January 10,000 units February 15,000 units. 15,000 units

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Albert Aldous Little
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1 In Class #9.1 Prepare the sales budget Royal Company is preparing budgets for the quarter ending June 30 th. Actual sales for January to March are as follows: Month Sales Budget January 10,000 units February 15,000 units March 12,000 units Budgeted sales for the next five (5) months are: Month April May June July August Sales Budget 20,000 units 50,000 units 30,000 units 25,000 units 15,000 units The selling price per unit is $10 per unit. All sales are on account. Royal s usual collection pattern is as follows: 70% collected in the month of sale, 25% collected in the month following sale, and 5% uncollectible. Actual accounts receivable at April 1 st is $30,000 (net of allowance for doubtful accounts). Required 1: Prepare the sales budget for the quarter ending June 30th. Required 2: Prepare the cash collections budget for the quarter ended June 30 th. What amount is in accounts receivable at June 30 th?

2 In Class #9.2 Prepare the production budget Continuing from the previous example, Royal Company is preparing the production budget for the quarter ending June 30 th. The March 31 actual inventory is consistent with budget. Management wants an ending finished goods inventory each month that is equal to 20% of the next month s budgeted sales. Required Prepare the production budget for the quarter. What is the budgeted inventory at June 30 th?

3 In Class #9.3 Prepare the direct materials purchases budget Continuing from the previous example, Royal Company is preparing the direct material purchases budget for the quarter ending June 30 th. Each unit of finished goods requires five (5) kilograms of raw materials. Each kilogram costs $0.40. On March 31 the actual ending direct materials inventory was consistent with budget. Management wants to have direct materials inventory at the end of the month equal to 10% of the next month s production requirements. All direct materials purchases are on account. Royal s usual payment pattern is as follows: 50% paid in the month of purchase, 50% paid in the month following purchase The March 31, direct materials accounts payable balance is $12,000. Required 1: Prepare a direct materials purchases budget for the quarter ended June 30 th. What is the direct materials inventory balance at June 30 th? Required 2: Prepare the cash disbursements budget for the quarter ended June 30 th. What amount is in accounts payable at June 30 th?

4 In Class #9.4 - Prepare a direct labour budget Continuing from the previous example, Royal Company is preparing budgets for the quarter ending June 30 th. Each unit of product (finished goods) requires 0.05 hours (3 minutes) of direct labour. Workers are paid $10 per hour and there is no overtime pay. Direct labour is paid in the month incurred. Required Prepare the direct labour budget for the quarter ended June 30 th.

5 In Class #9.5 - Prepare a manufacturing overhead budget Continuing from the previous example, Royal Company is preparing budgets for the quarter ending June 30 th. The variable manufacturing overhead rate is $20 per direct labour hour. Fixed manufacturing overhead is $50,500 per month and includes $20,000 of depreciation of plant assets. All manufacturing overhead is paid in the month incurred. Required: Prepare the manufacturing overhead budget for the quarter ended June 30 th.

6 In Class #9.6 - Prepare a selling & administrative budget for the year Continuing from the previous example, Royal Company is preparing budgets for the quarter ending June 30 th. Selling and administrative expenses budget is divided into variable and fixed components. Selling and administrative expenses do not include bad debts expense or interest. The variable selling and administrative expenses are $0.50 per unit sold. The fixed selling and administrative expenses are $70,000 per month. The fixed selling and administrative expenses include $10,000 in depreciation. Selling and administrative expenses are paid in the month incurred. Required Prepare the selling and administrative budget for the quarter ended June 30 th.

7 In Class #9.7 - Prepare a finished goods budget for the year Continuing from the previous example, Royal Company is preparing budgets for the quarter ending June 30 th. Manufacturing overhead is applied to units of product on the basis of direct labour hours. Product costs for this quarter are consistent with the MOH applied in the prior quarter. Required 1: Prepare the product cost per unit (using MOH applied) using absorption costing for the quarter ended June 30th. Required 2: Calculate the ending budgeted finished goods inventory balance at June 30 th. Required 3: Calculate the MOH applied each month as well as the MOH over/under-applied for each month.

8 In Class #9.8 - Prepare a cash budget Continuing from the previous example, Royal Company is preparing budgets for the quarter ending June 30 th. Royal maintains a line of credit to a maximum of $75,000. The interest rate is 16% per annum calculated monthly and is paid the 1 st day of the following month. Royal maintains a minimum cash balance of $30,000. Any monies taken out of the line of credit are removed on the first day of the month. Any monies repaid to the line of credit are paid on the last day of the month. A cash dividend of $49,000 was paid in April. Equipment was purchased in May and June, for $143,700 and $48,300 respectively. The amounts were paid in cash. Royal has an April 1 cash balance of $40,000. Required Prepare a cash budget for the quarter ended June 30 th.

9 In Class #9.9 - Prepare a budgeted Income Statement and Balance Sheet Continuing from the previous example, Royal Company is preparing budgets for the quarter ending June 30 th. Additional account information at March 31 st : Equipment - $175,000. Land - $50,000. Common shares - $200,000. Retained earnings - $108,200. Required 1 Prepare a budgeted income statement for the quarter ended June 30 th. Required 2 Prepare a budgeted balance sheet for June 30 th.

10 In Class # Cash Budget; Income Statement; Balance Sheet The balance sheet of Pixelize, Inc. a distributor of photographic supplies, as of May 31 is given below Pixelize, Inc. Balance Sheet May 31 Assets Cash $8,000 Accounts receivable 72,000 Inventory 30,000 Buildings and equipment, net of depreciation 500,000 Total assets $610,000 Liabilities and Shareholders Equity Accounts payable $90,000 Note payable 15,000 Common shares 420,000 Retained earnings 85,000 Total liabilities and shareholders equity $610,000 Pixelize, Inc. has not budgeted previously, and for this reason it is limiting its master budget planning horizon to just one month ahead namely, June. The company has assembled the following budgeted data relating to June: a. Sales are budgeted at $250,000. Of these sales, $60,000 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 the following month. All of the May 31 accounts receivable will be collected in June. b. Purchases of inventory are expected to total $200,000 during June. These purchases will all be on account. Forty percent of all inventory purchases are paid for in the month of purchase; the remainder are paid in the following month. All of the May 31 accounts payable to suppliers will be paid during June. c. The June 30 inventory balance is budgeted at $40,000. d. Selling and administrative expenses for June are budgeted at $51,000, exclusive of depreciation. These expenses will be paid in cash. Depreciation is budgeted at $2,000 for the month. e. The note payable on the May 31 balance sheet will be paid during June. The company s interest expense for June (on all borrowing) will be $500, which will be paid in cash. f. New warehouse equipment costing $9,000 will be purchased for cash during June. g. During June, the company will borrow $18,000 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: Prepare a cash budget for June. Support your budget with a schedule of expected cash collections from sales and a schedule of expected cash disbursements for inventory purchases.

11 Required 2: Prepare a budgeted income statement for June. Use the absorption costing income statement format as shown in Schedule 9. Required 3: Prepare a budgeted balance sheet as at June 30.

12 In Class # Cash Budget; Income Statement The forecasted balance sheet of The Merchandising Company for December 31, 2011, is as follows: Cash $15,600 Accounts receivable $121,600 Inventory $51,200 Fixed assets (net of accumulated amortization) $138,000 Total assets $326,400 Accounts payable $264,000 Common shares 40,000 Retained earnings $22,400 Total liabilities $326,400 Information for the budget and 2012: Projected sales are $352,000 for January and $384,000 for February. All sales are on credit. The gross profit percentage is 25 percent. Cash collections for sales are estimated to be 50 percent during the month of sale, and 48 percent during the following month. The remaining 2 percent is uncollectible. Uncollectible amounts are immediately removed from sales / accounts receivable and written off to bad debt. Purchases of inventory (merchandise) each month are 75 percent of the next month s projected sales. All merchandise purchases and are paid in full during the month following purchase. Amortization is $16,000 per month. Other expenses, $52,800 per month, are paid in cash during the month in which they are incurred. The company does not need to maintain a minimum balance in their bank account, although they cannot drop below zero. The Merchandising Company maintains a line of credit to a maximum of $250,000. The interest rate is 12% per annum calculated monthly and is paid the 1 st day of the following month. Any monies taken out of the line of credit is removed on the first day of the month. Any monies repaid to the line of credit are repaid on the last day of the month. A cash dividend of $4,000 was paid in February, Required 1: Prepare a cash budget for January, Required 2: Prepare a budgeted Income Statement for January 2012.

Budgeting planning. Breakers, Inc. is preparing budgets for the quarter ending June 30. Budgeted sales for the next five months are:

Budgeting planning. Breakers, Inc. is preparing budgets for the quarter ending June 30. Budgeted sales for the next five months are: Budgeting planning We use budgets as a target that we hope or expect to achieve. These are financial and non-financial in nature, but typically offer some quantitative measure We will begin by talking