CHAPTER 8

THE MASTER BUDGET

19.
A

1st Quarter 2nd Quarter

600,000
300,000
$17
$16
$10,200,000 $ 4,800,000

3rd Quarter
640,000
$14
$ 8,960,000

4th Quarter
460,000
$12
$5,520,000

Total
$29,480,000

400,000
700,000
$17
$16
$ 6,800,000 $11,200,000

250,000
$14
$ 3,500,000

650,000
$12
$7,800,000

$29,300,000

530,000
480,000
$17
$16
$ 9,010,000 $ 7,680,000

800,000
$14
$11,200,000

190,000
$12
$2,280,000

$30,170,000

The most financially beneficial scenario would be C; however, given the large
discrepancies in sales quantities per quarter, Pataky Company may not be able
to smooth production activities over the year. There would need to be a large
inventory build-up for the third quarter, which would increase the costs of nonvalue-added costs of moving and storing units. The extreme decline in fourth
quarter sales might result in layoffs, if other value-added activities could not be
developed for direct labor employees.
Scenario A might actually be a better situation because of the less dramatic adjustments between quarters.
20.
Budgeted sales
Ending inventory (5%)
Total required
Beginning inventory
Budgeted production
21.

st

Sales
EI (10%)
Total
BI
Production

1
1,080,000
136,000
1,216,000
(94,500)
1,121,500

22. a.
Sales
EI
Total units needed
BI
Units produced

January
102,400
4,800
107,200
(7,000)
100,200

February
96,000
6,400
102,400
(4,800)
97,600

QUARTER
2
3rd
1,360,000
980,000
98,000
110,000
1,458,000 1,090,000
(136,000)
(98,000)
1,322,000
992,000
nd

January
300
1,700
2,000
(1,000)
1,000

February
700
1,900
2,600
(1,700)
900

March
128,000
7,680
135,680
(6,400)
129,280
th

4
1,100,000
120,000
1,220,000
(110,000)
1,110,000
March
1,000
1,300
2,300
(1,900)
400

Total
4,520,000
120,000
4,640,000
(94,500)
4,545,500
April
900
700
1,600
(1,300)
300

223
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Chapter 8

b.

February
900
3
2,700
1,350
4,050
(1,500)
2,550
$2.00
$ 5,100

Units produced
Pounds of RM per unit
RM needed for production
EI
Pounds of RM needed
Pounds of RM in BI
Pounds of RM to purchase
Cost per pound
Cost of RM purchases
c.
Units produced
DLHs per unit
Total hours
Cost per DLH
Cost of DL
23. Sales of gowns
EI of gowns
Total
BI of gowns
Production

February
900
10
9,000
$12
$108,000

March
400
3
1,200
600
1,800
(1,350)
450
$2.30
$ 1,035

April
300
3
900
450
1,350
(600)
750
$2.40
$ 1,800

March
400
10
4,000
$12
$48,000

April
300
10
3,000
$12
$36,000

325,000
15,800
340,800
(21,000)
319,800

319,800 2.5 yards = 799,500 yards

Yards needed for production
Ending inventory
Total
Beginning inventory
Yards to purchase
Divided by yards in bolt
Necessary bolts
24. a. and b. Sales (feet)
EI
Total
BI
Production
Production in feet
Pounds per foot
Pounds for production
EI
Total pounds needed

799,500
4,550
804,050
(5,000)
799,050
15
53,270
190,000
10,000
200,000
(12,250)
187,750
Concrete
187,750
4
751,000
34,300
785,300

Gravel
187,750
7.5
1,408,125
46,250
1,454,375

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Chapter 8

225

BI
Purchase (pounds)
Cost per pound
Total cost
25. a.
Production budget
Units of sales
Units desired in ending inv.
Units needed
Units in beginning inv.
Budgeted production

(41,000)
744,300
$0.10
$ 74,430

(32,650)
1,421,725
$0.04
$ 56,869

Boxes

Trays

42,000
1,800
43,800
(1,200)
42,600

30,000
650
30,650
(800)
29,850

b. Purchases budgetMaterial A
Pounds needed for production:
(42,600 2) + (29,850 1) = (85,200 + 29,850)
Desired ending inventory
Total requirements
Less beginning inventory
Pounds to be purchased
Cost per pound
Total cost of Material A purchases

115,050
1,500
116,550
(1,780)
114,770
$0.05
$5,738.50

Purchases budgetMaterial B
Pounds needed for production:
(42,600 1.5) + (29,850 0.8) = (63,900 + 23,880)
Desired ending inventory
Total requirements
Less beginning inventory
Pounds to be purchased
Cost per pound
Total cost of Material B purchases
Material purchases:
Material A 114,770 lbs.
Material B 84,180 lbs.
Total

$ 5,738.50
5,892.60
$11,631.10

c. Direct labor budget

Required hours:
Boxes (42,600 0.3)
Trays (29,850 0.2)
Total DLHs
Average DL wage rate
Total DL cost
d.
Activity base (DLHs)
Multiplied by OH rate
Overhead applied

87,780
1,400
89,180
(5,000)
84,180
$0.07
$5,892.60

Boxes
12,780
$1.60
$20,448

12,780
5,970
18,750
$9.50
$178,125
Trays
5,970
$1.60
$9,552

Total
$30,000

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Chapter 8

26. Cost of goods sold

Ending inventory
Beginning inventory
Budgeted purchases

$600,000
84,000
(60,000)
$624,000

Monthly purchases: $624,000 12 = $52,000

Payment for current year purchases ($52,000 11)
Beginning A/P balance
Total cash payments for purchases in 2014
27.

Sept.
$37,440
32,000
9,600

Aug. credit sales (60% $78,000 80%)

Sept. cash sales (40% $80,000)
Sept. credit sales (60% $80,000 20%)
Sept. credit sales (60% $80,000 80%)
Oct. cash sales (40% $95,000)
Oct. credit sales (60% $95,000 20%)
Oct. credit sales (60% $95,000 80%)
Nov. cash sales (40% $91,000)
Nov. credit sales (60% $91,000 20%)
Total collections

28. a.
Nov. sales (30% $83,000)
Dec. sales (30% $76,000)
Dec. sales (30% $76,000)
Jan. sales (40% $79,000 99%)
Jan. sales (30% $79,000)
Jan. sales (30% $79,000)
Feb. sales (40% $88,000 99%)
Feb. sales (30% $88,000)
Mar. sales (40% $59,000 99%)
Total collections

$572,000
40,000
$612,000
Oct.

Nov.

$38,400
38,000
11,400

$79,040
January
$24,900
22,800

$87,800

February

$45,600
36,400
10,920
$92,920
March

$22,800
31,284
23,700
$23,700
34,848

$78,984

$81,348

b. Feb. sales to be collected in April (30% $88,000)

March sales to be collected in April (30% $59,000)
March sales to be collected in May (30% $59,000)
Total A/R balance at March 31
29. a. October collections:
From A/R balance
From October billings ($100,000 0.15)
Total October collections
November collections:
From October billings ($100,000 0.55)
From November billings ($65,000 0.15)
Total November collections

26,400
23,364
$73,464
$26,400
17,700
17,700
$61,800

$11,000
15,000
$26,000
$55,000
9,750
$64,750

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Chapter 8

227

December collections:
From October billings ($100,000 0.30)
From November billings ($65,000 0.55)
From December billings ($15,000 0.15)
Total December collections

$30,000
35,750
2,250
$68,000

b. October collections
Less October business costs
Remainder 10/31
November collections
Total
Less November business costs
Remainder 11/30

$ 26,000
(22,500)
$ 3,500
64,750
$ 68,250
(22,500)
$ 45,750

Yes, Irby could pay the $45,000 for the trip at the end of November.
c. If Irby pays for the trip and if everything works out exactly as planned, she
would have $750 of cash on hand in the business. This is an exceptionally
small cushion and she should probably not make such a large cash expenditure at the end of November.
Remainder 11/30
December collections
Total
Less December business costs
Remainder 12/31

$ 45,750
68,000
$113,750
(22,500)
$ 91,250

However, if Irby has good credit, she could borrow the $45,000 to pay for
the trip at the end of November and pay the money back at the end of December when she has a substantial cash balance. If she can borrow at 12%,
she would incur 1% per month for interestor $450 ($45,000 0.01) until
the end of December. By paying for the trip in November, shed be saving
$5,000 and spending $450saving a total of $4,550.
35.
Beginning cash balance
Cash receipts
Total cash available
Cash disbursements:
Payments on account
Wage expenses
Overhead costs
Total disbursements
Cash excess (inadequacy)
Minimum cash balance
Cash available (needed)
Financing:
Borrowings (repayments)
Sell (acquire) investments
Receive (pay) interest

July
$ 7,400
16,400
$23,800

August
$ 7,200
20,200
$27,400

Sept.
$ 7,200
33,800
$41,000

Total
$ 7,400
70,400
$ 77,800

$ 2,600
10,000
8,000
$20,600
$ 3,200
(7,000)
$ (3,800)

$ 7,800
12,200
9,200
$29,200
$ (1,800)
(7,000)
$ (8,800)

$11,400
12,400
8,800
$32,600
$ 8,400
(7,000)
$ 1,400

$ 21,800
34,600
26,000
$ 82,400
$ (4,600)
(7,000)
$(11,600)

$ 4,000
0
0

$ 9,000
0
0

$ (1,000)
0
(20)

$ 12,000
0
(20)

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228

Chapter 8

Ending cash balance

$ 7,200

$ 7,200

$ 7,380

$ 7,380

36. a. CGS = $2,000,000 + (0.65 $8,000,000) = $7,200,000

b. CGS ($800,000 0.75)
Increase in Inventory
Decrease in Accounts Payable
Total cash payment for inventories

$600,000
20,000
45,000
$665,000

c. y = $250,000 + $17.50X
y = $250,000 + ($17.50 7,500)
y = $250,000 + $131,250 = $381,250 total overhead
Cash overhead cost = $381,250 $95,000 = $286,250
d. Beginning cash balance
Cash collections
Total cash available
Disbursements:
Payoff of note payable
Interest on note payable
Purchase of computer system
Operating costs and inventory purchases
Direct labor wages
Overhead costs
Selling and administrative costs
Cash deficiency
Borrowings needed
Ending cash balance
(December 11, 2003), p. A14.

$ 15,000
470,500
$ 485,500
$ 52,500
4,700
17,900
193,500
110,000
106,400
94,800

(579,800)
$ (94,300)
100,000
$ 5,700

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