Concept explainers
The management of Zigby Manufacturing prepared the following estimated balance sheet for March, 2015:
NABAR MANUFACTURING Estimated Balance Sheet December 30,2015 |
|||
Assets | Liabilities and Equity | ||
Cash | $ 40,000 | Accounts payable | $ 200,500 |
342,248 | |||
Raw material Inventory | 98,500 | Short-term notes payable | 12,500 |
Finished goods inventory | 325,540 | Total current liabilities | 212,500 |
Total current assets | 806,288 | Long-term note payable | 500,000 |
Equipment, gross | 600,000 | Total Liabilities | 712,500 |
Accumulated |
(150,000) | Common stock | 335,000 |
Equipment, net | 45,000 | 208,788 | |
Total assets | $1,256,288 | Total stockholders’ equity | 543,788 |
Total Liabilities and equity | $1,045,980 |
To prepare a
- Salve were 20,000 units in June. Fore casted sales in units are as follows: July 21,000; August, 19,000; September, 20,000; October, 24,000. The product’s selling price is $17 per unit and its total product cost is $14.35 per unit.
- Company policy calls for a given month’s ending raw materials inventory to equal 50% of the next month’s materials requirements. The March 31 raw materials inventory is 4,925 units, which com-plies with the policy. The expected June 30 ending raw materials inventory is 4,000 units. Raw mate-rials cost $20 per unit. Each finished unit requires 0.50 units of raw materials.
- Company policy calls for a given month’s ending finished goods inventory to equal 80% of the next month’s expected unit sales. The March 31 finished goods inventory is 16,400 units, which complies with the policy.
- Each finished unit requires 0.50 hours of direct labor at a rate of $15 per hour.
- Overhead is allocated based on direct labor hours. The predetermined variable overhead rate is $2.70 per direct labor hour. Depreciation of $20,000 per month is treated as fixed factory overhead.
- Sales representatives' commissions are 8% of sales and are paid in the month of the sales. The sales manager’s monthly salary is $3,000.
- Sales representatives' commissions are 10% of sales and are paid in the month of the sales. The sales manager’s monthly salary is $3,500 per month.
- The company expects 30% of sales to be for cash and the remaining 70% on credit. Receivables are collected in full in the month following the sale (none is collected in the month of the sale).
- All raw materials purchases are on credit, and no payables arise from any other transactions. One month’s raw materials purchases are fully paid in the next month.
- The minimum ending cash balance for all months is $40,000. If necessary, the company borrows enough cash using a short-term note to reach the minimum. Short-term notes require an interest payment of 1% at each month-end (before any repayment). If the ending cash balance exceeds the minimum, the excess will be applied to repaying the short-term notes payable balance.
- Dividends of $10,000 are to be declared and paid in May.
- No cash payments for income taxes are to be made during the second calendar quarter. Income tax will be assessed at 35% in the quarter and paid in the third calendar quarter. m. Equipment purchases of $130,000 are budgeted for the last day of June.
Required
Prepare the following budgets and other financial information as required. All budgets and other financial information should be prepared for the second calendar quarter, except as otherwise noted below. Round calculations up to the nearest whole dollar, except for the amount of cash sales, which should be rounded down to the nearest whole dollar.
- Sales budget.
- Production budget.
- Raw materials budget.
- Direct labor budget.
- Factory overhead budget.
- Selling expense budget.
- General and administrative expense budget.
Cash budget .Budgeted income statement for the entire second quarter (not for each month separately).- Budgeted balance sheet as of the end of the second calendar quarter.
Concept introduction:
Master forecast
Master budget is a detailed plan for upcoming, it start with sales forecast and ends with money (cash) forecast and with statement of finance. It is also known as joint forecast manufactured by company at a very small level. It also includes budget for money(cash), forecasted statement of finance and monetary plan.
Sales forecast:
It relates to the monetary plan that shows the way capital can be assigned in best way for achieving sales target. The aim of this budget is to curb and plan for the expenditure incurred for objective achievement with respect to sales.
Requirement 1:
Sales forecast for the second quarter of the calendar.
Answer to Problem 4PSA
Therefore, it is determined that sales budget for second quarter for 60000 units is $1431000.
Explanation of Solution
Sales forecast::
It relates to the monetary plan that shows the way capital can be assigned in best way for achieving target for sales. The aim of this budget is to curb and plan for the expenditure incurred for objective achievement with respect to sales.
So computation of sales forecast is given below.
Z manufacturing forecast for sales | |||
Particulars | Forecasted units | Unit value | Dollar(total) |
April | 20500 | $23.85 | 488925 |
May | 19500 | 23.85 | 465075 |
June | 20000 | 23.85 | 477000 |
Second quarter total | 60000 | 1431000 |
Therefore it is determined that sales forecast for quarter second for 60000 units is $1431000
Concept introduction:
Manufacturing(production) forecast assesses the number of units to be produced. It is determined by scheduled amount relating to stock of completed goods and sales budget.
Requirement 2:
To explain:
Production budget for the second quarter of the calendar.
Answer to Problem 4PSA
Therefore, it is determined that the production budget for April is 19700 for May it is 19900 and for June it is 20400.
Explanation of Solution
Z manufacturing forecast for production | |||
Particulars | April | May | June |
Forecast sales for succeeding month | 19500 | 20000 | 20500 |
Ratio of stock to upcoming sales | *.80 | *.80 | *.80 |
Forecasted closing stock | 15600 | 16000 | 16400 |
Add- forecasted sales | 20500 | 19500 | 20000 |
Required manufacturing of units | 36100 | 35500 | 36400 |
Less-opening stock | (16400) | (15600) | (16000) |
Units to be manufactured | 19700 | 19900 | 20400 |
Therefore, it is determined that the manufacturing forecast for April is 19700 for May it is 19900 and for June it is 20400.
Concept introduction:
Raw material forecast points out the material required for production of units and services.
Requirement 3:
Raw material budget for the second quarter of the calendar.
Answer to Problem 4PSA
Therefore, it is determined that the raw material forecast for the month of April is-$198000, for May-201500 and for June it is $182000.
Explanation of Solution
Z manufacturing raw material forecast | |||
Particulars | April | May | June |
Manufactured forecasted units | 19700 | 19900 | 20400 |
Per unit material required | *.50 | *.50 | *.50 |
Material required for manufacturing | 9850 | 9950 | 10200 |
Add-forecasted closing stock | 4975 | 5100 | 4000 |
Total material required | 14825 | 15050 | 14200 |
Less-opening stock | (4925) | (4975) | (5100) |
Material required to be purchased | 9900 | 10075 | 9100 |
Price per unit of material | $20 | $20 | $20 |
Cost in total of direct material(DM) purchase | 198000 | 201500 | 182000 |
Therefore, it is determined that the raw material forecast for the month of April is-$198000, for May-201500 and for June it is $182000.
Concept introduction:
Direct labour forecast usually tells the numberof hours required for producing units.
Requirement 4:
Direct labour forecast for the second quarter of the calendar.
Answer to Problem 4PSA
Therefore, it is determined that direct labour budget for April is$147750, for May $149250 and for June is $153000.
Explanation of Solution
Direct labour forecast usually determines the number ofhours required for producing units specified underlying the production forecast.
So, computation of direct labour forecast is given below.
Z manufacturing labour(direct) forecast | |||
Particulars | April | May | June |
Forecasted manufacturing units | 19700 | 19900 | 20400 |
Requirement of labour unit per hours | *.50 | *.50 | *.50 |
Total hours needed | 9850 | 9950 | 10200 |
Labour rate | 15 | 15 | 15 |
Labour $ | 147750 | 149250 | 153000 |
Therefore, it is determined that direct labour forecast for April is$147750, for May $149250 and for June $153000.
Concept introduction:
Factory overhead forecast is that forecast which consists of cost of production apart from cost relating to direct material (DM) and direct labour.
Requirement 5:
Factory overhead budget for the second quarter of the calendar.
Answer to Problem 4PSA
Hence, it is determined that factory overhead budget for April is $46595, for May it is $46865 and for June it is $47540.
Explanation of Solution
Factory overhead forecast is that forecast which consists of cost of production apart from cost relating to direct material (DM) and direct labour.
So computation of factory overhead forecast is given below.
Z manufacturing factory overhead forecast | |||
Particulars | April | May | June |
Hours of labour needed | 9850 | 9950 | 10200 |
Factory overhead (variable) rate | *2.70 | *2.70 | *2.70 |
Forecasted overhead(variable) | 26595 | 26865 | 27540 |
Overhead(fixed) | 20000 | 20000 | 20000 |
Total overhead forecasted | $46595 | $46865 | $47540 |
Hence, it is determined that factory overhead forecast for April is $46595, for May it is $46865 and for June; it is $47540.
Concept introduction:
Forecast for selling expenses is that budget which involves forecast related tosales, marketing, engineering and accounting.
Requirement 6:
Selling expenses budget for the second quarter of the calendar.
Answer to Problem 4PSA
Hence, it is determined that selling expenses budget for April is $42114, for May it is $40206 and for June it is $41160.
Explanation of Solution
Forecast for selling expenses is that forecast which involves forecast relating to sales, marketing, engineering and accounting.
So computation of selling expenses forecast is given below.
Z manufacturing selling expenses forecast | |||
Particulars | April | May | June |
Forecasted sales | 488925 | 465075 | 477000 |
Commission percentage sales | *.08 | *.08 | *.08 |
Expenses related to sales commission | 39114 | 37206 | 38160 |
Salaries of sales | 3000 | 3000 | 3000 |
Selling expenses in total | $42114 | $40206 | $41160 |
Hence, it is determined that selling expenses forecast for April is $42114, for May it is $40206 and for June it is $41160.
Concept introduction:
Administrative and general expenditure forecast relates to the expenditure that is made for administering the company i.e. rent, utilities and insurance. It does not include expenditure in relation to manufacturing of commodities and services.
Requirement 7:
Administrative and general expenses budget for the second quarter of the calendar.
Answer to Problem 4PSA
Hence it is determined that administrative and general expenses budget for April is $42114, for May it is $40206 and for June it is $41160.
Explanation of Solution
Administrative and general expenditure forecast relates to that expenditure which is made for administering the company i.e. rent, utilities and insurance. It does not include expenditure that is in relation to manufacturingof commodities and services. So, computation of administrative and general expenditure forecast is given below.
Z manufacturing administrative and general expenses forecast | |||
Particulars | April | May | June |
Salaries | 12000 | 12000 | 12000 |
Long term interest (500000*.9%) | 4500 | 4500 | 4500 |
Expenses total | $16500 | $16500 | $16500 |
Hence it is determined that administrative and general expenses forecast for April is $16500, for May it is $16500 and for June it is $16500.
Concept introduction:
Cash received forecast shows the outflow and inflow of money(cash) in forecasted period to assess the money(cash) balance.
Cash budget for the second quarter of the calendar.
Answer to Problem 4PSA
Therefore the cash budget for April $83346, for May $124295 and for June is $40000.
Explanation of Solution
Cash received forecast shows the outflow and inflow of money(cash)in forecasted period to assess the money(cash) balance.
So, computation of cash received forecast is given below.
Z manufacturing cash received forecast | |||
Particulars | April | May | June |
Total sales | 488925 | 465075 | 477000 |
Cash sales (30%) | 146677 | 139522 | 143100 |
Amount due from last month(70%of credit sales) | 342248 | 342248 | 325553 |
Total cash received | $488925 | $481770 | $468653 |
Z manufacturing cash budget | |||
Particulars | April | May | June |
Opening balance | 40000 | 83346 | 124295 |
Cash received | 488925 | 481770 | 468653 |
Total available cash | 528925 | 565116 | 592948 |
Cash disposal | |||
Payment for material | 200500 | 198000 | 201500 |
Payment for direct labour | 147750 | 149250 | 153000 |
Payment for overhead(variable) | 26595 | 26865 | 27540 |
Sales commission | 39114 | 37206 | 38160 |
Salaries | 3000 | 3000 | 3000 |
Administrative & general | 12000 | 12000 | 12000 |
Dividends | 10000 | ||
Loan interest | 120 | ||
Interest long term | 4500 | 4500 | 4500 |
Purchase of equipment | 130000 | ||
Total cash disposal | 433579 | 440821 | 569700 |
Preliminary balance money(cash) | 95346 | 124295 | 23248 |
Additional loan | 16752 | ||
Payment of loan | (12000) | ||
Closing cash balance | $83346 | $124295 | $40000 |
Loan balance | $16752 |
Therefore, the closing budget for April $83346, for May $124295 and for June is$40000.
Concept introduction:
Forecasted statement of income assesses the financial standing of the company. It depicts the income, expenses and net income of a firm in a period of time.
Requirement 9:
Budgeted income statement for the second quarter.
Answer to Problem 4PSA
Hence the budgeted income statement for second quarter is $43485.
Explanation of Solution
Forecasted statement of income assesses the financial standing of the company. It depicts the income, expenses, net income of a firm over a period.
So computation of income statement forecast is given below.
Z manufacturing forecasted income statement | |||
sales | $1431000 | ||
Cost of goods sold(COGS)(60000*$19.85) | 191000 | ||
Gross profit | 240000 | ||
Running expenses | |||
Commission on sales | 114480 | ||
Salaries | 9000 | ||
Administrative & general salaries | 36000 | ||
Long term interest | 13500 | ||
Expenses on interest | 120 | 173100 | |
Before tax income | 66900 | ||
Tax (66900*35%) | 23415 | ||
Net revenue | $43485 |
Hence, the budgeted income statement for second quarter is $43485.
Concept introduction:
Financial statement also known as balance sheet helps in summarizing assets, liabilities and equity of the company held by shareholders at a point of time.
Requirement 10:
Financial statement for the entire second quarter.
Answer to Problem 4PSA
Budgeted balance sheet for the second quarter totals $1299440.
Explanation of Solution
Financial statement also known as balance sheet that help in summarizing assets, liabilities and equity of the company held by shareholders at thatpoint of time.
So, computation of financial statement forecast is given below.
Z manufacturing forecasted income statement | |||
Asset | |||
Cash | 40000 | ||
Amount due | 333900 | ||
Raw material stock | 80000 | ||
Finished goods stock | 325540 | ||
Total current asset | 779440 | ||
Equipment | 730000 | ||
Less-depreciation | 210000 | 520000 | |
Total of asset | $1299440 | ||
Liabilities and equities | |||
Account to be paid | 182000 | ||
Bank loan | 16752 | ||
Taxes | 23415 | ||
Total of current liabilities | 222167 | ||
Long term loan | 500000 | ||
Common inventory | 335000 | ||
Retained income | 242273 | ||
Total equity shareholder | 577273 | ||
Total equity and liabilities | $1299440 |
Budgeted balance sheet for the second quarter totals $1299440.
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Chapter 7 Solutions
Connect 1 Semester Access Card For Managerial Accounting
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