ACCT 2101 Lecture Notes - Lecture 12: Activity-Based Costing, Cash Cash, Budget

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27 Feb 2018

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Includes detail budgets of sales, production, and materials. Income statement, balance sheet, statement of cash flows. Start with sales budget end with financial balance sheet. The budget is always 12 months in the future no matter the point in the year. Once we know how much to produce from production budget. Direct material budget, direct labor budget, overhead budget. These all end up in the cash budget. Deals with sales that will never be collected. Using info from activity based costing to help with the budget. Show us how much to produce based on expected revenues. You don"t want to run out of inventory. Sets up what we want for our ending inventory. Desired inventory= sales in units x desires % Sales in units + desired end - beginning inventory = units to be produced. 1 months ending inventory is the others beginning inventory. Materials to be purchased = beginning inventory - ending + desired ending.

Related Questions

Completing a comprehensive budgeting problemâmanufacturingcompany

The Arthur Tire Company manufactures racing tires for bicycles.Arthur sells tires for $55 each. Arthur is

planning for the next year by developing a master budget byquarters. Arthurâs balance sheet for December

31, 2014, follows:

ARTHUR TIRE COMPANY

Balance Sheet December 31, 2014

Assets

Current Assets:

Cash $ 22,000

Accounts Receivable 22,000

Raw Materials Inventory 3,200

Finished Goods Inventory 7,250

Total Current Assets $ 54,450

Property, Plant, and Equipment:

Equipment 175,000

Less: Accumulated Depreciation (55,000)120,000

Total Assets $ 174,450

Liabilities

Current Liabilities:

Accounts Payable $ 7,500

Stockholders' Equity

Common Stock $ 135,000

Retained Earnings 31,950

Total Stockholders' Equity 166,950

Total Liabilities and Stockholders' Equity $ 174,450

Other data for Arthur Tire Company:

a. Budgeted sales are 800 tires for the first quarter andexpected to increase by 100 tires per quarter. Cash

sales are expected to be 30% of total sales, with the remaining70% sales on account.

b. Finished Goods Inventory on December 31 consists of 250 tiresat $29 each.

c. Desired ending Finished Goods Inventory is 30% of the nextquarterâs sales; first quarter sales for 2016

are expected be 1,200 tires; FIFO inventory costing method isused.

d. Direct materials cost is $16 per tire.

e. Desired ending Raw Materials Inventory is 20% of the nextquarterâs direct materials needed for

production; desired ending inventory for December 31 is $3,000;indirect materials are insignificant and not

considered for budgeting purposes.

f. Each tire requires 0.20 hours of direct labor; direct laborcosts average $20 per hour.

g. Variable manufacturing overhead is $2 per tire.

h. Fixed manufacturing overhead includes $3,000 per quarter indepreciation and $4,820 per quarter for

other costs, such as utilities, insurance, and propertytaxes.

i. Fixed selling and administrative expenses include $10,000 perquarter for salaries; $1,800 per quarter for

rent; $500 per quarter for insurance; and $600 per quarter fordepreciation.

j. Variable selling and administrative expenses include suppliesat 1% of sales.

k. Capital expenditures include $30,000 for new manufacturingequipment, to be purchased and paid in the

first quarter.

l. Cash receipts for sales on account are 50% in the quarter ofthe sale and 50% in the quarter following the

sale; December 31, 2014, Accounts Receivable is received in thefirst quarter of 2015; uncollectible

accounts are considered insignificant and not considered forbudgeting purposes.

m. Direct materials purchases are paid 75% in the quarterpurchased and 25% in the following quarter;

December 31, 2014, Accounts Payable is paid in the first quarterof 2015.

n. Direct labor, manufacturing overhead, and selling andadministrative costs are paid in the quarter

incurred.

o. Income tax expense is projected at $2,000 per quarter and ispaid in the quarter incurred.

p. Arthur desires to maintain a minimum cash balance of $30,000and borrows from the local bank as

needed in increments of $1,000 at the beginning of the quarter;principal repayments are made at the

beginning of the quarter when excess funds are available and inincrements of $1,000; interest is 12% per

year and paid at the beginning of the quarter based on theamount outstanding from the previous quarter.

Requirements

1. Prepare Arthurâs operating budget and cash budget for 2015,by quarter. Required schedules and

budgets include: sales budget, production budget, directmaterials budget, direct labor budget,

manufacturing overhead budget, cost of goods sold budget,selling and administrative expense budget,

cash receipts, cash payments, and cash budget. Manufacturingoverhead costs are allocated based on

direct labor hours.

2. Prepare Arthurâs annual financial budget for 2015, includingbudgeted income statement, budgeted

balance sheet, and budgeted statement of cash flows.

coralotter853

Problem 7-4A Manufacturing: Preparation of a complete master budget LO P1, P2, P3 The management of Zigby Manufacturing prepared the following estimated balance sheet for March 2017: ZIGBY MANUFACTURING Estimated Balance Sheet March 31, 2017 Assets Cash $ 58,000 Accounts receivable 484,640 Raw materials inventory 91,290 Finished goods inventory 393,304 Total current assets 1,027,234 Equipment, gross 636,000 Accumulated depreciation (168,000 ) Equipment, net 468,000 Total assets $ 1,495,234 Liabilities and Equity Accounts payable $ 206,390 Short-term notes payable 30,000 Total current liabilities 236,390 Long-term note payable 525,000 Total liabilities 761,390 Common stock 353,000 Retained earnings 380,844 Total stockholdersâ equity 733,844 Total liabilities and equity $ 1,495,234 To prepare a master budget for April, May, and June of 2017, management gathers the following information: Sales for March total 23,300 units. Forecasted sales in units are as follows: April, 23,300; May, 17,000; June, 21,900; and July, 23,300. Sales of 258,000 units are forecasted for the entire year. The productâs selling price is $26.00 per unit and its total product cost is $21.10 per unit. Company policy calls for a given monthâs ending raw materials inventory to equal 50% of the next monthâs materials requirements. The March 31 raw materials inventory is 4,565 units, which complies with the policy. The expected June 30 ending raw materials inventory is 5,800 units. Raw materials cost $20 per unit. Each finished unit requires 0.50 units of raw materials. Company policy calls for a given monthâs ending finished goods inventory to equal 80% of the next monthâs expected unit sales. The March 31 finished goods inventory is 18,640 units, which complies with the policy. Each finished unit requires 0.50 hours of direct labor at a rate of $14 per hour. Overhead is allocated based on direct labor hours. The predetermined variable overhead rate is $4.50 per direct labor hour. Depreciation of $38,360 per month is treated as fixed factory overhead. Sales representativesâ commissions are 10% of sales and are paid in the month of the sales. The sales managerâs monthly salary is $4,800. Monthly general and administrative expenses include $30,000 administrative salaries and 0.8% monthly interest on the long-term note payable. The company expects 20% of sales to be for cash and the remaining 80% on credit. Receivables are collected in full in the month following the sale (none are collected in the month of the sale). All raw materials purchases are on credit, and no payables arise from any other transactions. One monthâs raw materials purchases are fully paid in the next month. The minimum ending cash balance for all months is $58,000. 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 $28,000 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 40% in the quarter and paid in the third calendar quarter. Equipment purchases of $148,000 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.): 1. Sales budget. 2. Production budget. 3. Raw materials budget. 4. Direct labor budget. 5. Factory overhead budget. 6. Selling expense budget. 7. General and administrative expense budget. 8. Cash budget. 9. Budgeted income statement for the entire second quarter (not for each month separately). 10. Budgeted balance sheet.

coffeecricket555

The management of Zigby Manufacturing prepared the following estimated balance sheet for March 2017:

ZIGBY MANUFACTURING Estimated Balance Sheet March 31, 2017
Assets
Cash	$	59,000
Accounts receivable		487,500
Raw materials inventory		93,010
Finished goods inventory		433,000
Total current assets		1,072,510
Equipment, gross		638,000
Accumulated depreciation		(169,000	)
Equipment, net		469,000
Total assets	$	1,541,510
Liabilities and Equity
Accounts payable	$	215,410
Short-term notes payable		31,000
Total current liabilities		246,410
Long-term note payable		530,000
Total liabilities		776,410
Common stock		354,000
Retained earnings		411,100
Total stockholdersâ equity		765,100
Total liabilities and equity	$	1,541,510

To prepare a master budget for April, May, and June of 2017, management gathers the following information:

Sales for March total 25,000 units. Forecasted sales in units are as follows: April, 25,000; May, 17,000; June, 22,400; and July, 25,000. Sales of 259,000 units are forecasted for the entire year. The productâs selling price is $26.00 per unit and its total product cost is $21.65 per unit.

Company policy calls for a given monthâs ending raw materials inventory to equal 50% of the next monthâs materials requirements. The March 31 raw materials inventory is 4,650 units, which complies with the policy. The expected June 30 ending raw materials inventory is 5,900 units. Raw materials cost $20 per unit. Each finished unit requires 0.50 units of raw materials.

Company policy calls for a given monthâs ending finished goods inventory to equal 80% of the next monthâs expected unit sales. The March 31 finished goods inventory is 20,000 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 $4.60 per direct labor hour. Depreciation of $39,710 per month is treated as fixed factory overhead.

Sales representativesâ commissions are 5% of sales and are paid in the month of the sales. The sales managerâs monthly salary is $4,900.

Monthly general and administrative expenses include $34,000 administrative salaries and 0.8% monthly interest on the long-term note payable.

The company expects 25% of sales to be for cash and the remaining 75% on credit. Receivables are collected in full in the month following the sale (none are collected in the month of the sale).

All raw materials purchases are on credit, and no payables arise from any other transactions. One monthâs raw materials purchases are fully paid in the next month.

The minimum ending cash balance for all months is $98,000. 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 $29,000 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 40% in the quarter and paid in the third calendar quarter.

Equipment purchases of $149,000 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.):

1. Sales budget.
2. Production budget.
3. Raw materials budget.
4. Direct labor budget.
5. Factory overhead budget.
6. Selling expense budget.
7. General and administrative expense budget.
8. Cash budget.
9. Budgeted income statement for the entire second quarter (not for each month separately).
10. Budgeted balance sheet.

ZIGBY MANUFACTURING
Sales Budget
April, May, and June 2017
	Budgeted Unit Sales	Budgeted Unit Price	Budgeted Sales Dollars
April 2017	25,000	$26.00	$650,000
May 2017	17,000	26.00	442,000
June 2017	22,400	26.00	582,400
Totals for the second quarter	64,400	$26.00	$1,674,400

ZIGBY MANUFACTURING
Production Budget
April, May, and June 2017
	April	May	June	Total
Next month's budgeted sales (units)	17,000	22,400	25,000
Ratio of inventory to future sales	80%	80%	80%
Budgeted ending inventory (units)	13,600	17,920	20,000
Budgeted units sales for month	25,000	17,000	22,400
Required units of available production	38,600	34,920	42,400
Beginning inventory (units)	20,000	13,600	17,920
Units to be produced	18,600	21,320	24,480	64,400

ZIGBY MANUFACTURING
Raw Materials Budget
April, May, and June 2017
	April	May	June	Total
Production budget (units)	18,600	21,320	24,480
Materials requirements per unit	0.50	0.50	0.50
Materials needed for production	9,300	10,660	12,240
Budgeted ending inventory	5,330	6,120	5,900
Total materials requirements (units)	14,630	16,780	18,140
Beginning inventory	4,650	5,330	6,120
Materials to be purchased	9,980	11,450	12,020	33,450
Material price per unit	$20	$20	$20	$20
Budgeted raw material purchases	$199,600	$229,000	$240,400	$669,000

ZIGBY MANUFACTURING
Direct Labor Budget
April, May, and June 2017
	April	May	June	Total
Budgeted production (units)	18,600	21,320	24,480
Labor requirements per unit (hours)	0.50	0.50	0.50
Total labor hours needed	9,300	10,660	12,240	32,200
Direct labor rate (per hour)	$15	$15	$15	$15
Budgeted direct labor cost	$139,500	$159,900	$183,600	$483,000

ZIGBY MANUFACTURING
Factory Overhead Budget
April, May, and June 2017
	April	May	June	Total
Labor hours needed	9,300	10,660	12,240
Variable factory overhead rate	$4.60	$4.60	$4.60
Budgeted variable overhead	$42,780	$49,036	$56,304	$148,120
Budgeted fixed overhead	39,710	39,710	39,710	119,130
Budgeted total overhead	$82,490	$88,746	$96,014	$267,250

ZIGBY MANUFACTURING
Selling Expense Budget
April, May, and June 2017
	April	May	June	Total
Budgeted sales	$650,000	$442,000	$582,400
Sales commission percent	5%	5%	5%
Sales commissions	$32,500	$22,100	$29,120	$83,720
Sales salaries	4,900	4,900	4,900	14,700
Total budgeted selling expenses	$37,400	$27,000	$34,020	$98,420

ZIGBY MANUFACTURING
General and Administrative Expense Budgets
April, May, and June 2017
	April	May	June
Interest on long-term note
Salaries
Total budgeted G&A expenses

Calculation of Cash receipts from customers:
		April	May	June
Total budgeted sales		$650,000	$442,000	$582,400
Cash sales	25%	162,500	110,500	145,600
Sales on credit	75%	$487,500	$331,500	$436,800

Total cash receipts from customers
		April	May	June
Current month's cash sales		$162,500	$110,500	$145,600
Collections of receivables		487,500
Total cash receipts		$650,000

ZIGBY MANUFACTURING
Cash Budget
April, May, and June 2017
		April	May	June
Beginning cash balance		$59,000
Cash receipts from customers
Total cash available
Cash payments for:

Sales salaries
Direct labor
Dividends
General & administrative salaries
Loan interest
Long-term note interest
Purchases of equipment
Raw materials
Variable overhead
Sales commissions
Total cash payments		0	0	0
Preliminary cash balance
Additional loan (loan repayment)
Ending cash balance

Loan balance
		April	May	June
Loan balance - Beginning of month
Additional loan (loan repayment)
Loan balance - End of month

ZIGBY MANUFACTURING
Budgeted Income Statement
For Three Months Ended June 30, 2017
Sales


Operating expenses


Bank loan interest expense



Total operating expenses		0
		0

		$0

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ACCT 2101 Lecture Notes - Lecture 12: Activity-Based Costing, Cash Cash, Budget

ACCT 2101 Full Course Notes

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