Introduction to Management Accounting Solutions Manual

WASATCH MANUFACTURING
Master Budget

Sales Budget
December January February March April May
Unit sales 8,444 8,900 9,900 9,200 9,500 8,600
Unit selling price $ 9 $ 9 $ 9 $ 9 $ 9 $ 9
Total sales Revenue $ 76,000 $ 80,100 $ 89,100 $ 82,800 $ 85,500 $ 77,400

Req. 1

Cash Collections Budget

January February March Quarter
Cash sales $20,025 $22,275 $20,700 $63,000
Credit sales $57,000 $60,075 $66,825 $183,900
Total collections $77,025 $82,350 $87,525 $246,900

Req. 2

Production Budget
January February March Quarter
Unit sales 8,900 9,900 9,200 28,000
Plus: Desired ending inventory 1,485 1,380 1,425 1,425
Total needed 10,385 11,280 10,625 29,425
Less: Beginning inventory 1,335 1,485 1,380 1,335
Units to produce 9,050 9,795 9,245 28,090

Req. 3

Direct Materials Budget

January February March Quarter
Units to be produced 9,050 9,795 9,245 28,090
Multiply by: Quantity of DM needed per unit 2 2 2 2
Quantity of DM needed for production 18,100 19,590 18,490 56,180
Plus: Desired ending inventory of DM 1,959 1,849 1,873 1,873
Total quantity of DM needed 20,059 21,439 20,363 58,053
Less: Beginning inventory of DM 1,810 1,959 1,849 1,810
Quantity of DM to purchase 18,249 19,480 18,514 56,243
Multiply by: Cost per pound $1.50 $1.50 $1.50 $1.50
Total cost of DM purchases $27,374 $29,220 $27,771 $84,365

April May
Unit Sales 9,500 8,600
Plus: Desired End Inventory 1,290
Total Needed 10,790
Less: Beginning Inventory 1,425
Units to produce 9,365
DM needed per unit 2
Quantity of DM needed for production 18,730

Req. 4

Cash Payments for Direct Material Purchases Budget

January February March Quarter
December purchases (From AP) $22,000 $22,000
January purchases $8,212 $19,161 $27,374
February purchases $8,766 $20,454 $29,220
March purchases $8,331 $8,331
Total disbursements $30,212 $27,927 $28,785 $86,925

Req. 5

Cash Payments for Direct Labor Costs

January February March Quarter
Direct Labor $3,530 $3,820 $3,606 $10,955

Chapter 9: The Master Budget and Responsibility Accounting 1

Introduction to Management Accounting Solutions Manual

Req. 6

Cash Payments for Manufacturing Overhead Budget

January February March Quarter
Rent (fixed) $6,500 $6,500 $6,500 $19,500
Other MOH (fixed) $2,100 $2,100 $2,100 $6,300
Variable manufacturing overhead $12,670 $13,713 $12,943 $39,326
Total disbursements $21,270 $22,313 $21,543 $65,126

Req. 7

Cash Payments for Operating Expenses Budget

January February March Quarter
Variable operating expenses $ 10,680 $ 11,880 $ 11,040 $ 33,600
Fixed operating expenses $ 1,400 $ 1,400 $ 1,400 $ 4,200
Total disbursements $ 12,080 $ 13,280 $ 12,440 $ 37,800

Req. 8

Combined Cash Budget

January February March Quarter
Cash balance, beginning $6,000 $4,933 $5,143 $6,000
Plus: cash collections (req. 1) 77,025 82,350 87,525 246,900
Total cash available 83,025 87,283 92,668 252,900
Less cash payments:
DM purchases (req. 4) 30,212 27,927 28,785 86,925
Direct labor (req. 5) 3,530 3,820 3,606 10,955
MOH costs (req 6) 21,270 22,313 21,543 65,126
Operating expenses (req 7) 12,080 13,280 12,440 37,800
Tax payment 10,800 10,800
Equipment purchases 15000 6,000 4000 25,000
Total cash payments 82,092 84,141 70,374 236,606
Ending cash before financing 933 3,143 22,294 16,294
Financing:
Borrowings 4,000 2,000 6,000
Repayments -6000 -6,000
Interest -240 -240
Total financing 4,000 2,000 -6,240 -240
Cash balance, ending $4,933 $5,143 $16,054 $16,054

Req. 9

Budgeted Manufacturing Cost per Unit

Direct materials cost per unit $3.00
Direct labor cost per unit $0.39
Variable MOH cost per unit $1.40
Fixed MOH per unit (given in problem) $0.80
Cost of manufacturing each unit $5.59

Req. 10

Damon Manufacturing
Budgeted Income Statement
For the Quarter Ended March 31
Sales $252,000
Cost of goods sold 156,520
Gross profit 95,480
Operating expenses 37,800
Depreciation expense 5,200
Operating income 52,480
Less: interest expense -240
Less: provision for income tax 14,627
Net income $37,613

Chapter 9: The Master Budget and Responsibility Accounting 2

 Sales & Collections

Actual sales in December were $76,000. Selling price per unit is projected
to remain stable at $9 per unit throughout the budget period. Sales for the
first five months of the upcoming year are budgeted to be as follows:
Month January February March April May
Total Sales $80,100 $89,100 $82,800 $85,500 $77,400
Sales are 25% cash and 75% credit. All credit sales are collected in the
month following the sale.

Production & Materials

Wasatch Manufacturing has a policy that states that each month’s ending
inventory of finished goods should be 15% of the following month’s sales
(in units).

Of each month’s direct materials purchases, 30% are paid for in the month
of purchase, while the remainder is paid for in the month following
purchase. Two pounds of direct materials is needed per unit at $1.50 per
pound. Ending inventory of direct materials should be 10% of next
month’s production needs.

Conversion Costs

Most of the labor at the manufacturing facility is indirect, but there is

some direct labor incurred. Each unit requires .03 direct labor hours. The
direct labor wage rate is $13 per hour. All direct labor is paid for in the
month in which the work is performed.

Monthly manufacturing overhead costs are $6,500 for factory rent, $2,100
for other fixed manufacturing expenses, and $1.40 per unit for variable
manufacturing overhead. No depreciation is included in these figures. All
expenses are paid for in the month in which they are incurred.

Operating Expense

Operating expenses are budgeted to be $1.20 per unit sold plus fixed
operating expenses of $1,400 per month. All operating expenses are paid
in the month in which they are incurred.

Cash

Computer equipment for the administrative offices will be purchased in

the upcoming quarter. In January, Wasatch Manufacturing will purchase
equipment for $15,000 (cash), while February’s cash expenditures will be
$6,000, and March’s cash expenditure will be $4,000.
 Computer equipment for the administrative offices will be purchased in
the upcoming quarter. In January, Wasatch Manufacturing will purchase
equipment for $15,000 (cash), while February’s cash expenditures will be
$6,000, and March’s cash expenditure will be $4,000.

Wasatch Manufacturing has a policy that the ending cash balance in each
month must be at least $4,400. It has a line of credit with a local bank. The
company can borrow in increments of $1,000 at the beginning of each
month, up to a total outstanding loan balance of $100,000. The interest
rate on these loans is 1.5% per month simple interest (not compounded).
The company would pay down on the line of credit balance in increments
of $1,000 if it has excess funds at the end of the quarter. The company
would also pay the accumulated interest at the end of the quarter on the
funds borrowed during the quarter.

Income Statement

Depreciation on the building and equipment for the general and

administrative offices is budgeted to be $5,200 for the entire quarter,
which includes depreciation on new acquisitions.

The company’s income tax rate is projected to be 28% of operating

income less interest expense. The company pays $10,800 cash at the end
of February in estimated taxes.