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Chapter 22: 8SE (page 1229)

Preparing an operating budget—cost of goods sold budget Butler Company expects to sell 1,650 units in January and 1,550 units in February. The company expects to incur the following product costs:

Direct materials cost per unit \( 85

Direct labor cost per unit 60

Manufacturing overhead cost per unit 55

The beginning balance in Finished Goods Inventory is 250 units at \)200 each for a total of $50,000. Butler uses FIFO inventory costing method. Prepare the cost of goods sold budget for Butler for January and February.

Short Answer

Expert verified

The budgeted cost of goods sold is $380,000 and $310,000 for January and February respectively.

Step by step solution

01

Meaning of cost of goods sold budget

A budget that estimates the cost of goods sold of projected sales is known as the cost of goods sold budget.

02

Preparation of cost of goods sold budget for January and February

Particulars

January

February

Beginning inventory, 200 units

$50,000

Tablets produced and sold in 2021 @ $200 each (1,650 and 1,550 units is January and February)

$330,000

$310,000

Total Budgeted Cost of Goods Sold

$380,000

$310,000

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Most popular questions from this chapter

Using sensitivity analysis in budgeting

Refer to the Victors schedule of cash receipts from customers that you prepared in Short Exercise S22-15. Now assume that Victors’s sales are collected as follows:

40% in the month of the sale

20% in the month after the sale

39% two months after the sale

1% never collected

Prepare a revised schedule of cash receipts for January and February

Preparing a financial budget—schedule of cash receipts and schedule of cash payments

Agua Cool is a distributor of bottled water. For each of the items, compute the amount of cash receipts or payments Agua Cool will budget for September. The solution to one item may depend on the answer to an earlier item.

a. Management expects to sell equipment that cost \(14,000 at a gain of \)7,000. Accumulated depreciation on this equipment is \(5,000.

b. Management expects to sell 7,100 cases of water in August and 9,000 cases in September. Each case sells for \)14. Cash sales average 20% of total sales, and credit sales make up the rest. Three-fourths of credit sales are collected in the month of the sale, with the balance collected the following month.

c. The company pays rent and property taxes of $4,500 each month. Commissions and other selling expenses average 30% of sales. Agua Cool pays one-half of commissions and other selling expenses in the month incurred, with the balance paid the following month.

: Completing a comprehensive budgeting problem—merchandising company

Belton Printing Company of Baltimore has applied for a loan. Its bank has requested a budgeted income statement for the month of April 2018 and a balance sheet at April 30, 2018. The March 31, 2018, balance sheet follows:

As Belton Printing’s controller, you have assembled the following additional information:

a. April dividends of \(7,000 were declared and paid.

b. April capital expenditures of \)17,000 budgeted for cash purchase of equipment.

c. April depreciation expense, \(800.

d. Cost of goods sold, 55% of sales.

e. Desired ending inventory for April is \)24,800.

f. April selling and administrative expenses includes salaries of \(29,000, 20% of which will be paid in cash and the remainder paid next month.

g. Additional April selling and administrative expenses also include miscellaneous expenses of 10% of sales, all paid in April.

h. April budgeted sales, \)86,000, 80% collected in April and 20% in May.

i. April cash payments of March 31 liabilities incurred for March purchases of inventory, \(8,300.

j. April purchases of inventory, \)22,900 for cash and $37,200 on account. Half the credit purchases will be paid in April and half in May

Requirements

1. Prepare the sales budget for April.

2. Prepare the inventory, purchases, and cost of goods sold budget for April.

3. Prepare the selling and administrative expense budget for April.

4. Prepare the schedule of cash receipts from customers for April.

5. Prepare the schedule of cash payments for selling and administrative expenses for April.

6. Prepare the cash budget for April. Assume the company does not use short-term financing to maintain a minimum cash balance.

7. Prepare the budgeted income statement for April.

8. Prepare the budgeted balance sheet at April 30, 2018.

Budgeting types Consider the following budgets and budget types.

Cash Cost of Goods Sold

Flexible Master

Operational Sales

Static Strategic

Which budget or budget type should be used to meet the following needs?

a. Upper management is planning for the next five years.

b. A store manager wants to plan for different levels of sales.

c. The accountant wants to determine if the company will have sufficient funds to pay expenses.

d. The CEO wants to make companywide plans for the next year.

Question: Preparing a financial budget—schedule of cash receipts, schedule cash payments, cash budget

Baxter Company’s budget committee provides the following information: December 31, 2017, account balances:

1. Prepare the schedule of cash receipts from customers for January and February 2018. Assume cash receipts are 80% in the month of the sale and 20% in the month following the sale.

2. Prepare the schedule of cash payments for purchases for January and February 2018. Assume purchases are paid 60% in the month of purchase and 40% in the month following the purchase.

3. Prepare the schedule of cash payments for selling and administrative expenses for January and February 2018. Assume 40% of the accrual for Salaries and Commissions Payable is for commissions and 60% is for salaries. The December 31 balance will be paid in January. Salaries and commissions are paid 30% in the month incurred and 70% in the following month. Rent and income tax expenses are paid as incurred. Insurance expense is an expiration of the prepaid amount.

4. Prepare the cash budget for January and February 2018. Assume no financing took place.
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