Log in
HomeStudy Guides420,000US230,000

ACG-2071 Study Guide - Midterm Guide: Budget, Operating Budget, Fixed Cost

115 views3 pages
School
FSU
Department
Accounting
Course
ACG-2071
Professor
Ron Pierno

For unlimited access to Study Guides, a Grade+ subscription is required.

Document Summary

Chapter 9: the master budget: planning, directing and controlling operations, participative budgeting many levels of management included in budgeting. A rolling budget is continuously updated so that the next year is always budgeted o lower level closer to action, creating realistic budgets o managers more likely to accept and be motivated. Indirect materials: variable cost o o utilities/indirect labor: mixed cost o depreciation, insurance, taxes: fixed cost: operating expenses budget variable, fixed, budgeted income statement. Sales revenue cogs = gross profit operating expenses = operating income interest expense income tax expense = net. # of unit sales x manufacturing cost per unit = cogs: operating budgets vs financial budgets. 3 cash budgets: cash collections (receipts), cash payments (disbursements), combined cash budget. Combined cash budget budgeted cash collections + beginning cash balance = total cash available budgeted cash payments = ending cash balance before financing.

Get access

Grade+
$40 USD/m
Billed monthly
Grade+
Homework Help
Study Guides
Textbook Solutions
Class Notes
Textbook Notes
Booster Class
10 Verified Answers

Related Documents

ACG-2071
Midterm Exam
Study Guide
ACG-2071 Study Guide - Comprehensive Midterm Guide: Cost Driver, Fixed Cost, Variable Cost
goldox812
ACCT 2230 Chapter Notes - Chapter 9: Variable Cost, Fixed Cost, Income Tax
orchidtortoise910

Related Questions

Completing a comprehensive budgeting problem—manufacturingcompany

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. Arthur’s 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 nextquarter’s 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 nextquarter’s 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 Arthur’s 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 Arthur’s annual financial budget for 2015, includingbudgeted income statement, budgeted

balance sheet, and budgeted statement of cash flows.

Susquehanna Corp. is a manufacturer of earrings. You have been hired as a new management trainee of the company. In the past, the company has done very little in budgeting and at certain times of the year has experienced a shortage of cash. Since you are well trained in budgeting, you have decided to prepare a master budget for the upcoming year. You have gathered the beginning balance sheet and the necessary assumptions for you to create the budget. The company has an agreement with a bank that allows the company to borrow in increments of $10,000 at the beginning of each quarter. The interest is 2% per quarter and for simplicity we will assume that interest is not compounded. At the end of the quarter, the company will pay the bank all of the accumulated interest for the quarter on the loan and as much of the loan as possible (in increments of $10,000), while still retaining at least $40,000 in cash. Insurance for the whole year will be paid in January. Prepare the master budget for the year 2017.
0
Earrings Corp. Earrings Corp.
Balance Sheet Budgeting Assumptions
December 31, 2016
2017 2018
Assets Sales Budget Assumptions Same for all quarters Quarter 1 Quarter 2 Quarter 3 Quarter 4 Quarter 1 Quarter 2
Current assets: Budgeted sales in pairs of earrings 105,000 50,000 60,000 100,000 135,000 65,000
Cash $ 48,000 Selling price per pair $ 23.50
Accounts receivable 224,000 Percentage of sales collected in the quarter of sale 60%
Raw materials inventory (240,000 grams of silver) 120,000 Percentage of sales collected in the quarter after sale 40%
Finished goods inventory (48,000 pairs of earrings) 480,000
Total current assets $ 872,000 Production Budget Assumptions
Plant and equipment: Percentage of next quarter's sales needed in ending finished goods inventory 40%
Land 50,000
Buildings and equipment 650,000 Direct Materials Budget Assumptions
Accumulated depreciation (330,000) Grams of silver per pair of earring 10
Total Plant and equipment, net 370,000 Cost per gram of silver $ 0.50
Total assets $ 1,242,000 Percentage of next quarter's production needs in ending inventory 20%
Percentage of purchases paid in the quarter of purchase 55%
Liabilities and Stockholders' Equity Percentage of purchases paid in the quarter after purchase 45%
Current liabilities:
Accounts payable $ 93,000 Direct Labor Budget Assumptions
Stockholders' equity: Direct labor-hours required per pair 0.20
Common stock $ 700,000 Direct labor cost per hour $ 12.00
Retained earnings 449,000
Total stockholders' equity 1,149,000 Manufacturing Overhead Budget Assumptions
Total liabilities and stockholders' equity $ 1,242,000 Variable manufacturing overhead per direct labor-hour $ 1.50
Fixed manufacturing overhead excluding depreciation per quarter $ 145,950
Depreciation on factory assets per quarter $ 25,000 $ 30,000 $ 32,000 $ 33,000
Selling and Administrative Expense Budget Assumptions
Variable selling and administrative expense per pair $ 2.80
Fixed selling and administrative expense:
Advertising expense per quarter $ 270,000
Executive salaries per quarter $ 105,000
Insurance expense per quarter $ 48,000 (the whole year's insurance will be paid in January)
Rent expense per quarter $ 240,000
Depreciation on non-factory assets per quarter $ 14,000 $ 16,000 $ 17,000 $ 18,000
Cash Budget Assumptions
Minimum cash balance $ 40,000
Equipment purchases $ 20,000 $ 40,000 $ 15,000 $ 10,000
Dividends per quarter $ 15,000
Interest rate per quarter 2%
Loans can be made and repaid in increments of $10,000
Earrings Corp.
Master Budget
For the Year Ended December 31, 2017
Sales Budget Quarter
1 2 3 4 Year
Budgeted unit sales (in pairs) ? ? ? ? ?
Selling price per unit ? ? ? ? ?
Total sales ? ? ? ? ?
Schedule of Expected Cash Collections
Beginning accounts receivable ? ?
First quarter sales ? ? ?
Second quarter sales ? ? ?
Third quarter sales ? ? ?
Fourth quarter sales ? ?
Total cash collections ? ? ? ? ?
Production Budget Quarter
1 2 3 4 Year
Budgeted unit sales ? ? ? ? ?
Add: Desired units of ending finished goods inventory ? ? ? ? ?
Total needs ? ? ? ? ?
Less: Units of beginning finshed goods inventory ? ? ? ? ?
Required production in units ? ? ? ? ?
Direct Materials Budget Quarter
1 2 3 4 Year
Required production in pairs ? ? ? ? ?
Units of raw materials needed per pair ? ? ? ? ?
Units of raw materials needed to meet production ? ? ? ? ?
Add desired units of ending raw materials inventory ? ? ? 214,000 ?
Total units of raw materials needed ? ? ? ? ?
Less units of beginning raw materials inventory ? ? ? ? ?
Units of raw materias to be purchased ? ? ? ? ?
Cost of raw materials per pound ? ? ? ? ?
Cost of raw materials to be purchased ? ? ? ? ?
Schedule of Expected Cash Disbursements for Purchases of Materials
Beginning accounts payable ? ?
First quarter purchases ? ? ?
Second quarter purchases ? ? ?
Third quarter purchases ? ? ?
Forth quarter purchases ? ?
Total cash disbursements for materials ? ? ? ? ?
Direct Labor Budget Quarter
1 2 3 4 Year
Required production in pairs ? ? ? ? ?
Direct labor-hours per pair ? ? ? ? ?
Total direct labor-hours needed ? ? ? ? ?
Direct labor cost per hour ? ? ? ? ?
Total direct labor cost ? ? ? ? ?
Manufacturing Overhead Budget Quarter
1 2 3 4 Year
Budgeted direct labor-hours ? ? ? ? ?
Variable manufacturing overhead rate ? ? ? ? ?
Variable manufacturing overhead ? ? ? ? ?
Fixed manufacturing overhead ? ? ? ? ?
Total manufacturing overhead ? ? ? ? ?
Less depreciation on factory assets ? ? ? ? ?
Cash disbursements for manufacturing overhead ? ? ? ? ?
Total manufacturing overhead ?
Budgeted direct labor-hours ?
Predetermined overhead rate for the year 2017 ?
Ending Finished Goods Inventory Budget (absorption costing basis)
Item Quantity Cost Total
Production cost per case:
Direct materials ? grams ? per gram ?
Direct labor ? hours ? per hour ?
Manufacturing overhead ? hours ? per hour ?
Unit product cost ?
Budgeted finished goods inventory:
Ending finished goods inventory in cases ?
Unit product cost ?
Ending finished goods inventory in dollars ?
Selling and Administrative Expense Budget Quarter
1 2 3 4 Year
Budgeted unit sales ? ? ? ? ?
Variable selling and administrative expense per pair ? ? ? ? ?
Total variable selling and administrative expense ? ? ? ? ?
Fixed selling and administrative expense per quarter:
Advertising ? ? ? ? ?
Executive salaries ? ? ? ? ?
Insurance ? ? ? ? ?
Rent ? ? ? ? ?
Depreciation on non-factory assets ? ? ? ? ?
Total fixed selling and administrative expense ? ? ? ? ?
Total selling and administrative expense ? ? ? ? ?
Adjustment for prepaid insurance #VALUE! #VALUE! #VALUE! #VALUE! #VALUE!
Less depreciation on non-factory assets ? ? ? ? ?
Cash disbursements for selling and administrative expense ? ? ? ? ?
Cash Budget Quarter
1 2 3 4 Year
Beginning cash balance ? ? ? ? ?
Add cash receipts:
Collections from customers ? ? ? ? ?
Total cash available ? ? ? ? ?
Less cash disbursements:
Direct materials ? ? ? ? ?
Direct labor ? ? ? ? ?
Manufacturing overhead ? ? ? ? ?
Selling and administrative ? ? ? ? ?
Equipment purchases ? ? ? ? ?
Dividends ? ? ? ? ?
Total cash disbursements ? ? ? ? ?
Excess (deficiency) of cash available over disbursements ? ? ? ? ?
Financing:
Borrowings (at the beginnings of quarters) $ 50,000.00 $ - ?
Repayments (at end of the year) $ - ? ?
Interest $ (1,000.00) ? ?
Total financing $ 49,000.00 ? ? ? ?
Ending cash balance ? ? ? ? ?

Be noted the required is to June 2016 Not December 2016.

You have just been hired as a new management Accountant by SaudiJewellery, a distributor of earring to various retail outletslocated in shopping malls across the country. In the past, thecompany has done very little in the way of budgeting and at certaintimes of the year has experienced a shortage of cash.

Since you are well trained in budgeting, you have decided toprepare a master budgets for the Fourth quarter of 2016 in order toshow management the benefits that can be gained from an integratedbudgeting program. To this end, you have worked with accounting andother areas to gather the information assembled below.
The company sells many styles of earrings, but all are sold for thesame price- $10 per pair. Actual sales of earrings for the lastthree months and budgeted sales for the next six months follow (inpairs of earrings):

Recent and forecast sales ( in units)

January (actual)... 20,800
February (actual)... 26,000
March (actual)... 40,000
April (budget)... 65,000
May (budget)... 100,000
June (budget)... 50,000

July (budget)... 30,000

August (budget ... 28,000

September (budget) 25,000


The concentration of sales before and during May is due to MothersDay.


The concentration of sales before and during May is due toMother's Day.

Balance sheet at September 30, 2016

Assets Cash 74,000

Accounts receivable 346,000

Inventory 104,000

Prepaid insurance 21,000

Property and equipment (net) 950,000

Total assets $1,495,000

Liabilities and Stockholders' Equity

Accounts payable $100,000

Dividends payable 15,000

Capital stock 800,000

Retained earnings 580.000

Total liabilities & stockholders' equity $1.495.000

All sales are on credit. The collection of sales is asfollows:

20% of a month's sales are collected in the month of sale.

70% is collected in the following month, and the remaining

10% is collected in the second month following sale.

Bad debts have been negligible.

Additional information: Cost to buy a pair of earrings fromsuppliers is S4 Desired ending inventory at the end of each monthis 40% of the cost of goods sold in the following month.

Payment for purchases is as follows:

One-half of a month's purchases is paid for in the month ofpurchase; the other half is paid for in the following month.

Monthly operating expenses for the company are given below:

Variable monthly expenses:

Sales commissions 4% of month's sales paid as incurred

Fixed monthly expenses paid as incurred:

Advertising 200,000

Rent 18,000

Salaries 106,000

Utilities 7,000

Depreciation 14,000

Insurance is paid on an annual basis, in November of each year$36000 was paid on 1st of nov last year (i.e., $3000 permonth).

The company plans to purchase $16,000 in new equipment duringMay and $40,000 in new equipment during June; both purchases willbe for cash

The company declares dividends of $15,000 each quarter, payablein the first month of the following quarter.

The company maintains a minimum cash balance of $50,000. Allborrowing is done at the beginning of a month and any repaymentsare made at the end of a month.

The company has an agreement with a bank that allows the companyto borrow in increments of $1,000 at the beginning of each month.The interest rate on these loans is 1% per month and for simplicitywe will assume that interest is not compounded. At the end of thequarter, the company would pay the bank all of the accumulatedinterest on the loan and as much of the loan as possible (inincrements of $1,000), while still retaining at least $50,000 incash.

Required: Prepare a master budget for the three-month periodending December 31, 016.

Include the following detailed budgets: a. A sales budget, bymonth and in total N b. A schedule of expected cash collectionsfrom sales, by month and in total. c. A merchandise purchasesbudget in units and in dollars. Show the budget by month and intotal. A schedule of expected cash disbursements for merchandisepurchases, by month and in total.

2. A cash budget. Show the budget by month and in total.Determine any borrowing that would be needed to maintain theminimum cash balance of $50,000. 3. A budgeted income statement forthe three-month period ending June 30 2014. Use the contributionapproach.

4. A budgeted balance sheet as of June 30, 2014.

5. Based on the master budget that you prepared for the fourthquarter of 2016, what would you expect the results to be for thefourth quarter of the year.

6: Define strategic plan, long range plan, capital budgets and amaster budget.

7. Briefly explain the major benefits of budgets 8. Explain thepotential problems in implementing budgets g. Differentiate betweenan operating budget and a financial budget.