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Chapter 22: Q33E (page 1237)

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.

Short Answer

Expert verified

Answer

The total cash receipts and cash payments for the month of September is $136,680 and $36,980 respectively.

Step by step solution

01

Preparation of schedule of cash receipts


August

September

Sale of water cases

$99,400

$126,000

Cash sales (20%)

$19,880

$25,200

Credit sales (80%) 3/4thin the month of sales

$59,640

$75,600

Credit sales (80%) balance in following month

$0

$19,880

Cash from sale of equipment

$0

$16,000

Total cash receipts

$79,520

$136,680

02

Preparation of schedule of cash payments


August

September

Rent and property tax

$4,500

$4,500

Add: Commission and other selling expenses

$9,940

$32,480

Total cash payments

$14,440

$36,980

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Most popular questions from this chapter

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 an operating budget—sales, production, direct materials, direct labor, overhead, COGS, and S&A expense budgets The Irwin Batting Company manufactures wood baseball bats. Irwin’s two primary products are a youth bat, designed for children and young teens, and an adult bat, designed for high school and college-aged players. Irwin sells the bats to sporting goods stores, and all sales are on account. The youth bat sells for \(35; the adult bat sells for \)50. Irwin’s highest sales volume is in the first three months of the year as retailers prepare for the spring baseball season. Irwin’s balance sheet for December 31, 2018, follows:

Other data for Irwin Batting Company for the first quarter of 2019:

a. Budgeted sales are 1,400 youth bats and 3,300 adult bats.

b. Finished Goods Inventory on December 31, 2018, consists of 700 youth bats at \(15 each and 550 adult bats at \)10 each.

c. Desired ending Finished Goods Inventory is 220 youth bats and 300 adult bats; FIFO inventory costing method is used.

d. Direct materials requirements are 40 ounces of wood for youth bats and 70 ounces of wood for adult bats. The cost of wood is \(0.10 per ounce.

e. Raw Materials Inventory on December 31, 2018, consists of 90,000 ounces of wood at \)0.10 per ounce.

f. Desired ending Raw Materials Inventory is 90,000 ounces (indirect materials are insignificant and not considered for budgeting purposes).

g. Each bat requires 0.4 hours of direct labor; direct labor costs average \(26 per hour.

h. Variable manufacturing overhead is \)0.30 per bat.

i. Fixed manufacturing overhead includes \(1,300 per quarter in depreciation and \)14,977 per quarter for other costs, such as insurance and property taxes.

j. Fixed selling and administrative expenses include \(13,000 per quarter for salaries; \)3,500 per quarter for rent; \(1,400 per quarter for insurance; and \)450 per quarter for depreciation. k. Variable selling and administrative expenses include supplies at 1% of sales.

Requirements

1. Prepare Irwin’s sales budget for the first quarter of 2019.

2. Prepare Irwin’s production budget for the first quarter of 2019.

3. Prepare Irwin’s direct materials, direct labor budget, and manufacturing overhead budget for the first quarter of 2019. Round the predetermined overhead allocation rate to two decimal places. The overhead allocation base is direct labor hours.

4. Prepare Irwin’s cost of goods sold budget for the first quarter of 2019.

5. Prepare Irwin’s selling and administrative expense budget for the first quarter of 2019.

Preparing a financial budget—budgeted income statement and balance sheet

Ballentine Company has the following post-closing trial balance on December 31, 2018:

The company’s accounting department has gathered the following budgeting information for the first quarter of 2019:

Budgeted total sales, all on account $ 305,500 Budgeted direct materials to be purchased and used 40,000 Budgeted direct labor cost 12,500 Budgeted manufacturing overhead costs: Variable manufacturing overhead 2,600 Depreciation 800 Insurance and property taxes 1,100 Budgeted cost of goods sold 71,300 Budgeted selling and administrative expenses: Salaries expense7,000 Rent expense 3,500 Insurance expense 2,000 Depreciation expense 350 Supplies expense 3,055 Budgeted cash receipts from customers 263,500 Budgeted income tax expense 44,000 Budgeted purchase and payment for capital expenditures

(additional equipment) 34,000

Additional information:

a. Direct materials purchases are paid 50% in the quarter purchased and 50% in the next quarter.

b. Direct labor, ma following budgeted income statement manufacturing overhead, selling and administrative costs, and income tax expense are paid in the quarter incurred.

c. Accounts payable at December 31, 2018 are paid in the first quarter of 2019. Requirements

1. Prepare Ballentine Company’s budgeted income statement for the first quarter of 2019.

2. Prepare Ballentine Company’s budgeted balance sheet as of March 31, 2019.

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.

How does the master budget for a merchandising company differ from a manufacturing company?
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