___________________________________________________________
CHAPTER 8
QUESTIONS FOR WRITING AND DISCUSSION
1. Budgets are the quantitative expressions of
plans. Budgets are used to translate the
goals and strategies of an organization into
operational terms.
3. The planning and control functions of budgeting can benefit all organizations regardless of size. All organizations need to determine what their goals are and how best to
attain those goals. This is the planning function of budgeting. In addition, organizations
can compare what actually happens with
what was planned to see if the plans are unfolding as anticipated. This is the control
function of budgeting.
4. Budgeting forces managers to plan, provides resource information for decision making, sets benchmarks for control and evaluation,
and improves the functions of
communication and coordination.
5. A master budget is the collection of all individual area and activity budgets. Operating
budgets are concerned with the incomegenerating activities of a firm. Financial
budgets are concerned with the inflows and
outflows of cash and with planned capital
expenditures.
6. The sales forecast is a critical input for building the sales budget. However, it is not necessarily equivalent to the sales budget.
Upon receiving the sales forecast, management may decide that the firm can do
better than the forecast indicates. Consequently, actions may be taken to increase
the sales potential for the coming year (e.g.,
increasing advertising). This adjusted forecast then becomes the sales budget.
7. Yes. All budgets are founded on the sales
budget. Before a production budget can be
created, it must have the planned sales. The
9.
___________________________________________________________
Solutions
Chapter 8
Budgeting for Planning and Controlling
83
1.
Freshaire, Inc.
Sales Budget
For the Year 2008
Mint:
1st Qtr.
2nd Qtr.
3rd Qtr.
4th Qtr.
Total
80,000
$3.00
$240,000
110,000
$3.00
$330,000
124,000
$3.00
$372,000
140,000
$3.00
$420,000
454,000
$3.00
$ 1,362,000
Units
Price
Sales
100,000
$3.50
$350,000
100,000
$3.50
$350,000
120,000
$3.50
$420,000
140,000
$3.50
$490,000
460,000
$3.50
$ 1,610,000
Total sales
$590,000
$680,000
$792,000
$910,000
$ 2,972,000
Units
Price
Sales
Lemon:
2. Freshaire, Inc., will use the sales budget in planning as the basis for the production budget and the succeeding budgets of the master budget. At the end
of the year, the company can compare actual sales against the budget to see
if expectations were achieved.
___________________________________________________________
84
Freshaire, Inc.
Production Budget for Mint Freshener
For the Year 2008
Sales
Des. ending inventory
Total needs
Less: Beginning inventory
Units produced
1st Qtr.
80,000
11,000
91,000
4,000
87,000
2nd Qtr.
110,000
12,400
122,400
11,000
111,400
3rd Qtr.
124,000
14,000
138,000
12,400
125,600
4th Qtr.
140,000
9,000
149,000
14,000
135,000
Total
454,000
9,000
463,000
4,000
459,000
4th Qtr.
140,000
22,000
162,000
28,000
134,000
Total
460,000
22,000
482,000
6,400
475,600
Freshaire, Inc.
Production Budget for Lemon Freshener
For the Year 2008
Sales
Des. ending inventory
Total needs
Less: Beginning inventory
Units produced
1st Qtr.
100,000
20,000
120,000
6,400
113,600
2nd Qtr.
100,000
24,000
124,000
20,000
104,000
3rd Qtr.
120,000
28,000
148,000
24,000
124,000
___________________________________________________________
88
Manning Company
Direct Materials Purchases Budget
For March, April, and May 20XX
Units to be produced
Direct materials per unit
(yards)
Production needs
Desired ending inventory
(yards)
Total needs
Less beginning inventory
Direct materials to be
purchased (yards)
Cost per yard
Total purchase cost
March
20,000
April
60,000
May
100,000
Total
180,000
25
500,000
25
1,500,000
25
2,500,000
25
4,500,000
300,000
800,000
100,000
500,000
2,000,000
300,000
60,000
2,560,000
500,000
60,000
4,560,000
100,000
700,000
$0.30
$210,000
1,700,000
$0.30
$ 510,000
2,060,000
$0.30
$ 618,000
4,460,000
$0.30
$1,338,000
89
Manning Company
Direct Labor Budget
For March, April, and May 20XX
Units to be produced
Direct labor time per
unit (hours)
Total hours needed
Cost per hour
Total direct labor cost
March
20,000
0.04
800
$12
$ 9,600
April
60,000
0.04
2,400
$12
$ 28,800
May
100,000
Total
180,000
0.04
4,000
$12
$ 48,000
0.04
7,200
$12
$ 86,400
___________________________________________________________
811
1.
2.
Sept.
200
15
215
20
195
Oct.
150
18
168
15
153
Nov.
180
25
205
18
187
Dec.
250
10
260
25
235
Oct.
153
1
153
9
162
8
154
Nov.
187
1
187
12
199
9
190
Sept.
195
1
195
8
203
10
193
Sept.
195
5
975
383
1,358
488
870
Sept.
195
3
585
230
815
293
522
Oct.
153
5
765
468
1,233
383
850
Nov.
187
5
935
588
1,523
468
1,055
Oct.
153
3
459
281
740
230
510
Nov.
187
3
561
353
914
281
633
___________________________________________________________
811
1.
Sept.
200
15
215
20
195
Oct.
150
18
168
15
153
Nov.
180
25
205
18
187
Dec.
250
10
260
25
235
Oct.
153
1
153
9
162
8
154
Nov.
187
1
187
12
199
9
190
Sept.
195
1
195
8
203
10
193
Sept.
195
5
975
383
1,358
488
870
Sept.
195
3
585
230
815
293
Oct.
153
5
765
468
1,233
383
850
Nov.
187
5
935
588
1,523
468
1,055
Oct.
153
3
459
281
740
230
Nov.
187
3
561
353
914
281
___________________________________________________________
Concluded
Basket:
Production
Amount/basket (item)
Needed for production
Desired ending inventory
Needed
Less: Beginning inventory
Purchases
Sept.
195
1
195
77
272
98
174
Oct.
153
1
153
94
247
77
170
Nov.
187
1
187
118
305
94
211
3. A direct materials purchases budget for December requires January production which cannot be computed without a February sales forecast.
813
1.
Janzen, Inc.
Cash Receipts Budget
For July
Payments on account:
From May credit sales (0.15 $220,000).................................
From June credit sales (0.60 $230,000) ...............................
From July credit sales (0.20 $210,000).................................
Less: July cash discount (0.02 $42,000) ..............................
Cash receipts ...........................................................................
2.
$ 33,000
138,000
42,000
(840)
$212,160
Janzen, Inc.
Cash Receipts Budget
For August
Payments on account:
From June credit sales (0.15 $230,000) ...............................
From July credit sales (0.60 $210,000).................................
From August credit sales (0.20 $250,000) ...........................
Less: August cash discount (0.02 $50,000).........................
Cash receipts ............................................................................
$ 34,500
126,000
50,000
(1,000)
$209,500
8-16
1
7
___________________________________________________________
1.
Performance Report
Actual
Budgeted Variance
Units produced
1,100
Direct materials cost
Direct labor cost
Total
$15,600
a.
b.
1,000
$11,200
4,400
$14,400
100 F
$10,000a
b
4,000
$1,600 U
$1,200 U
400 U
___________________________________________________________
8-17
Pet-Care Company Overhead Budget For the Coming Year
Activity Level
Formula
Variable costs:
Maintenance
Power
Indirect labor
Total variable costs
Fixed costs:
Maintenance
Indirect labor
Rent
Total fixed costs
Total overhead costs
*BasicDiet: (0.25 100,000)
SpecDiet: (0.30 100,000)
Total DLH
55,000 Hours*
$0.40
0.50
1.60
$22,000
27,500
88,000
$137,500
$17,000
26,500
18,000
61,500
$199,000
25,000
30,000
55,000
___________________________________________________________
2. 10% higher:
Pet-Care Company
Overhead Budget
For the Coming Year
Activity Level
60,500 Hours*
Formula
Variable costs:
Maintenance
Power
Indirect labor
Total variable costs
Fixed costs:
Maintenance
Indirect labor
Rent
Total fixed costs
Total overhead costs
$0.40
0.50
1.60
$24,200
30,250
96,800
$151,250
$17,000
26,500
18,000
61,500
$212,750
Formula
Variable costs:
Maintenance
Power
Indirect labor
Total variable costs
Fixed costs:
Maintenance
Indirect labor
Rent
Total fixed costs
Total overhead costs
Activity Level
44,000 Hours*
$0.40
0.50
1.60
$17,600
22,000
70,400
$110,000
$17,000
26,500
18,000
61,500
$171,500
10
___________________________________________________________
824
Briggs Manufacturing
For the Quarter Ended March 31, 20XX
1. Schedule 1: Sales Budget
Units
Selling price
Sales
January
40,000
$215
$8,600,000
February
50,000
$215
$10,750,000
March
60,000
$215
$12,900,000
Total
150,000
$215
$32,250,000
January
40,000
40,000
80,000
32,000
48,000
February
50,000
48,000
98,000
40,000
58,000
March
60,000
48,000
108,000
48,000
60,000
Total
150,000
48,000
198,000
32,000
166,000
11
___________________________________________________________
January
Components
Units to be produced
(Schedule 2)
48,000
Direct materials
per unit (lbs.)
10
Production needs
480,000
Desired ending
inventory
250,000
Total needs
730,000
Less: Beginning
inventory
200,000
Direct materials to
be purchased
530,000
Cost per pound
$8
Total cost
$4,240,000
48,000
10
600,000
February
Components
58,000
6
288,000
58,000
10
580,000
6
348,000
150,000
438,000
300,000
880,000
180,000
528,000
120,000
250,000
150,000
318,000
$2
$636,000
630,000
$8
$5,040,000
378,000
$2
$756,000
March
Metal
Components
60,000
60,000
Units to be produced
Direct materials
per unit (lbs.)
Production needs
Desired ending
inventory
Total needs
Less: Beginning
inventory
Direct materials to
be purchased
Cost per pound
Total cost
Metal
6
360,000
Total
Metal
Components
166,000
166,000
10
1,660,000
6
996,000
300,000
900,000
180,000
540,000
300,000
1,960,000
180,000
1,176,000
300,000
180,000
200,000
120,000
600,000
$8
$4,800,000
360,000
$2
$720,000
1,760,000
$8
$14,080,000
1,056,000
$2
$2,112,000
12
___________________________________________________________
4. Schedule 4: Direct Labor Budget
January
Units to be produced
(Schedule 2)
Direct labor time
per unit (hours)
Total hours needed
Cost per hour
Total cost
February
48,000
4
192,000
$9.25
$1,776,000
March
58,000
4
232,000
$9.25
$2,146,000
Total
60,000
4
240,000
$9.25
$2,220,000
166,000
4
664,000
$9.25
$6,142,000
192,000
$3.40
$652,800
338,000
$990,800
February
232,000
$3.40
$ 788,800
338,000
$1,126,800
March
Total
240,000
$3.40
$ 816,000
338,000
$1,154,000
664,000
$3.40
$2,257,600
1,014,000
$3,271,600
$110,000
$290,000
$110,000
$326,000
$110,000
Total
150,000
$3.60
$540,000
$150,000
120,000
60,000
$330,000
$870,000
13
___________________________________________________________
7. Schedule 7: Ending Finished Goods Inventory Budget
Unit cost computation:
Direct materials:
Metal (10 @ $8) = $80
Comp.
(6 @ $2)
= 12
Direct labor (4 $9.25)
Overhead:
Variable (4 @ $3.40)
Fixed (4 $1,014,000/664,000)
Total unit cost
$ 92.00
37.00
13.60
6.11
$148.71
$15,272,000
6,142,000
3,271,600
$24,685,600
4,758,720
$29,444,320
7,138,080
$22,306,240
$ 32,250,000
22,306,240
$ 9,943,760
870,000
$ 9,073,760
14
___________________________________________________________
10. Schedule 10: Cash Budget
January
Beg. balance
$ 378,000
Cash receipts
8,600,000
Cash available
$8,978,000
Less:
Disbursements:
Purchases
$4,876,000
Direct labor
1,776,000
Overhead
790,800
Selling & admin.
214,000
Total
$7,656,800
Tentative
ending balance
Borrowed/(repaid)
Interest paid
Ending balance
February
$ 1,321,200
10,750,000
$12,017,200
March
$ 2,952,400
12,900,000
$15,852,400
Total
378,000
32,250,000
$32,628,000
$5,796.000
2,146,000
926,800
250,000
$9,118.800
$ 5,520,000
2,220,000
954,000
286,000
$ 8,980,000
$16,192,000
6,142,000
2,671,600
750,000
$25,755,600
$1,321,200
2,952,400
$ 6,872,400
$6,872,400
$1,321,200
$ 2,952,400
$ 6,872,400
$ 6,872,400
15