Solution
Preeta answered on
Aug 06 2021
For the purpose of making budget the company which has been chosen is a made up company, Natural, Inc. Three months budget has been prepared for the company.
Sales Budget:
The budgeted sales for next five months:
April 25,000 units
May 20,000 units
June 15,000 units
July 20,000 units
August 10,000 units.
The selling price is $20 per unit.
Total unit sold is multiplied with the per unit price to a
ive to the total budget revenue.
Production Budget:
The management wants maintain inventory at a level of 25% of the following month’s budgeted sales in units.
2,000 units were on hand was in hand on March 31.
The production must be sufficient to meet the sales demands and so inventory must be maintained accordingly.
The desired inventory is the percentage of the sale of next month as decided earlier. Then opening inventories are added to see the units which are to be produced. Closing inventory of one month becomes the opening inventory of another month.
Direct Material Budget:
Two pounds of material are required per unit of product.
The management wants maintain materials on hand at a level of 20% of the following month’s production.
10,000 pounds of material are on hand on March 31.
Material cost $.50 per pound.
The direct material budget starts with the production requirement, which is multiplied with the materials needed per unit. So total direct materials needed for production is calculated, with that desired ending inventory is needed which the company wants to maintain and opening inventory is subtracted from that. The ultimate conclusion is the material amount which needs to be purchased.
Direct Labour Budget:
Each unit of product requires 0.2 hours of direct labor.
The Company has a “no layoff” policy. All the employees will be paid for 40 hours of work each week.
Workers agreed to a wage rate of $10 per hour (There is no overtime pay).
For the next three months, the direct labor workforce will be paid for a minimum of 3,000 hours per month.
The direct labour budget starts with the units which need to be produced. Direct labour required per unit is multiplied with it. The result is the total labour hours which are required. There is some guaranteed labour hours and the labour need to be paid greater of guaranteed labour hours and the actual labour hour required. Then the labors are paid at their required wage rate.
Overhead Budget:
These are the overhead budget estimate which are the expenses incu
ed during the production of the materials.
Selling and Administrative Expense Budget:
Selling and administrative expenses:
· Variable: $0.70 per unit.
· Fixed: $100,000 per month (including $20,000 for depreciation).
The selling and overhead budget starts with the budgeted sale unit. Variable cost per unit is multiplied with that and fixed cost is added to that to calculate the total expense for sales. Then non cash expense like depreciation is deducted from the total expense to a
ive at the cash disbursements.
Cash Receipt Budget:
Sales are on account.
The company’s collection pattern is:
· 75% collected in the month of sale,
· 20% collected in the month following the sale,
· 5% is uncollected.
Accounts receivable balance on March 31st stood at $20,000.
The opening account receivable is mentioned in the beginning. The total revenue is taken from the sales budget and as the collection pattern has been given, 75% is received in the same month and 20% is received in the next month. 5% of the amount is uncollectible as per the prior experience. The ultimate result is the total cash collection to be made.
Cash Disbursement Budget:
The cost of material is $0.50 per pound.
Half of the amount is paid in the month of purchase and the other half is paid in the consecutive month.
No discounts.
Accounts payable balance on March 31st stood at $10,000.
Cash disbursement budget is started with the opening accounts payable balance. The material to be purchased is multiplied with the cost of material per unit and the whole money is split into half. One half is paid in the same month and the other half is paid in the following month. The final calculation is the total cash to be repaid.
Cost of Goods Manufactured:
Cost of Goods Sold:
Income Statement Budget:
Budgeted Cash flow:
Production
April May June Quarte
Sales in units 25,000 20,000 15,000 60,000
Add: desired end. inventory 5,000 3,750 5,000 5,000
Total needed 30,000 23,750 20,000 65,000
Less: beg. inventory 2,000 5,000 3,750 2,000
Units to be produced 28,000 18,750 16,250 63,000
May sales (sales budget) 50,000
Percent of inventory desired 20%
Desired ending inventory 10,000
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AprilMayJuneQuarte
Production in units
28,000 18,750 16,250 63,000
Materials per unit2 2 2 5
Production needs56,000 37,500 32,500 315,000
Add: desired
ending inventory7,500 6,500 7,000 11,500
Total needed63,500 44,000 39,500 326,500
Less: beginning
inventory10,000 7,500 6,500 13,000
Materials to be
purchased
53,500 36,500 33,000 313,500
Materials
April May June Quarte
Production in units 28,000 18,750 16,250 63,000
Materials per unit 2 2 2 5
Production needs 56,000 37,500 32,500 315,000
Add: desired ending inventory 7,500 6,500 7,000 11,500
Total needed 63,500 44,000 39,500 326,500
Less: beginning inventory 10,000 7,500 6,500 13,000
Materials to be purchased 53,500 36,500 33,000 313,500
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AprilMayJuneQuarte
Production in units28,00018,750 16,250 63,000
Direct labor hours0.20 0.20 0.20 0.20
Labor hours required5,600 3,750 3,250 12,600
Guaranteed labor
hours3,000 3,000 3,000
Labor hours paid5,600 3,750 3,250 12,600
Wage rate10$ 10$ 10$ 8$
Total direct labot cost56,000$ 37,500$ 32,500$ 100,800$
Labo
April May June Quarte
Production in units 28,000 18,750 16,250 63,000
Direct labor hours 0.20 0.20 0.20 0.20
Labor hours required 5,600 3,750 3,250 12,600
Guaranteed labor hours 3,000 3,000 3,000
Labor hours paid 5,600 3,750 3,250 12,600
Wage rate $ 10 $ 10 $ 10 $ 8
Total direct labot cost $ 56,000 $ 37,500 $ 32,500 $ 100,800
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April MayJuneQuarte
Indirect labor20,500$ 21,500$ 19,000$ 61,000$
Indirect material5,000 8,500 4,500 18,000
Utilities5,500 8,500 6,500 20,500
Rent12,500 12,500 12,500 37,500
Insurance6,200 6,200 6,200 18,600
Maintenance9,200 8,500 9,000 26,700
58,900$ 65,700$ 57,700$ 182,300$
Sheet1
April May June Quarte
Indirect labor $ 20,500 $ 21,500 $ 19,000 $ 61,000
Indirect material 5,000 8,500 4,500 18,000
Utilities 5,500 8,500 6,500 20,500
Rent 12,500 12,500 12,500 37,500
Insurance 6,200 6,200 6,200 18,600
Maintenance 9,200 8,500 9,000 26,700
$ 58,900 $ 65,700 $ 57,700 $ 182,300
Sheet2
Sheet3
AprilMayJuneQuarte
Sales in units10,000 20,000 15,000 45,000
Variable S&A rate0.70$ 0.70$ 0.70$ 0.50$
Variable expense7,000$ 14,000$ 10,500$ 22,500$
Fixed S&A
expense100,000 100,000 100,000 300,000
Total expense107,000 114,000 110,500 322,500
Less: noncash
expenses20,000 20,000 20,000 60,000
Cash
disbursements
87,000$ 94,000$ 90,500$ 262,500$
Selling
April May June Quarte
Sales in units 10,000 20,000 15,000 45,000
Variable S&A rate $ 0.70 $ 0.70 $ 0.70 $ 0.50
Variable expense $ 7,000 $ 14,000 $ 10,500 $ 22,500
Fixed S&A expense 100,000 100,000 100,000 300,000
Total expense 107,000 114,000 110,500 322,500
Less: noncash expenses 20,000 20,000 20,000 60,000
Cash disbursements $ 87,000 $ 94,000 $ 90,500 $ 262,500
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AprilMayJuneQuarte
Accounts rec. - 3/3120,000$ 20,000$
April sales
75% x $500,000375,000$ 375,000
20% x $500,000100,000$ 100,000
May sales
75% x $400,000300,000$ 300,000
20% x $400,00080,000$ 80,000
June sales
75% x $300,000225,000$ 210,000
Total cash collections395,000$ 400,000$ 305,000$ 1,085,000$
Cash in
April May June Quarte
Accounts rec. - 3/31 $ 20,000 $ 20,000
April sales
75% x $500,000 $ 375,000 375,000
20% x $500,000 $ 100,000 100,000
May sales
75% x $400,000 $ 300,000 300,000
20% x $400,000 $ 80,000 80,000
June sales
75% x $300,000 $ 225,000 210,000
Total cash collections $ 395,000 $ 400,000 $ 305,000 $ 1,085,000
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AprilMayJuneQuarte
Accounts pay. 3/3110,000$ 12,000$
April purchases
50% x $26,75013,375$ 28,000
50% x $26,75013,375$ 28,000
May purchases
50% x $18,2509,125$ 44,300
50% x $18,2509,125$ 44,300
June purchases
50% x $16,5008,250$ 28,400
Total cash payments
for materials
23,375$ 22,500$ 17,375$ 185,000$
Cash Materials
April May June Quarte
Accounts pay. 3/31 $ 10,000 $ 12,000
April purchases
50% x $26,750 $ 13,375 28,000
50% x $26,750 $ 13,375 28,000
May purchases
50% x $18,250 $ 9,125 44,300
50% x $18,250 $ 9,125 44,300
June purchases
50% x $16,500 $ 8,250 28,400
Total cash payments for materials $ 23,375 $ 22,500 $ 17,375 $ 185,000
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Material available for use58,700 45,700 39,500 128,200
Deduct: End. material inventory7,500 6,500 7,000 7,000
Direct material used 51,200 39,200 32,500 121,200
Direct labor 56,000 37,500 32,500 126,000
Manufacturing overhead 56,000 76,000 59,000 191,000
Total manufacturing costs 163,200 152,700 124,000 438,200
Add: Beg. Work-in-process inventory3,800 16,200 9,400 3,800
Subtotal 167,000 168,900 133,400 442,000
Deduct: End.Work-in-process inventory16,200 9,400 17,000 17,000
Cost of goods manufactured 150,800$ 159,500$ 116,400$ 425,000$
Add: Beg. finished-goods inventory18,400 46,000 27,600 18,400
Cost of goods available for sale 169,200 205,500 144,000 443,400
Deduct: End. finished-goods inventory46,000 27,600 23,000 23,000
Cost of goods manufactured123,200$ 177,900$ 121,000$ 460,000$
Sheet1
FC TC TR
- 0 80,000 80,000 - 0
100 80,000 110,000 50,000
200 80,000 140,000 100,000
300 80,000 170,000 150,000
400 80,000 200,000 200,000
500 80,000 230,000 250,000
600 80,000 260,000 300,000
700 80,000 290,000 350,000
800 80,000 320,000 400,000
Sheet2
FC TC TR
- 0 80,000 80,000 - 0
100 80,000 110,000 50,000 100,000
200 80,000 140,000 100,000 Profit
300 80,000 170,000 150,000 80,000
400 80,000 200,000 200,000
500 80,000 230,000 250,000 60,000
600 80,000 260,000 300,000
700 80,000 290,000 350,000 40,000
800 80,000 320,000 400,000
20,000
0
`
(20,000) 100 200 300 400 500 600 700
Units
(40,000)
(60,000)
450,000
400,000
350,000
300,000
250,000
200,000
150,000
100,000
50,000
100 200 300 400 500 600 700 800
Units
Sheet3
Sheet4
A. Traditional Format
ACCUTIME COMPANY
Income Statement
For the Year Ended December 31, 20x1
Sales $500,000
Less: 380,000
Gross margin $120,000
Less: Operating expenses:
Selling expenses $35,000
Administrative...