Budgets

1.      Walker Company prepares monthly budgets. The current budget plans for a September ending inventory of 38,000 units. Company policy is to end each month with merchandise inventory equal to a specified percent of budgeted sales for the following month. Budgeted sales and merchandise purchases for the next three months follow.

Sales (Units)

Purchases (Units)

  July

210,000

232,000

  August

320,000

318,000

  September

310,000

286,000

2.  Use the following information to prepare the July cash budget for Acco Co. It should show expected cash receipts and cash disbursements for the month and the cash balance expected on July 31.

a.

Beginning cash balance on July 1: $77,000.

b.

Cash receipts from sales: 35% is collected in the month of sale, 50% in the next month, and 15% in the second month after sale (uncollectible accounts are negligible and can be ignored). Sales amounts are: May (actual), $1,800,000; June (actual), $1,400,000; and July (budgeted), $1,400,000.

c.

Payments on merchandise purchases: 90% in the month of purchase and 10% in the month following purchase. Purchases amounts are: June (actual), $440,000; and July (budgeted), $760,000.

d.

Budgeted cash disbursements for salaries in July: $200,000.

e.

Budgeted depreciation expense for July: $14,000.

f.

Other cash expenses budgeted for July: $190,000.

g.

Accrued income taxes due in July: $100,000.

h. Bank loan interest due in July: $6,000.

·         Calculation of cash receipts from sales

·         Calculation of cash payments for merchandise

·         Cash budget

3. Following information relates to Acco Co.

a.

Beginning cash balance on July 1: $35,000.

b.

Cash receipts from sales: 27% is collected in the month of sale, 50% in the next month, and 23% in the second month after sale (uncollectible accounts are negligible and can be ignored). Sales amounts are: May (actual), $1,204,000; June (actual), $840,000; and July (budgeted), $980,000.

c.

Payments on merchandise purchases: 54% in the month of purchase and 46% in the month following purchase. Purchases amounts are: June (actual), $301,000; and July (budgeted), $600,000.

d.

Budgeted cash disbursements for salaries in July: $147,700.

e.

Budgeted depreciation expense for July: $8,400.

f.

Other cash expenses budgeted for July: $105,000.

g.

Accrued income taxes due in July: $80,000 (related to June).

h.

Bank loan interest paid July 31: $4,620.

Additional Information:

a.

Cost of goods sold is 40% of sales.

b.

Inventory at the end of June is $56,000 and at the end of July is $264,000.

c.

Salaries payable on June 30 are $35,000 and are expected to be $28,000 on July 31.

d.

The equipment account balance is $1,120,000 on July 31. On June 30, the accumulated depreciation on equipment is $196,000.

e.

The $4,620 cash payment of interest represents the 1% monthly expense on a bank loan of $462,000.

f.

Income taxes payable on July 31 are $98,784, and the income tax rate applicable to the company is 30%.

g.

The only other balance sheet accounts are: Common Stock, with a balance of $439,260 on June 30; and Retained Earnings, with a balance of $750,400 on June 30.

Prepare a budgeted income statement for the month of July and a budgeted balance sheet for July 31.

4.  Tempo Company's fixed budget for the first quarter of calendar year 2013 reveals the following.

  Sales (14,000 units)

$

2,968,000

  Cost of goods sold

       Direct materials

$

337,540

       Direct labor

589,680

       Production supplies

371,140

       Plant manager salary

137,540

1,435,900

  Gross profit

1,532,100

  Selling expenses

       Sales commissions

119,840

       Packaging

205,380

       Advertising

100,000

425,220

  Administrative expenses

       Administrative salaries

187,540

       Depreciation—office equip.

157,540

       Insurance

127,540

       Office rent

137,540

610,160

  Income from operations

$

496,720

Prepare flexible budgets that show variable costs per unit, fixed costs, and three different flexible budgets for sales volumes of 12,000, 14,000, and 16,000 units. (Round cost per unit to 2 decimal places.)

5.  Solitaire Company’s fixed budget performance report for June follows. The $638,000 budgeted expenses include $599,720 variable expenses and $38,280 fixed expenses. Actual expenses include $50,280 fixed expenses.

Fixed Budget

Actual Results

Variances

  Sales (in units)

8,500

10,900

  Sales (in dollars)

$

850,000

$

1,090,000

$

240,000

 F

  Total expenses

638,000

765,600

127,600

 U

  Income from operations

$

212,000

$

324,400

$

112,400

 F

Prepare a flexible budget performance report showing any variances between budgeted and actual results. List fixed and variable expenses separately. (Do not round intermediate calculations.)

6. Bay City Company’s fixed budget performance report for July follows. The $440,000 budgeted expenses include $300,000 variable expenses and $140,000 fixed expenses. Actual expenses include $130,000 fixed expenses.

Fixed Budget

Actual Results

Variances

  Sales (in units)

6,000

4,900

  Sales (in dollars)

$

480,000

$

436,100

$

43,900

 U

  Total expenses

440,000

406,000

34,000

 F

  Income from operations

$

40,000

$

30,100

$

9,900

 U

  
 Prepare a flexible budget performance report that shows any variances between budgeted results and actual results. List fixed and variable expenses separately. (Do not round intermediate calculations.)