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ACC 2301 Project 3 Budget Exercise

Bobcat Printing makes custom t---shirts and other promotionalproducts for student organizations and businesses. It is beginningits first year of operations and needs to plan for its firstquarter of operations. They would like to maximize their profits,and understand that accurate budgeting can help achieve that goal.The budgets will be prepared based on the followinginformation:

a. Sales are budgeted at $20,000 for Month 1, $25,000 for Month2, and $27,000 for Month 3. All sales will be done on account.Company does not expect to have any cash sales.

b. Sales are collected 60% in the month of the sale, and 40% inthe month following the sale.

c. Cost of Goods Sold is budgeted at 45% of Sales.

d. Monthly selling, general, and administrative expenses are asfollows: donations are 10% of sales; advertising is 3% of sales;miscellaneous is 1% of sales; and rent is $5,000 per month. AllSG&A expenses are paid in the month they are incurred.

e.Sincealloftheordersarecustommade,noinventoryiskeptonhandattheendofthemonth.

f. Inventory purchases are paid in full in the month followingthe purchase.

g. Bobcat Printing is planning to purchase a building in Month 3for $6,000 in cash.

h.Theywouldliketomaintainaminimumcashbalanceof$2,500attheendofeachmonth.Thecompanyhasanagreementwithalocalbankthatallowsthemtoborrow,withatotallineof credit of $20,000. The interest rate on these loans is 1% permonth (12% annual). They would as far as able, repay the loan onthe last day of the month when it has enough cash to pay the fullbalance and maintain an adequate ending cash balance.

i. Theownermakesadrawof$3,000everymonth.(Note:soleproprietorsandpartnerships take owner’s draws, while stockholders receivedividends). Based upon the information provided, complete theoperating budgets provided in the excel template, and answer thequestions in TRACS. When making calculations always round up (forexample: 33 × 7% = 2.31, round up to 3.00).

Check Figures:
Gross Margin = $39,600
Total assets = $19,300
Ending Retained Earnings = $5,507

21. What is the projected interest expense for the first quarterof operations? A.$34 B. $19 C. $13. D. $170

22. What is the projected total owner's equity for the firstquarter of operations? A. $2,973 B. $5,507 C. $14,507 D.$12,000

23. What is the projected ending cash balance for the firstquarter of operations? A. $3,846 B. $2,500 C. $0 D. $12,846

24. What is the projected accounts receivables balance for thefirst quarter of operations? A. $27,000 B. $10,800 C. $12,000 D.$13,500

25. What is the projected account payable for the first quarterof operations? A. $12,150 B. $20,250 C. $0 D. $9,100

26. What is the projected interest payable for the first quarterof operations? A. $19 B. $34 C. $0 D. $13

27. What is the projected net cash flow from operatingactivities for the first quarter of operations? A. $12,000 B.$10,800 C. $22,800 D. $15,857

28. What is the projected net cash flow for investing activitiesfor the first quarter of operations? A. ($9,000) B. ($6,000) C.$9,000 D. $6,000

29. What is the projected cash flow from financing activitiesfor the first quarter of operations? A. ($2,500) B. ($7,357) C.$7,357 D. $9,000 E. ($9,000)

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ACC 2301 Project 3 Budget Exercise

Bobcat Printing makes custom t---shirts and other promotionalproducts for student organizations and businesses. It is beginningits first year of operations and needs to plan for its firstquarter of operations. They would like to maximize their profits,and understand that accurate budgeting can help achieve that goal.The budgets will be prepared based on the followinginformation:

a. Sales are budgeted at $20,000 for Month 1, $25,000 for Month2, and $27,000 for Month 3. All sales will be done on account.Company does not expect to have any cash sales.

b. Sales are collected 60% in the month of the sale, and 40% inthe month following the sale.

c. Cost of Goods Sold is budgeted at 45% of Sales.

d. Monthly selling, general, and administrative expenses are asfollows: donations are 10% of sales; advertising is 3% of sales;miscellaneous is 1% of sales; and rent is $5,000 per month. AllSG&A expenses are paid in the month they are incurred.

e.Sincealloftheordersarecustommade,noinventoryiskeptonhandattheendofthemonth.

f. Inventory purchases are paid in full in the month followingthe purchase.

g. Bobcat Printing is planning to purchase a building in Month 3for $6,000 in cash.

h.Theywouldliketomaintainaminimumcashbalanceof$2,500attheendofeachmonth.Thecompanyhasanagreementwithalocalbankthatallowsthemtoborrow,withatotallineof credit of $20,000. The interest rate on these loans is 1% permonth (12% annual). They would as far as able, repay the loan onthe last day of the month when it has enough cash to pay the fullbalance and maintain an adequate ending cash balance.

i. Theownermakesadrawof$3,000everymonth.(Note:soleproprietorsandpartnerships take owner’s draws, while stockholders receivedividends). Based upon the information provided, complete theoperating budgets provided in the excel template, and answer thequestions in TRACS. When making calculations always round up (forexample: 33 × 7% = 2.31, round up to 3.00).

Check Figures:
Gross Margin = $39,600
Total assets = $19,300
Ending Retained Earnings = $5,507

10. What is the total projected cash payments for SG&Aexpense? A. $15,000 B. $7,000 C. $25,080 D. $8,780

11. What is the projected beginning cash balance for Month 1? A.$0 B. $7,500 C. $300 D. $2,500

12. What is the projected ending cash balance for Month 1? A.$2,500 B. $1,100 C. $8,000 D. None of the above

13. Will Bobcat Printing need to borrow money in Month 1? A. YesB. No

14. If you answered "Yes" that Bobcat Printing had to borrowmoney in the first month, how much money will it need to borrow toensure it does not have a cash shortage? A. $500 B. $1,300 C.$1,800 D. Does not borrow money

15. If Bobcat Printing borrowed money in Month 1, what is theprojected interest expense it will incur for borrowing the money?A. $130 B. Bobcat Printing will not have interest because it doesnot need to borrow money in Month 1. C. $13 D. $170 E. $14

16. Bobcat Printing will have a cash surplus in Month 2. A. TrueB. False

17. If Bobcat Printing has a projected cash surplus in Month 2,how much cash will it repay for borrowing on its line of credit? A.Bobcat Printing will not have a cash surplus, therefore it willneed to borrow more money in Month 2. B. $1,100 C. $1,300 D.$1,800

18. Bobcat Printing will have cash shortage in Month 3. A. TrueB. False

19. Bobcat Printing will need to borrow money in Month 3. A.True B. False

20. How much will Bobcat Printing borrow in Month 3? A. BobcatPrinting will not have a projected cash shortage in Month 3, thusit will not borrow money B. $1,300 C. $1,643 D. $2,500

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. Sonoma’s 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 $

PROBLEM 1 (60 Points)

Newtown Supply Company is preparing its master budget for 2017.Relevant data pertaining to its operating budgets are asfollows:

Sales Budget: Sales for the year are expectedto total 800,000 units. 20% of sales are expected to occur in the1st quarter, 25% in the 2nd quarter, 25% inthe 3rd quarter, and 30% in the 4th quarter.The unit selling price is expected to be $35 for the first 3quarters, and increasing to $38 beginning in the 4thquarter.

Production Budget: Management desires tomaintain the ending finished goods inventories at 25% of the nextquarter’s budgeted sales volume.

(Sales in the 1st quarter of 2018 areexpected to be the same as the 4th quarter of2017.)

Direct Materials Budget: Each unit requires 3pounds of raw materials at a cost of $3 per pound. Managementdesires to maintain raw materials inventories at 10% of the nextquarter’s production requirements. (Production in the1st quarter of 2018 is expected to be the same as the4th quarter of 2017.)

Direct Labor Budget: Durham budgets 0.5 hoursfor direct labor per unit. The direct labor rate is expected to $20per hour for the 1st, 2nd, and 3rdquarters, and increasing to $22 per hour in the 4thquarter.

Budgeted Income Statement: The budgeted unitcost including budgeted direct materials, budgeted direct labor,and budgeted manufacturing overhead for 2017 is $22. The totalbudgeted selling and administrative expenses for 2017 are$2,200,000. The company’s effective tax rate is 30%.

Instructions

Prepare the following budgets by quarters and in total for2017:

(a)Sales

(b)Production

(c) Directmaterials

(d) Direct labor

(e) Income statement (Totals only –detail by quarter is not required.)

PROBLEM 2 (40 Points)

HFC Corp. has budgeted sales revenues as follows for the firstquarter of 2017:

January February March

Cashsales $ 95,000 $260,000 $200,000

Creditsales 130,000 140,000 90,000

Total sales $225,000 $400,000 $290,000

Past experience indicates that 60% of the creditsales will be collected in the month of sale and theremaining 40% will be collected in the following month. Purchasesof direct materials are all on credit and 50% arepaid in the month of purchase and 50% in the month followingpurchase. Budgeted materials purchases are as follows:

January $300,000

February $250,000

March $105,000

Other cash receipts:

(a) Proceeds from the sale of marketable securities in Marchwill net $60,000

Other cash disbursements are budgeted asfollows:

(a) Direct labor $45,000 in February and $35,000 in March.

(b) Manufacturing overhead $20,000 in February and $16,000 inMarch.

(c) Selling and administrative expenses are $28,000, whichincludes $1,000

depreciation expense permonth.

(d) Dividends of $70,000 will be paid in February.

(e) Equipment purchase of $75,000 in March.

The company wishes to maintain a minimum cash balance of $50,000at the end of each month. If necessary, the company borrows moneyfrom the bank at 6% interest (.5% monthly rate) to maintain theminimum cash balance. Borrowed money is repaid in months when thereis an excess cash balance (that is, when the cash on hand exceedsthe $50,000 minimum balance).The beginning cash balance on February1 is expected to be $60,000.

Instructions

(a) Prepare schedules for (1) expectedcollections from customers and

(2) expected payments for directmaterial purchases for February and

March.

(b) Prepare a cash budget for Februaryand March in columnar form.

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