Copies of errors and corrections for your review

CHAPTER 22 – Part 1

THE MASTER BUDGET AND RESPONSIBILITY ACCOUNTING

Read chapter 22

Workpaper Problem- Part 1: (10 pts)

You will be completing a master budget in a continuing problem through this unit and the next using Excel. An example of the master budget format is found in the Summary Problem 22-1 on pages 1061-1062 and continued in the Summary Problem 22-2 on pages 1069-1072. We will cover this in TWO UNITS.

Remember to include proper headings for all schedules, rows and columns (yours will not be "revised" though). As always, some of the given information may be a little different than the Summary Problem. You will need to make the best decision on how to handle that.

You may click on Quik-Flik Comprehensive Problem (Unit 8 Master Budget Project Financial Information) and print it out to get the whole assignment. You are to prepare the following budgets for the second quarter (April, May, June)...

Part 1: The Operating Budget (Due this week)

Sales Budget Inventory, Purchases, and Cost of Goods Sold Budget Operating Expenses Budget Budgeted Income Statement

Hint: when preparing your Income Statement, the Interest Expense is $3,018. This will not be calculated until Part 2, but you should put that in as a given.

Part 2: The Financial Budgets (This will not be due until the subsequent week)

Budgeted Cash Collections from Customers Budgeted Cash Payments for Purchases Budgeted Cash Payments for Operating Expense Cash Budget Budgeted Balance Sheet Budgeted Statement of Cash Flows

Please remember to put your name on your assignment.

I will be providing feedback on Part 1 so that if there are any errors in your Operating Budgets, you will know what they are so that you can go forward in Part 2 using the correct Operating Budget amounts. If you want to start on Part 2 and I have not graded your Part 1, please send me an email asking that I complete your Part 1 grade because you are ready to go on and I will be happy to do that.

NO EXAM THIS UNIT - There will be an exam on all of chapter 22 in the subsequent unit.

 

Quik-Flik  Company Master  Budget Project

You have just been hired as a new management trainee by Quik-Flik Company, a nationwide distributor of a revolutionary new cigarette lighter. The company has an exclusive franchise on distribution of the lighter, and sales have grown so rapidly over the last few years that it has become necessary to add new members to the management team. You have been given direct responsibility for all planning and budgeting. Your first assignment is to prepare a master budget for the next three months, starting April 1, 2006. You are anxious to make a favorable impression on the president and have assembled the information below.

Sales data: The lighters are forecast to sell for $8 each. Recent forecast and/or actual sales in units are:

January (actual) 20,000	April - 35,000	July - 40,000
February (actual) 24,000	May - 45,000	August - 36,000
March (actual) 28,000	June - 60,000	September - 32,000

All sales are on credit (no cash sales). When preparing the Sales Budget, instead of showing the cash sales, credit sales and total sales, you will be creating a sales budget illustrating the budgeted units, the price per unit and then the total credit sales estimated. Just a reminder, you are only doing three months and then the total for the quarter.

Inventory, Purchases and Cost of Goods Sold:

The large buildup in sales before and during the month of June is due to Father's Day. The lighters cost the company $5 each. Ending inventories are supposed to equal 90 percent of the next month's sales in units. Remember, the desired ending inventory value is always expressed in terms of the cost ($5) of the lighters.

Operating Expenses:

The company's monthly operating expenses are given below: Variable:         Sales Commissions ............  $1 per lighter Fixed:         Wages and salaries...............     22,000         Utilities....................................      14,000         Insurance expired...................        1,200         Depreciation...........................         1,500          Miscellaneous........................         3,000

Income Statement:

For purposes of completing part 1 - the interest expense from the revised cash budget will be a given.

Interest Expense for the quarter is $3,018. 

Cash Collections:

All sales are on credit, with no discount, and payable within 15 days. The company has found, however, that only 25% of a month's sales are collected by month-end. An additional 50% is collected in the month following, and the remaining 25% is collected in the second month following. Bad debts have been negligible.

Cash payments for purchases:

Purchases are paid for as follows: 50% in the month of the purchase and the remaining 50% in the following month.

Cash payments for operating expenses:

All operating expenses are paid during the month, in cash, with the exception of depreciation and insurance expired.

Cash Budget:

 New fixed assets will be purchased during May for $25,000 cash. The company declares dividends of $12,000 each quarter, payable in the first month of the following quarter. The company desires a minimum ending cash balance each month of $10,000.(If borrowing is required, borrow just enough to get to an ending cash balance of $10,000 and no more.) The company can borrow money from its bank at 12% annual interest. All borrowing must be done at the beginning of a month, and repayments must be made at the end of a month. Repayments of principal must be in round $1,000 amounts. (Principal and interest will not be in $1,000 amounts. Remember when calculating interest on each borrowing to include the month it was borrowed plus the month(s) that balance was outstanding.) Interest is computed and paid at the end of each quarter on all loans outstanding during the quarter. Round all interest payments to the nearest whole dollar. Compute interest on whole months (1/12, 2/12 and so forth). The company wishes to use any excess cash to pay loans off as rapidly as possible.

Balance Sheet:

The company's balance sheet at March 31 is given below:

Assets:
Cash	$     14,000
Accounts Receivable $48,000 February sales; 25% of the total remains,  $168,000 March sales; 75% of the total remains	216,000
Inventory      (31,500 units)	157,500
Unexpired insurance	14,400
Fixed assets, net of depreciation	172,700
Total Assets	$   574,600
Liabilities and Stockholders' Equity:
Accounts payable,  (purchases)	$      85,750
Dividends payable	12,000
Short-term notes payable	-0-
Capital stock, no par	300,000
Retained earnings	176,850
Total Liabilities and Stockholders' Equity	$    574,600

Income taxes are the responsibility of corporate headquarters, so you can ignore tax for budgeting purposes.

You are to complete a master budget for the Quik-Flik Company for the second quarter April - June, 2006 in two parts. 

Part 1: An example of the operating budget format I expect you to use can be found in the Mid-Chapter Summary Problem.

Part 2:  An example of the financial budget format I expect you to use can be found in the End-of-Chapter Summary Problem.

I expect all headings to be included for each schedule and good descriptions to precede the amounts in the columns. Some of the given information will be a little different than the summary problem, however, you will need to make decisions on the best approach to handle that.

 

 

 

CHAPTER 22-Part 2

THE MASTER BUDGET AND RESPONSIBILITY ACCOUNTING

Read chapter 22

Workpaper Problem: (15 pts)

In the last unit you prepared the Operating Budgets for Quik-Flik. You will be continuing with this master budget using excel. An example of this section of the master budget format is found in the Summary Problem 22-2 on pages 1069-1072.

Remember to include proper headings for all schedules, rows and columns (yours will not be "revised" though). Some of the given information may be a little different than the Summary Problem. You will need to make the best decision on how to handle that, but follow the hints below.

Your assignment is to prepare the following budgets for the second quarter (April, May, June)....

Part 2: The Financial Budgets Budgeted Cash Collections from Customers Budgeted Cash Payments for Purchases Budgeted Cash Payments for Operating Expense Cash Budget Budgeted Balance Sheet Budgeted Statement of Cash Flows

Please remember to put your name on your assignment. Read my comments from the grade book on Part 1 and be sure to use corrected figures for the Operating Budget as you go forward.

Here are a few hints:

1. When figuring the April collections, notice that just 25% of the current months sales (April sales) will be collected in April, along with 50% of the prior months sales (March sales) , and 25% of the month before that (Feb).

2. The amount borrowed in April should be $47,750 (the exact amount needed to get to the $10,000 cash balance) and will be repaid in June. When calculating the interest on the April money borrowed, the time will be 3/12 because the money is borrowed at the beginning of April and repaid at the end of June, hence 3/12. Next, again, borrow just enough to get to a cash balance of $10,000, and once again this amount will be repaid in June. To calculate the interest, (p x r x t), the time will be 2/12 on the May financing . Keep in mind, the money is borrowed at the beginning of May and repaid at the end of June. In the example in your book, the borrowing was always at the end of the month and the borrowing was in multiples of $1000. The instructions for this part are just a little different than the example in your text.

3. When writing your balance sheet, you will find it easier to determine the A/R balance from the Cash Collections budget rather than the Sales Budget. See the March 31 balance sheet detail of Accounts Receivable and follow that.

4. Do your best and if the balance sheet does not reconcile don’t begin to change everything around, it’s better to turn it in as you have it rather than manipulate things just to balance. I give points on everything you supply to me, don't just quit.