	200,500	198,000	201,500
Payment for direct labor	147,750	149,250	153,000
Payments for variable overhead	26,595	26,865	27,540
Sales commission	39,114	37,206	38,160
Sales salaries	3,000	3,000	3,000
General and administrative salaries	12,000	12,000	12,000
Dividends	0	10,000	0
Loan interest	120	0	0
Long term note interest	4,500	4,500	4,500
Purchase of equipment	0	0	130,000
Total cash disbursements	433,579	440,821	569,700
Excess of cash receipts over cash disbursements	95,346	124,295	23,248
Additional loan (Loan repayment)	(12,000)		16,752
Ending cash balance	83,346	124,295	40,000

Explanation of Solution

Given-

• Beginning cash balance = $40,000
• Payment for raw materials − Calculated in Req. 3
• Payment for direct labor - Calculated in Req. 4
• Payments for variable overhead - Calculated in Req. 5
• Sales commission - Calculated in Req. 6
• Sales salaries - Calculated in Req. 6
• General and administrative salaries - Calculated in Req.7
• Long term note interest - Calculated in Req.7
• Dividends - $10,000
• Purchase of equipment - $130,000

Total cash available

Calculation of cash receipts from customers is as under-

-It is given that amount of credit sales will be collected in the month following the sale.

Calculation of cash receipts from customers-
	April	May	June
Total budgeted sales (Req.1)	488,925	465,075	477,000
Cash Sales (30%)	146,677.50	139,522.50	143,100
Credit sales (70%)	342,247.50	325,552.50	333,900
Total cash receipts from customers
Current month's cash sales	146,677.50	139,522.50	143,100
Collection of receivables	342,247.50	342,247.50	325,553
Total cash receipts	488,925	481,770	468,653

Total cash available-

  $\begin{array}{l}Totalcashavailable=Beginningcashbalance+Totalcashreceipts\hfill \\ TotalcashavailableforApril=\$40,000+\$488,925\hfill \\ TotalcashavailableforApril=\$528,925\hfill \\ TotalcashavailableforMay=\$83,346+\$481,770\hfill \\ TotalcashavailableforMay=\$565,116\hfill \\ TotalcashavailableforJune=\$124,295+\$468,653\hfill \\ TotalcashavailableforJune=\$592,948\hfill \end{array}$

Total cash disbursementsLoan interest-

  $\begin{array}{l}Loaninterest=Loanamount\times Rateofinterest\hfill \\ Loaninterest=\$12,000\times 1\%\hfill \\ Loaninterest=\$120\hfill \end{array}$

Total cash disbursements-

  $\begin{array}{l}\begin{array}{l}TotalcashdisbursementsforApril=\hfill \\ \begin{array}{l}(Paymentforrawmaterials+Paymentfordirectlabor+ Paymentsforvariableoverhead+Salescommission\\ +Salessalaries+Generalandadministrativesalaries+Loaninterest+Longtermnoteinterest)\end{array}\hfill \\ TotalcashdisbursementsforApril=\hfill \\ \$200,500+\$147,750+\$26,595+\$39,114+\$3,000+\$12,000+\$120+\$4,500\hfill \end{array}\\ TotalcashdisbursementsforApril=\$433,579\end{array}$

  $\begin{array}{l}\begin{array}{l}TotalcashdisbursementsforMay=\hfill \\ \left(\begin{array}{l}Paymentforrawmaterials+Paymentfordirectlabor+ Paymentsforvariableoverhead+Salescommission\\ +Salessalaries+Generalandadministrativesalaries+Dividends+Longtermnoteinterest\end{array}\right)\hfill \\ TotalcashdisbursementsforMay=\hfill \\ \$198,000+\$149,250+\$26,865+\$37,206+\$3,000+\$12,000+\$10,000+\$4,500\hfill \end{array}\\ TotalcashdisbursementsforMay=\$440,821\end{array}$

  $\begin{array}{l}\begin{array}{l}TotalcashdisbursementsforJune=\hfill \\ \left(\begin{array}{l}Paymentforrawmaterials+Paymentfordirectlabor+ Paymentsforvariableoverhead+Salescommission\\ +Salessalaries+Generalandadministrativesalaries+Longtermnoteinterest+Purchaseofequipment\end{array}\right)\hfill \\ TotalcashdisbursementsforJune=\hfill \\ \$201,500+\$153,000+\$27,540+\$38,160+\$3,000+\$12,000+\$4,500+\$130,000\hfill \end{array}\\ TotalcashdisbursementsforJune=\$569,700\end{array}$

Excess of cash receipts over cash disbursements

  $\begin{array}{l}Excessofcashreceiptsovercashdisbursements=Totalcashavailable-Totalcashdisbursements\hfill \\ ExcessofcashreceiptsovercashdisbursementsforApril=\$528,925-\$433,579\hfill \\ \begin{array}{l}ExcessofcashreceiptsovercashdisbursementsforApril=\$95,346\\ \end{array}\hfill \\ ExcessofcashreceiptsovercashdisbursementsforMay=\$565,116-\$440,821\hfill \\ \begin{array}{l}ExcessofcashreceiptsovercashdisbursementsforMay=\$124,295\\ \end{array}\hfill \\ ExcessofcashreceiptsovercashdisbursementsforJune=\$592,948-\$569,700\hfill \\ ExcessofcashreceiptsovercashdisbursementsforJune=\$23,248\hfill \end{array}$

- It is given that Company need to maintain minimum cash balance of $40,000. In June month they don't have sufficient cash balance so, need to borrow loan to meet minimum cash balance as $40,000.

Loan amount for June month-

Available cash balance=$23,248

  $\begin{array}{l}Loanamount=\$40,000-\$23,248\hfill \\ Loanamount=\$16,752\hfill \end{array}$

-Loan is repaid in the month of April of $12,000.

Ending cash balance-

  $\begin{array}{l}EndingcashbalanceApril=\$95,346-\$12,000\hfill \\ EndingcashbalanceApril=\$83,346\hfill \\ EndingcashbalanceMay=\$124,295\hfill \\ EndingcashbalanceJune=\$23,248+\$16,752\hfill \\ EndingcashbalanceJune=\$40,000\hfill \end{array}$

Conclusion:

Thus, cash budget is prepared with ending cash balance in the month of June $40,000.

To determine

Concept Introduction:

Master Budget-

Master budget is a sum of all lower level budgets which are produced at different functional areas of the company. It helps in providing good coordination among all level managers. It also helps the manager in evaluating the actual performance and comparing it with the standards set by them.

Requirement 9-

To prepare:

Budgeted income statement

Answer to Problem 4APSA

ZIGBY Manufacturing
Income Statement
Particulars	Amount ($)	Amount ($)
Sales		1,431,000
Cost of merchandise sold		1,191,000
Gross Profit		240,000
Operating expenses:
Sales Commissions	114,480
Sales Salaries	9,000
Long term note interest	13,500
General and administrative expenses	36,000
Interest expense	120	173,100
Income before tax		66,900
Tax @ 40%		23,415
Net operating income		43,485

Explanation of Solution

Given,

• Sales = $1,431,000 Calculated in Req.1
• Sales commission - $114,480 Calculated in Req. 6
• Sales salaries - $9,000Calculated in Req. 6
• General and administrative salaries - $36,000 Calculated in Req.7
• Long term note interest - $13,500 Calculated in Req.7
• Interest expense -$120 Calculated in Req.8

Cost of merchandise sold-

  $\begin{array}{l}Costofmerchandisesold=No.ofunits\times Costprice\hfill \\ Costofmerchandisesold=60,000\times \$19,85\hfill \\ Costofmerchandisesold=\$1,191,000\hfill \end{array}$

Gross profit is calculated as under-

  $\begin{array}{l}Grossprofit=Sales–Costofmerchandisesold\hfill \\ Grossprofit=\$1,431,000-\$1,191,000\hfill \\ Grossprofit=\$240,000\hfill \end{array}$

Total operating expenses-

  $\begin{array}{l}\begin{array}{l}TotalOperatingexpenses=SalesCommissions+SalesSalaries+Longtermnoteinterest\\ +Generalandadministrativeexpenses+Interestexpense\end{array}\hfill \\ TotalOperatingexpenses=\$114,480+\$9,000+\$13,500+\$36,000+\$120\hfill \\ TotalOperatingexpenses=\$173,100\hfill \end{array}$

Income before tax-

  $\begin{array}{l}Incomebeforetax=Grossprofit–Totaloperatingexpenses\hfill \\ Incomebeforetax=\$240,000-\$173,100\hfill \\ Incomebeforetax=\$66,900\hfill \end{array}$

Tax Expense-

  $\begin{array}{l}TaxExpense=Incomebeforetax\times TaxRate\hfill \\ TaxExpense=\$66,900\times 35\%\hfill \\ TaxExpense=\$23,415\hfill \end{array}$

Net Operating income is calculated as under-

  $\begin{array}{l}NetOperatingincome=Incomebeforetax-TaxExpense\hfill \\ NetOperatingincome=\$66,900-\$23,415\hfill \\ NetOperatingincome=\$43,485\hfill \end{array}$

Conclusion:

Thus, Income statement is prepared for the quarter.

To determine

Concept Introduction:

Master Budget-

Master budget is a sum of all lower level budgets which are produced at different functional areas of the company. It helps in providing good coordination among all level managers. It also helps the manager in evaluating the actual performance and comparing it with the standards set by them.

Requirement 10-

To prepare:

Budgeted Balance sheet.

Answer to Problem 4APSA

ZIGBY Manufacturing
Balance sheet as of June 30
	Amount ($)	Amount ($)
Assets
Cash	40,000
Accounts receivable	333,900
Raw materials Inventory	80,000
Finished goods inventory	325,540
Total current assets		779,440
Equipment	730,000
Less: Accumulated depreciation	(210,000)
Equipment net		520,000
Total assets		1,299,440
Stockholder's Equity and Liabilities
Accounts payable	182,000
Bank loan payable	16,752
Tax payable	23,415
Current liabilities		222,167
Long term note payable		500,000
Common stock	335,000
Retained earnings	242,273
Total Stockholder's Equity		577,273
Total Stockholder's Equity and Liabilities		1,299,440

Explanation of Solution

Assets

Given,

• Cash = $40,000 (Req.8)

Calculation of other current assets-

Particulars	Amount ($)
Accounts Receivables
Beginning receivables	342,248
Credit sales	1,001,701
Less: Collections	(1,010,049)
Ending Receivables	333,900
Raw material inventory
Beginning raw materials	98,500
Purchases of raw materials	581,500
Less: Materials used in production	(600,000)
Ending raw materials inventory	80,000
Finished goods inventory
Beginning Finished goods inventory	325,540
Cost of goods completed during the period	1,191,000
Less: Cost of goods sold during the period	(1,191,000)
Ending Finished goods inventory	325,540

Total current assets-

  $\begin{array}{l}\begin{array}{l}Totalcurrentassets=Cash+Accountsreceivables+Rawmaterialinventory+Finishedgoodsinventory\hfill \\ Totalcurrentassets=\$40,000+\$333,900+\$80,000+\$325,540\hfill \end{array}\\ Totalcurrentassets=\$779,440\end{array}$

Calculation of Equipment-

Particulars	Amount ($)
Equipment Gross
Beginning Equipment	600,000
Purchased in June	130,000
Total (A)	730,000
Accumulated Depreciation
Beginning Accumulated Depreciation	150,000
Depreciation expense	60,000
Total (B)	210,000
Equipment (A-B)	520,000

Total Assets-

  $\begin{array}{l}Totalassets=Totalcurrentassets+Equipment\hfill \\ Totalassets=\$779,440+\$520,000\hfill \\ Totalassets=\$1,299,440\hfill \end{array}$

Stockholder's Equity and Liabilities

Given,

• Bank loan payable = $16,752 (Req.8)
• Taxes payable = $23,415 (Req.9)
• Long −term note payable = $500,000
• Common stock = $335,000

Accounts payable-

Particulars	Amount ($)
Accounts Payables
Beginning accounts payable	200,500
Purchase of raw materials	581,500
Payments of raw materials	(600,000)
Ending accounts payable	182,000

Total current liabilities-

  $\begin{array}{l}Totalcurrentliabilities=Accountspayable+Bankloanpayable+Taxespayable\hfill \\ Totalcurrentliabilities=\$182,000+\$16,752+\$23,415\hfill \\ Totalcurrentliabilities=\$222,167\hfill \end{array}$

Retained Earnings-

Particulars	Amount ($)
Retained Earnings
Retained Earnings, Beginning	208,788
Add: Net Income	43,485
	252,273
Less: Dividends	(10,000)
Retained Earnings, Ending	242,273

Total stockholder's equity-

  $\begin{array}{l}Totalstockholder’sequity=Commonstock+RetainedEarnings\hfill \\ Totalstockholder’sequity=\$335,000+\$242,273\hfill \\ Totalstockholder’sequity=\$577,273\hfill \end{array}$

Total Stockholder's Equity and Liabilities-

  $\begin{array}{l}TotalStockholder\text{'}sEquityandLiabilities=Currentliabilities+Longtermnotepayable+Totalstockholder’sequity\hfill \\ TotalStockholder\text{'}sEquityandLiabilities=\$222,167+\$500,000+\$577,273\hfill \\ TotalStockholder\text{'}sEquityandLiabilities=\$1,299,440\hfill \end{array}$

Conclusion:

Thus, Budgeted balance sheet is prepared with total of $1,299,440