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Chapter 22: 16RQ (page 1228)
What are the budgeted financial statements? How do they differ from regular financial statements?
The regular financial statements record real figures.
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How does the master budget for a merchandising company differ from a manufacturing company?
Preparing an operating budget—direct labor budget Baker Company expects to produce 2,050 units in January and 1,994 units in February. Baker budgets five direct labor hours per unit. Direct labor costs average $9 per hour. Prepare Baker’s direct labor budget for January and February.
Patrick works for McGill’s Computer Repair, owned and operated by Frank McGill. As a computer technician, Patrick has grown accustomed to friends and family members asking for assistance with their personal computers. In an effort to increase his income, Patrick started a personal computer repair business that he operates out of his home on a part-time basis, working evenings and weekends. Because Patrick is doing this “on the side” for friends and family, he does not want to charge as much as McGill’s charges its customers. When Frank McGill assigned Patrick the task of developing the budget for his department, Patrick increased the amount budgeted for computer parts. When the budget was approved, Patrick purchased as many parts as the budget allowed, even when they were not needed. He then took the extra parts home to use in his personal business in an effort to keep his costs down and profits up. So far, no one at McGill’s has asked about the parts expense because Patrick has not allowed the actual amount spent to exceed the budgeted amount.
Requirements
1. Why would Patrick’s actions be considered fraudulent?
2. What can a company do to protect against this kind of business risk?
Preparing a financial budget—schedule of cash payments
Marcel Company has the following projected costs for manufacturing and selling and administrative expenses:
January February March Direct materials purchases \( 3,100 \) 3,500 $ 4,800 Direct labor costs 3,300 3,500 3,600 Depreciation on plant 550 550 550 Utilities for plant 650 650 650 Property taxes on plant 200 200 200 Depreciation on office 550 550 550 Utilities for office 250 250 250 Property taxes on office 170 170 170 Office salaries 3,500 3,500 3,500
All costs are paid in month incurred except: direct materials, which are paid in the month following the purchase; utilities, which are paid in the month after incurred; and property taxes, which are prepaid for the year on January 2. The Accounts Payable and Utilities Payable accounts have a zero balance on January 1. Prepare a schedule of cash payments for Marcel for January, February, and March. Determine the balances in Prepaid Property Taxes, Accounts Payable, and Utilities Payable as of March 31.
Preparing a financial budget—schedule of cash receipts, schedule of cash payments, cash budget
Haney Company has provided the following budget information for the first quarter of 2018:
Total sales \(214,000 Budgeted purchases of direct materials 40,300 Budgeted direct labor cost 37,200 Budgeted manufacturing overhead costs:
Variable manufacturing overhead 1,150 Depreciation 1,200 Insurance and property taxes 6,600 Budgeted selling and administrative expenses: Salaries expense 13,000 Rent expense 2,500 Insurance expense 1,100 Depreciation expense 350 Supplies expense 4,280 Additional data related to the first quarter of 2018 for Haney Company:
a. Capital expenditures include \)38,000 for new manufacturing equipment, to be purchased and paid in the first quarter.
b. Cash receipts are 65% of sales in the quarter of the sale and 35% in the quarter following the sale.
c. Direct materials purchases are paid 50% in the quarter purchased and 50% in the next quarter.
d. Direct labor, manufacturing overhead, and selling and administrative costs are paid in the quarter incurred.
e. Income tax expense for the first quarter is projected at \(44,000 and is paid in the quarter incurred.
f. Haney Company expects to have adequate cash funds and does not anticipate borrowing in the first quarter.
g. The December 31, 2017, balance in Cash is \)45,000, in Accounts Receivable is \(23,200, and in Accounts Payable is \)9,000.
Requirements
1. Prepare Haney Company’s schedule of cash receipts from customers and schedule of cash payments for the first quarter of 2018.
2. Prepare Haney Company’s cash budget for the first quarter of 2018.
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