Question

Exercise 8-1 Schedule of Expected Cash Collections [LO8-2]

Silver Company makes a product that is very popular as a Mother’s Day gift. Thus, peak sales occur in May of each year, as shown in the company’s sales budget for the second quarter given below:

	April	May	June	Total
Budgeted sales (all on account)	$440,000	$640,000	$220,000	$1,300,000

From past experience, the company has learned that 30% of a month’s sales are collected in the month of sale, another 60% are collected in the month following sale, and the remaining 10% are collected in the second month following sale. Bad debts are negligible and can be ignored. February sales totaled $370,000, and March sales totaled $400,000.

1. Prepare a schedule of expected cash collections from sales, by month and in total, for the second quarter.

2. What is the accounts receivable balance on June 30th?

Down Under Products, Ltd., of Australia has budgeted sales of its popular boomerang for the next four months as follows:

	Unit Sales
April		62,000
May		80,000
June		102,000
July		86,000

The company is now in the process of preparing a production budget for the second quarter. Past experience has shown that end-of-month inventory levels must equal 10% of the following month’s unit sales. The inventory at the end of March was 6,200 units.

Required:

Prepare a production budget by month and in total, for the second quarter.

Three grams of musk oil are required for each bottle of Mink Caress, a very popular perfume made by a small company in western Siberia. The cost of the musk oil is $1.90 per gram. Budgeted production of Mink Caress is given below by quarters for Year 2 and for the first quarter of Year 3:

	Year 2					Year 3
	First	Second	Third	Fourth		First
Budgeted production, in bottles	68,000	98,000	158,000	108,000		78,000

Musk oil has become so popular as a perfume ingredient that it has become necessary to carry large inventories as a precaution against stock-outs. For this reason, the inventory of musk oil at the end of a quarter must be equal to 20% of the following quarter’s production needs. Some 40,800 grams of musk oil will be on hand to start the first quarter of Year 2.

Required:

Prepare a direct materials budget for musk oil, by quarter and in total, for Year 2.

Exercise 8-15 Direct Labor and Manufacturing Overhead Budgets [LO8-5, LO8-6]

The Production Department of Hruska Corporation has submitted the following forecast of units to be produced by quarter for the upcoming fiscal year:

	1st Quarter	2nd Quarter	3rd Quarter	4th Quarter
Units to be produced	11,700	10,700	12,700	13,700

Each unit requires 0.25 direct labor-hours and direct laborers are paid $15.00 per hour.

In addition, the variable manufacturing overhead rate is $1.80 per direct labor-hour. The fixed manufacturing overhead is $97,000 per quarter. The only noncash element of manufacturing overhead is depreciation, which is $37,000 per quarter.

Required:

1. Calculate the company’s total estimated direct labor cost for each quarter of the upcoming fiscal year and for the year as a whole.

2&3. Calculate the company’s total estimated manufacturing overhead cost and the cash disbursements for manufacturing overhead for each quarter of the upcoming fiscal year and for the year as a whole.

Weller Company's budgeted unit sales for the upcoming fiscal year are provided below:

	1st Quarter	2nd Quarter	3rd Quarter	4th Quarter
Budgeted unit sales	19,000	24,000	18,000	17,000

The company’s variable selling and administrative expense per unit is $1.80. Fixed selling and administrative expenses include advertising expenses of $12,000 per quarter, executive salaries of $38,000 per quarter, and depreciation of $18,000 per quarter. In addition, the company will make insurance payments of $5,000 in the first quarter and $5,000 in the third quarter. Finally, property taxes of $6,200 will be paid in the second quarter.

Required:

Prepare the company’s selling and administrative expense budget for the upcoming fiscal year. (Round "Per Unit" answers to 2 decimal places.)

Garden Depot is a retailer that is preparing its budget for the upcoming fiscal year. Management has prepared the following summary of its budgeted cash flows:

	1st Quarter		2nd Quarter		3rd Quarter		4th Quarter
Total cash receipts	$	210,000	$	360,000	$	240,000	$	260,000
Total cash disbursements	$	281,000	$	251,000	$	241,000	$	261,000

The company’s beginning cash balance for the upcoming fiscal year will be $26,000. The company requires a minimum cash balance of $10,000 and may borrow any amount needed from a local bank at a quarterly interest rate of 3%. The company may borrow any amount at the beginning of any quarter and may repay its loans, or any part of its loans, at the end of any quarter. Interest payments are due on any principal at the time it is repaid. For simplicity, assume that interest is not compounded.

Required:

Prepare the company’s cash budget for the upcoming fiscal year. (Cash deficiency, repayments and interest should be indicated by a minus sign.)

Gig Harbor Boating is the wholesale distributor of a small recreational catamaran sailboat. Management has prepared the following summary data to use in its annual budgeting process:

Budgeted unit sales		800
Selling price per unit	$	2,120
Cost per unit	$	1,390
Variable selling and administrative expense (per unit)	$	65
Fixed selling and administrative expense (per year)	$	500,000
Interest expense for the year	$	28,000

Required:

Prepare the company’s budgeted income statement for the year.

Problem 8-19 Cash Budget; Income Statement; Balance Sheet [LO8-2, LO8-4, LO8-8, LO8-9, LO8-10]

Minden Company is a wholesale distributor of premium European chocolates. The company’s balance sheet as of April 30 is given below:

Minden Company Balance Sheet April 30
Assets
Cash	$	16,500
Accounts receivable		67,000
Inventory		32,000
Buildings and equipment, net of depreciation		249,000
Total assets	$	364,500
Liabilities and Stockholders’ Equity
Accounts payable	$	68,750
Note payable		20,500
Common stock		180,000
Retained earnings		95,250
Total liabilities and stockholders’ equity	$	364,500

The company is in the process of preparing a budget for May and has assembled the following data:

1. Sales are budgeted at $241,000 for May. Of these sales, $72,300 will be for cash; the remainder will be credit sales. One-half of a month’s credit sales are collected in the month the sales are made, and the remainder is collected in the following month. All of the April 30 accounts receivable will be collected in May.

2. Purchases of inventory are expected to total $191,000 during May. These purchases will all be on account. Forty percent of all purchases are paid for in the month of purchase; the remainder are paid in the following month. All of the April 30 accounts payable to suppliers will be paid during May.

3. The May 31 inventory balance is budgeted at $86,000.

4. Selling and administrative expenses for May are budgeted at $76,200, exclusive of depreciation. These expenses will be paid in cash. Depreciation is budgeted at $5,300 for the month.

5. The note payable on the April 30 balance sheet will be paid during May, with $170 in interest. (All of the interest relates to May.)

6. New refrigerating equipment costing $6,600 will be purchased for cash during May.

7. During May, the company will borrow $27,000 from its bank by giving a new note payable to the bank for that amount. The new note will be due in one year.

Required:

1. Calculate the expected cash collections from customers for May.

2. Calculate the expected cash disbursements for merchandise purchases for May.

3. Prepare a cash budget for May.

4. Prepare a budgeted income statement for May.

5. Prepare a budgeted balance sheet as of May 31.

Answer 1

Answer to Exercise 8-1: