Chapter 22, Problem 4BP

1.

To determine

Prepare the sales budget of N Manufacturing for the first quarter.

Explanation of Solution

Sales Budget: The sales budget is the budget prepared to estimate the revenue, the expected number of units to be sold and the expected selling price for each product. The sales budget is the first step for an operating budget and the basis for the production and cost of goods sold budget.

Prepare the sales budget of N Manufacturing for the first quarter:

N Manufacturing
Sales Budgets
July, August, and September 2015
	Budgeted Units	Budgeted Unit Price	Budgeted Total Dollars
July 2015	21,000	$17.00	$  357,000
August 2015	19,000	17.00	323,000
September 2015	20,000	17.00	340,000
Total for the first quarter	60,000		$1,020,000

Table (1)

Conclusion

Therefore, budgeted sales for N Manufacturing for the first quarter are 60,000 units for $1,020,000.

2.

To determine

Prepare the production budget of N Manufacturing for the first quarter.

Explanation of Solution

Production Budget: The production budget refers to that budget which forecasts the production for the future accounting period. The budgeted production for any financial period is planned by combining the forecasted unit of sales and the finished goods inventory and deducting the beginning goods inventory.

Prepare the production budget of N Manufacturing for the first quarter:

N Manufacturing
Production Budget
July, August, and September 2015
	July	August	September	Total
Next month’s budgeted sales (A)	19,000	20,000	24,000
Ratio of inventory to future sales (B)	70%	70%	70%
Budgeted ending inventory $\left[\left(\text{A}\right)\times \left(\text{B}\right)\right]$	13,300	14,000	16,800
Add: Budgeted sales	21,000	19,000	20,000
Required units to be produced	34,300	33,000	36,800
Less: Beginning inventory	(16,800)	(13,300)	(14,000)
Units to be produced	17,500	19,700	22,800	60,000

Table (2)

Conclusion

Therefore, Z manufacturing’s budgeted production for the first quarter is 60,000 units.

3.

To determine

Prepare the raw materials budget of N Manufacturing for the first quarter.

Explanation of Solution

Raw Materials Budget: The raw materials budget is prepared to estimate the number of units of raw materials used in the production to produce a product.

Prepare the raw materials budget of N Manufacturing for the first quarter:

N Manufacturing
Raw Materials Budget
July, August, and September 2015
	July	August	September	Total
Production budget (units) (A)	17,500	19,700	22,800
Materials requirement per unit (B)	0.50	0.50	0.50
Materials needed for production $\left[\left(\text{A}\right)\times \left(\text{B}\right)\right]$	8,750	9,850	11,400
Add: budgeted ending inventory	1,970	2,280	1,980
Total materials requirements (units)	10,720	12,130	13,380
Less: beginning inventory	(4,375)	(1,970)	(2,280)
Materials to be purchased (units)	6,345	10,160	11,100	27,605
$8$8Material price per unit	$8	$8	$8	$8
Total cost of raw material purchases	$50,760	$81,280	$88,800	$220,840

Table (3)

Conclusion

Therefore, N manufacturing’s budgeted raw material for production for the first quarter is 27,605 units.

4.

To determine

Prepare the direct labour budget of N Manufacturing for the first quarter.

Explanation of Solution

Direct Labour Budget: The direct labour budget provides information about the total direct manufacturing labour hours and the cost of the total direct manufacturing labour hour.

Prepare the direct labour budget of N Manufacturing for the first quarter:

N Manufacturing
Direct Labour Budget
July, August, and September 2015
	July	August	September	Total
Budgeted production (units)	17,500	19,700	22,800
Labour requirements per unit (hours)	0.50	0.50	0.50
Total labour hours needed (A)	8,750	9,850	11,400	30,000
Labour rate (per hour) (B)	$16	$16	$16	$16
Labour dollars $\left[\left(\text{A}\right)\times \left(\text{B}\right)\right]$	$140,000	$157,600	$182,400	$480,000

Table (4)

Note:

$\text{Total labour hours needed =}\text{Budgeted production }\left(\text{units}\right)\times \text{Labour requirements per unit }\left(\text{hours}\right)$

Conclusion

Therefore, total labour hours needed by N Manufacturing for the first quarter is 30,000 hours.

5.

To determine

Prepare the factory overhead budget of N Manufacturing for the first quarter.

Explanation of Solution

Factory overhead: It includes all the budgeted manufacturing costs except direct material cost and direct labour cost.

Prepare the factory overhead budget of N Manufacturing for the first quarter:

N Manufacturing
Factory Overhead Budget
July, August, and September 2015
	July	August	September	Total
Labour hours needed (A)	17,500	19,700	22,800
Variable factory overhead rate (B)	$1.35	$1.35	$1.35
Budgeted variable overhead $\left[\left(\text{A}\right)\times \left(\text{B}\right)\right]$	23,625	26,595	30,780	$ 81,000
Fixed overhead	20,000	20,000	20,000	60,000
Budgeted factory overhead (total)	$43,625	$46,595	$50,780	$141,000

Table (5)

Note (B): Variable factory overhead is $1.35 per hour $\left(\$2.70\text{per labour hour}\times \text{0}\text{.50 direct labour hours per unit}\right)$

Conclusion

Therefore, total budgeted factory overheads for the first quarter are $141,000.

6.

To determine

Prepare the selling expense budget of N Manufacturing for the first quarter.

Explanation of Solution

Selling expense budget: This budget shows the estimated selling expenses for the budgeted period.

Prepare the selling expense budget of N Manufacturing for the first quarter:

N Manufacturing
Selling Expense Budgets
July, August, and September 2015
	July	August	September	Total
Budgeted sales (A)	$357,000	$323,000	$340,000
Sales commission percent (B)	10%	10%	10%
Sales commissions expense $\left[\left(\text{A}\right)\times \left(\text{B}\right)\right]$	35,700	32,300	34,000	$102,000
Sales salaries	3,500	3,500	3,500	10,500
Total selling expenses	$ 39,200	$35,800	$37,500	$112,500

Table (6)

Conclusion

Therefore, total budgeted selling expense for the first quarter is $112,500.

7.

To determine

Prepare the General and administrative expenses budget of N Manufacturing for the first quarter.

Explanation of Solution

General and administrative expense budget: This budget shows the estimated General and administrative expenses for the budgeted period.

Prepare the selling expense budget of N Manufacturing for the first quarter:

N Manufacturing
General and administrative Expense Budgets
July, August, and September 2015
	July	August	September	Total
Salaries(A)	$9,000	$9,000	$9,000	$27,000
Interest rate on long-term note (B)	0.90%	0.90%	0.90%
Long term note (C)	$300,000	$300,000	$300,000
Sales commissions expense $\text{D}\text{=}\left[\left(\text{B}\right)\text{×}\left(\text{C}\right)\right]$	2,700	2,700	2,700	8,100
Total budgeted general and administrative expenses $\left(\text{A}\right)\text{+}\left(\text{D}\right)$	$11,700	$11,700	$11,700	$35,100

Table (7)

Conclusion

Therefore, total budgeted general and administrative expense for the first quarter is $35,100.

8.

To determine

Prepare the cash budget of N Manufacturing for the first quarter.

Explanation of Solution

Cash budget: This budget shows the total cash receipts and cash disbursements for the budgeted period.

Prepare the cash budget of N Manufacturing for the first quarter:

N Manufacturing
Cash Budgets
July, August, and September 2015
	July	August	September
Beginning cash balance	$40,000	$96,835	$141,180
Cash receipts from customers (Working note A)	357,000	346,800	328,100
Total cash available	397,000	443,635	469,280
Cash disbursements:
Payments for raw materials (Working note B)	51,400	50,760	81,280
Payments for direct labour	140,000	157,600	182,400
Payments for variable overhead	23,625	26,595	30,780
Sales commissions	35,700	32,300	34,000
Sales salaries	3,500	3,500	3,500
General & administrative salaries	9,000	9,000	9,000
Income tax	10,000
Dividends		20,000
Loan interest $\left(\$24,000\times 1\%\right)$	240
Long-term note interest $\left(\$300,000\times 0.90\%\right)$	2,700	2,700	2,700
Purchase of equipment	$0	$0	100,000
Total cash disbursements	276,165	302,455	443,660
Preliminary cash balance	120,835	141,180	25,620
Additional loan			14,380
Repayment of loan to bank	(24,000)	$0	$0
Ending cash balance	$96,835	$141,180	$40,000
Loan balance, end of month	$0	$0	$14,380

Table (8)

Working note A: Compute the cash receipts from customers:

	July	August	September	Total
Cash sales (30%)	107,100	96,900	102,000	306,000
Credit sales (70%)	249,900	226,100	238,000	714,000
Total sales	$357,000	$323,000	$340,000	$1,020,000
Cash collections from customers:
Month after sale (100%)	249,900	226,100	238,000	714,000
Cash sales	107,100	96,900	102,000	306,000
Total cash received	$357,000	$346,800	$328,100	$1,031,900

Table (9)

Working note B: Compute the cash payment for raw materials

	July	August	September	Total
Cash paid in the following month of purchases (100%)	$ 51,400	$ 50,760	$ 81,280	$ 183,440
Total cash paid for raw material	$ 51,400	$ 50,760	$ 81,280	$ 183,440

Table (10)

9.

To determine

Prepare the budgeted income statement for the entire first quarter.

Explanation of Solution

Budgeted income statement: The budgeted financial statement which reports the budgeted revenues and expenses from business operations and the result of those operations as net income or net loss for a budgeted period is referred to as budgeted income statement.

Prepare the budgeted income statement for the entire first quarter:

N Manufacturing
Budgeted Income Statement
For Three Months Ended September 30, 2015
Particulars	Amount ($)	Amount ($)
Sales		$1,020,000
Cost of goods sold (60,000 units @ $14.35)		861,000
Gross profit		159,000
Operating expenses:
Sales commissions	$102,000
Sales salaries	10,500
General administrative salaries	27,000
Long-term note interest	8,100
Interest expense	240	147,840
Income before taxes		11,160
Income taxes (35%)		3,906
Net income		$7,254

Table (11)

Conclusion

Therefore, budgeted net income of N Manufacturers for the first quarter is $7,254.

10.

To determine

Prepare the budgeted balance sheet for the entire first quarter.

Explanation of Solution

Budgeted Balance Sheet: Budgeted Balance Sheet is one of the budgeted financial statements which summarize the budgeted assets, the liabilities, and the Shareholder’s equity of a company at a given date.

Prepare the budgeted balance sheet for the entire first quarter:

N Manufacturing
Budgeted Balance sheet
As on September 30, 2015
Particulars	Amount ($)	Amount ($)
Assets
Cash (Cash budget)		$40,000
Accounts receivable (Note C)		238,000
Raw materials inventory (Note D)		15,840
Finished goods inventory (Note E)		241,080
Total current assets		534,920
Equipment (Note F)	$820,000
Less: Accumulated depreciation (Note G)	300,000	520,000
Total assets		$1,054,920
Liabilities and Equity
Accounts payable (Note H)		$88,800
Bank loan payable (Cash budget)		14,380
Taxes payable (Income statement)		3,906
Total current liabilities		107,086
Long-term note payable		300,000
Common stock (Unchanged)	$600,000
Retained earnings (Note I)	47,834
Total stockholders’ equity		647,834
Total liabilities and equity		$1,054,920

Table (12)

Working notes:

Note C: Compute the ending receivables:
Beginning receivables	$249,900
Credit sales	714,000
Less: Collections	(725,900)
Ending receivables	$238,000
Note D: Compute the ending raw material:
Beginning raw materials inventory	$249,900
Purchases of raw materials	714,000
Less: materials used in production (balance amount)	(725,900)
Ending raw materials inventory $\left(1,980\text{units}\times \text{\$8}\right)$	$238,000
Note E: Compute the ending finished goods inventory
Beginning finished goods inventory	$ 241,080
Cost of goods completed during the period	861,000
Less: cost of goods sold during the period	(861,000)
Ending finished goods inventory (16,800 units @ $14.35)	$ 241,080
Note F: Compute the equipment balance:
Beginning equipment	$720,000
Purchased in September	100,000
Total equipment balance	$820,000
Note G: Compute the ending accumulated depreciation
Beginning accumulated depreciation	$240,000
Depreciation expense	60,000
Total	$300,000
Note H: Compute the ending balance of accounts payable
Beginning accounts payable	$51,400
Purchases of raw materials	220,840
Payments for raw materials	(183,440)
Ending accounts payable	$88,800
Note I: Compute the ending balance of retained earnings
Retained earnings at beginning	$60,580
Add: Net Income	$7,254
Less: Dividend	($20,000)
Ending balance of retained earnings	$47,834

Table (13)