Flexible Budget for Selling and Administrative Expenses for aService Company
Morningside Technologies Inc. uses flexible budgets that arebased on the following data:
Sales commissions 7% of sales Advertising expense 25% of sales Miscellaneous administrative expense $1,850 per month plus 3% of sales Office salaries expense $17,000 per month Customer support expenses $2,600 plus 4% of sales Research and development expense 5,750 per month
Prepare a flexible selling and administrative expenses budgetfor April for sales volumes of $115,000, $145,000, and $175,000.Enter all amounts as positive numbers.
Morningside Technologies Inc. Flexible Selling and Administrative ExpensesBudget Forthe Month Ending April 30 Total sales $115,000 $145,000 $175,000 Variable cost: Sales commissions $ $ $ Advertising expense Miscellaneousadministrative expense Customer support expense Total variable cost $ $ $ Fixed cost: Miscellaneous administrative expense $ $ $ Office salaries expense Customer support expense Research and development expense Total fixed cost $ $ $ Total selling and administrativeexpenses $ $ $
2.
Sales and Production Budgets
Sonic Inc. manufactures two models of speakers, Rumble andThunder. Based on the following production and sales data for June,prepare (a) a sales budget and (b) a production budget.
Rumble Thunder Estimated inventory (units), June 1 278 77 Desired inventory (units), June 30 319 67 Expected sales volume (units): East Region 4,100 4,600 West Region 5,000 4,350 Unit sales price $115 $185
a. Prepare a sales budget.
SonicInc. SalesBudget Forthe Month Ending June 30
Product and Area Unit
Sales
Volume Unit
Selling
Price Total
Sales Model Rumble: East Region $ $ West Region Total $ Model Thunder: East Region $ $ West Region Total $ Total revenue from sales $
3.
Cash Budget
The controller of Sonoma Housewares Inc. instructs you toprepare a monthly cash budget for the next three months. You arepresented with the following budget information:
May June July Sales $90,000 $111,000 $142,000 Manufacturing costs 38,000 48,000 51,000 Selling and administrative expenses 26,000 30,000 31,000 Capital expenditures _ _ 34,000
The company expects to sell about 10% of its merchandise forcash. Of sales on account, 60% are expected to be collected in themonth following the sale and the remainder the following month(second month following sale). Depreciation, insurance, andproperty tax expense represent $9,000 of the estimated monthlymanufacturing costs. The annual insurance premium is paid inSeptember, and the annual property taxes are paid in November. Ofthe remainder of the manufacturing costs, 75% are expected to bepaid in the month in which they are incurred and the balance in thefollowing month.
Current assets as of May 1 include cash of $34,000, marketablesecurities of $49,000, and accounts receivable of $107,800 ($79,000from April sales and $28,800 from March sales). Sales on accountfor March and April were $72,000 and $79,000, respectively. Currentliabilities as of May 1 include $10,000 of accounts payableincurred in April for manufacturing costs. All selling andadministrative expenses are paid in cash in the period they areincurred. An estimated income tax payment of $13,000 will be madein June. Sonomaâs regular quarterly dividend of $9,000 is expectedto be declared in June and paid in July. Management wants tomaintain a minimum cash balance of $27,000.
Required:
1. Prepare a monthly cash budget and supportingschedules for May, June, and July. Input all amounts as positivevalues except overall cash decrease and deficiency which should beindicated with a minus sign.
Sonoma Housewares Inc. CashBudget Forthe Three Months Ending July 31 May June July Estimated cash receipts from: Cash sales $ $ $ Collection of accounts receivable Total cash receipts $ $ $ Estimated cash payments for: Manufacturing costs $ $ $ Selling and administrative expenses Capital expenditures Other purposes: Income tax Dividends Total cash payments $ $ $ Cash increase or (decrease) $ $ $ Cash balance at beginning of month Cash balance at end of month $ $ $ Minimum cash balance Excess or (deficiency) $ $ $
4.
Factory Overhead Cost Budget
Sweet Tooth Company budgeted the following costs for anticipatedproduction for August:
Advertising expenses $259,400 Manufacturing supplies 14,220 Power and light 42,400 Sales commissions 290,020 Factory insurance 24,690 Production supervisor wages 124,710 Production control wages 32,420 Executive officer salaries 264,390 Materials management wages 35,670 Factory depreciation 20,210
Prepare a factory overhead cost budget, separating variable andfixed costs. Assume that factory insurance and depreciation are theonly fixed factory costs.
SweetTooth Company Factory Overhead Cost Budget Forthe Month Ending August 31 Variable factory overhead costs: Manufacturingsupplies $ Power and light Production supervisorwages Production controlwages Materials managementwages Total variable factory overhead costs $ Fixed factory overhead costs: Factory insurance $ Factory depreciation Total fixed factory overhead costs Total factory overhead costs $
Flexible Budget for Selling and Administrative Expenses for aService Company
Morningside Technologies Inc. uses flexible budgets that arebased on the following data:
| Sales commissions | 7% of sales |
| Advertising expense | 25% of sales |
| Miscellaneous administrative expense | $1,850 per month plus 3% of sales |
| Office salaries expense | $17,000 per month |
| Customer support expenses | $2,600 plus 4% of sales |
| Research and development expense | 5,750 per month |
Prepare a flexible selling and administrative expenses budgetfor April for sales volumes of $115,000, $145,000, and $175,000.Enter all amounts as positive numbers.
| Morningside Technologies Inc. | |||
| Flexible Selling and Administrative ExpensesBudget | |||
| Forthe Month Ending April 30 | |||
| Total sales | $115,000 | $145,000 | $175,000 |
| Variable cost: | |||
| Sales commissions | $ | $ | $ |
| Advertising expense | |||
| Miscellaneousadministrative expense | |||
| Customer support expense | |||
| Total variable cost | $ | $ | $ |
| Fixed cost: | |||
| Miscellaneous administrative expense | $ | $ | $ |
| Office salaries expense | |||
| Customer support expense | |||
| Research and development expense | |||
| Total fixed cost | $ | $ | $ |
| Total selling and administrativeexpenses | $ | $ | $ |
2.
Sales and Production Budgets
Sonic Inc. manufactures two models of speakers, Rumble andThunder. Based on the following production and sales data for June,prepare (a) a sales budget and (b) a production budget.
| Rumble | Thunder | ||
| Estimated inventory (units), June 1 | 278 | 77 | |
| Desired inventory (units), June 30 | 319 | 67 | |
| Expected sales volume (units): | |||
| East Region | 4,100 | 4,600 | |
| West Region | 5,000 | 4,350 | |
| Unit sales price | $115 | $185 |
a. Prepare a sales budget.
| SonicInc. | |||
| SalesBudget | |||
| Forthe Month Ending June 30 | |||
| Product and Area | Unit Sales Volume | Unit Selling Price | Total Sales |
| Model Rumble: | |||
| East Region | $ | $ | |
| West Region | |||
| Total | $ | ||
| Model Thunder: | |||
| East Region | $ | $ | |
| West Region | |||
| Total | $ | ||
| Total revenue from sales | $ | ||
3.
Cash Budget
The controller of Sonoma Housewares Inc. instructs you toprepare a monthly cash budget for the next three months. You arepresented with the following budget information:
| May | June | July | ||||
| Sales | $90,000 | $111,000 | $142,000 | |||
| Manufacturing costs | 38,000 | 48,000 | 51,000 | |||
| Selling and administrative expenses | 26,000 | 30,000 | 31,000 | |||
| Capital expenditures | _ | _ | 34,000 | |||
The company expects to sell about 10% of its merchandise forcash. Of sales on account, 60% are expected to be collected in themonth following the sale and the remainder the following month(second month following sale). Depreciation, insurance, andproperty tax expense represent $9,000 of the estimated monthlymanufacturing costs. The annual insurance premium is paid inSeptember, and the annual property taxes are paid in November. Ofthe remainder of the manufacturing costs, 75% are expected to bepaid in the month in which they are incurred and the balance in thefollowing month.
Current assets as of May 1 include cash of $34,000, marketablesecurities of $49,000, and accounts receivable of $107,800 ($79,000from April sales and $28,800 from March sales). Sales on accountfor March and April were $72,000 and $79,000, respectively. Currentliabilities as of May 1 include $10,000 of accounts payableincurred in April for manufacturing costs. All selling andadministrative expenses are paid in cash in the period they areincurred. An estimated income tax payment of $13,000 will be madein June. Sonomaâs regular quarterly dividend of $9,000 is expectedto be declared in June and paid in July. Management wants tomaintain a minimum cash balance of $27,000.
Required:
1. Prepare a monthly cash budget and supportingschedules for May, June, and July. Input all amounts as positivevalues except overall cash decrease and deficiency which should beindicated with a minus sign.
| Sonoma Housewares Inc. | |||
| CashBudget | |||
| Forthe Three Months Ending July 31 | |||
| May | June | July | |
| Estimated cash receipts from: | |||
| Cash sales | $ | $ | $ |
| Collection of accounts receivable | |||
| Total cash receipts | $ | $ | $ |
| Estimated cash payments for: | |||
| Manufacturing costs | $ | $ | $ |
| Selling and administrative expenses | |||
| Capital expenditures | |||
| Other purposes: | |||
| Income tax | |||
| Dividends | |||
| Total cash payments | $ | $ | $ |
| Cash increase or (decrease) | $ | $ | $ |
| Cash balance at beginning of month | |||
| Cash balance at end of month | $ | $ | $ |
| Minimum cash balance | |||
| Excess or (deficiency) | $ | $ | $ |
4.
Factory Overhead Cost Budget
Sweet Tooth Company budgeted the following costs for anticipatedproduction for August:
| Advertising expenses | $259,400 |
| Manufacturing supplies | 14,220 |
| Power and light | 42,400 |
| Sales commissions | 290,020 |
| Factory insurance | 24,690 |
| Production supervisor wages | 124,710 |
| Production control wages | 32,420 |
| Executive officer salaries | 264,390 |
| Materials management wages | 35,670 |
| Factory depreciation | 20,210 |
Prepare a factory overhead cost budget, separating variable andfixed costs. Assume that factory insurance and depreciation are theonly fixed factory costs.
| SweetTooth Company | ||
| Factory Overhead Cost Budget | ||
| Forthe Month Ending August 31 | ||
| Variable factory overhead costs: | ||
| Manufacturingsupplies | $ | |
| Power and light | ||
| Production supervisorwages | ||
| Production controlwages | ||
| Materials managementwages | ||
| Total variable factory overhead costs | $ | |
| Fixed factory overhead costs: | ||
| Factory insurance | $ | |
| Factory depreciation | ||
| Total fixed factory overhead costs | ||
| Total factory overhead costs | $ | |
Related questions
Flexible Budget for Selling and Administrative Expenses for a Service company
Morningside Technologies Inc. uses flexible budgets that are based on the following data:
| Sales commissions | 15% of sales |
| Advertising expense | 12% of sales |
| Miscellaneous administrative expense | $8,000 per month plus 10% of sales |
| Office salaries expense | $32,000 per month |
| Customer support expenses | $14,000 per month plus 18% of sales |
| Research and development expense | $35,000 per month |
Prepare a flexible selling and administrative expenses budget for April for sales volumes of $400,000, $500,000, and $600,000.
| MORNINGSIDE TECHNOLOGIES INC. | |||
| Flexible Selling and Administrative Expenses Budget | |||
| For the Month Ending April 30 | |||
| Total sales | $400,000 | $500,000 | $600,000 |
| Variable cost: | |||
| Sales commissions | $ | $ | $ |
| Advertising expense | |||
| Miscellaneous administrative expense | |||
| Customer support expense | |||
| Total variable cost | $ | $ | $ |
| Fixed cost: | |||
| Miscellaneous administrative expense | $ | $ | $ |
| Office salaries expense | |||
| Customer support expense | |||
| Research and development expense | |||
| Total fixed cost | $ | $ | $ |
| Total selling and administrative expenses | $ | $ | $ |
As a preliminary to requesting budget estimates of sales, costs, and expenses for the fiscal year beginning January 1, 20Y9, the following tentative trial balance as of December 31, 20Y8, is prepared by the Accounting Department of Regina Soap Co.:
| Cash | $103,800 | ||
| Accounts Receivable | 181,700 | ||
| Finished Goods | 38,200 | ||
| Work in Process | 25,400 | ||
| Materials | 41,800 | ||
| Prepaid Expenses | 3,100 | ||
| Plant and Equipment | 538,700 | ||
| Accumulated DepreciationâPlant and Equipment | $231,600 | ||
| Accounts Payable | 136,900 | ||
| Common Stock, $10 par | 350,000 | ||
| Retained Earnings | 214,200 | ||
| $932,700 | $932,700 |
Factory output and sales for 20Y9 are expected to total 25,000 units of product, which are to be sold at $110 per unit. The quantities and costs of the inventories at December 31, 20Y9, are expected to remain unchanged from the balances at the beginning of the year.
Budget estimates of manufacturing costs and operating expenses for the year are summarized as follows:
| Estimated Costs and Expenses | ||||
| Fixed (Total for Year) | Variable (Per Unit Sold) | |||
| Cost of goods manufactured and sold: | ||||
| Direct materials | _ | $28 | ||
| Direct labor | _ | 8.5 | ||
| Factory overhead: | ||||
| Depreciation of plant and equipment | $25,000 | _ | ||
| Other factory overhead | 7,800 | 5 | ||
| Selling expenses: | ||||
| Sales salaries and commissions | 89,800 | 14 | ||
| Advertising | 75,000 | _ | ||
| Miscellaneous selling expense | 6,500 | 2 | ||
| Administrative expenses: | ||||
| Office and officers salaries | 59,000 | 7 | ||
| Supplies | 3,000 | 1 | ||
| Miscellaneous administrative expense | 1,600 | 1.5 | ||
Balances of accounts receivable, prepaid expenses, and accounts payable at the end of the year are not expected to differ significantly from the beginning balances. Federal income tax of $242,200 on 20Y9 taxable income will be paid during 20Y9. Regular quarterly cash dividends of $1 per share are expected to be declared and paid in March, June, September, and December on 35,000 shares of common stock outstanding. It is anticipated that fixed assets will be purchased for $145,000 cash in May.
Required:
1. Prepare a budgeted income statement for 20Y9.
| Regina Soap Co. | |||
| Budgeted Income Statement | |||
| For the Year Ending December 31, 20Y9 | |||
| Sales | $ | ||
| Cost of goods sold: | |||
| Direct materials | $ | ||
| Direct labor | |||
| Factory overhead | |||
| Cost of goods sold | |||
| Gross profit | $ | ||
| Operating expenses: | |||
| Selling expenses: | |||
| Sales salaries and commissions | $ | ||
| Advertising | |||
| Miscellaneous selling expense | |||
| Total selling expenses | $ | ||
| Administrative expenses: | |||
| Office and officers salaries | $ | ||
| Supplies | |||
| Miscellaneous administrative expense | |||
| Total administrative expenses | |||
| Total operating expenses | |||
| Income before income tax | $ | ||
| Income tax expense | |||
| Net income | $ | ||
Feedback
Use information from the expected sales, cost of goods, and selling and administrative expenses.
Learning Objective 4, Learning Objective 5.
2. Prepare a budgeted balance sheet as of December 31, 20Y9.
| Regina Soap Co. Budgeted Balance Sheet December 31, 20Y9 | |||
|---|---|---|---|
| Assets | |||
| Current assets: | |||
| Cash | |||
| Accounts receivable | |||
| Inventories: | |||
| Finished goods | |||
| Work in process | |||
| Materials | |||
| Prepaid expenses | |||
| Total current assets | |||
| Property, plant, and equipment: | |||
| Plant and equipment | |||
| Accumulated depreciation | |||
| Total property, plant, and equipment | |||
| Total assets | |||
| Liabilities | |||
| Current liabilities: | |||
| Accounts payable | |||
| Stockholders' Equity | |||
| Common stock | |||
| Retained earnings | |||
| Total stockholdersâ equity | |||
| Total liabilities and stockholdersâ equity | |||
