Preparation of Master Budget-Managerial Accounting Solution Sample

QUESTION

Information for 2019:

1. Sales forecast: January: 2,400 units; February: 4,300 units; March: 11,900 units; April: 13,000 units. The unit sales price is $130. All sales are on credit and collections are 30% in the month of sale, 55% the following month, and 15% two months following the sale. Accounts receivable as of December 31 is $9,500 ($3,600 is expected to be collected in January and the remainder in February).

2. End of month inventory must equal 40% of next month’s sales. The inventory at the end of December was 1,150 units.

3. The following are the expected costs for direct materials, direct labor and manufacturing overhead:

DM DL Overhead

January $16/unit $29/unit $17,000 + $8.10 per unit produced

February $16/unit $29/unit $17,000 + $8.10 per unit produced

March $16/unit $29/unit $17,000 + $8.10 per unit produced

A. Direct materials are paid 60% in the month incurred and 40% in the following month.

Account payable for materials as of December 31 is $2,450; this amount will be paid in January.

B. Direct labor is paid in the month incurred.

C. Overhead costs are paid in the month incurred. Fixed overhead includes depreciation of $7,000 per month.

4. Selling and administrative costs are comprised of: sales commissions: $5.20 per unit sold; shipping costs: $3 per unit sold; salaries: $4,000; rent: $2,500; depreciation: $2,000. All costs are paid in month incurred.

5. The company plans to pay $6,000 cash dividends in January.

6. The company plans to buy equipment costing $16,500 to be paid in cash in February.

7. The cash balance as of December 31 is $43,100. The company borrows money only if the cash balance falls below $15,000 at the end of the month. The company has a revolving credit with US Bank to borrow at the beginning of each month at interest of 12% annual rate. The company repays interest at the end of each month and principle (or portion) at the end of the month when they have the resources to do so. As of December 31, the company has no outstanding loans.

Required:

Based on the information given, prepare the following budgets for each month of the first quarter of 2019 and the quarter totals:

1. Sales Budget, including a schedule of expected cash collections;

2. Production Budget (in units);

3. Direct material , including schedule of expected cash disbursements;

4. Direct labor budget;

5. Manufacturing Overhead Budget;

6. Selling and Administrative Expenses Budget;

7. Cash Budget.

 

ANSWER

 

SALES BUDGET
PARTICULARS	JANUARY	FEBURARY	MARCH	QUARTER TOTAL
UNITS	2400	4300	11900	18600
PRICE	130	130	130	130
REVENUE	312000	559000	1547000	2418000

 

SCHEDULE OF EXPECTED CASH COLLECTION
PARTICULARS	JANUARY	FEBURARY	MARCH	QUARTER TOTAL
SALES	312000	559000	1547000	2418000
CASH COLLECTED IN MONTH OF SALE	93600	167700	464100
CASH COLLECTED IN FOLLOWING MONTH		171600	307450
CASH COLLECTED 2MONTHS AFTER SALE			46800
CASH FOE DECEMBER SALE	3600	5900
				0
TOTAL CASH COLLECTED	97,200.00	345,200.00	818,350.00	1260750

 

PRODUCTION BUDGET
PARTICULARS	JANUARY	FEBURARY	MARCH	APRIL	QUARTER TOTAL
SALE IN UNIT	2400	4300	11900	13000	18600
CLOSING INVENTORY	1720	4760	5200	7440
OPENING INVENTORY	1150	1720	1720	5200
UNITS TO BE PRODUCED	2970	7340	15380		25690

 

DIRECT MATERIAL BUDGET
PARTICULARS	JANUARY	FEBURARY	MARCH	QUARTER TOTAL
UNITS TO BE PRODUCED	2970	7340	15380	25690
PER UNIT MATERIAL	16	16	16
COST OF MATERIAL	47520	117440	246080	411040

 

SCHEDULE OF CASH DISBURSEMENT FOR MATERIAL
PARTICULARS	JANUARY	FEBURARY	MARCH	QUARTER TOTAL
COST OF MATERIAL	47520	117440	246080	411040
PAYMENT IN THE MONTH	28512	70464	147648
PAYMENT IN NEXT MONTH		19008	46976
PAYMENT FOR DECEMBER	2450
TOTAL PAYMENT	30962	89472	194624	315058

 

DIRECT LABOUR BUDGET
PARTICULARS	JANUARY	FEBURARY	MARCH	QUARTER TOTAL
NUMBER OF UNITS	2970	7340	15380	25690
PRICE PER UNIT	16	16	16
TOTAL LABOUR	47520	117440	246080	411040

 

MANUFACTURING OVERHEAD BUDGET
PARTICULARS	JANUARY	FEBURARY	MARCH	QUARTER TOTAL
NUMBER OF UNITS PRODUCE	2970	7340	15380	25690
PRICE PER UNIT	8.1	8.1	8.1
VARIABLE OVERHEAD	24057	59454	124578	208089
FIXED OVERHEAD	17000	17000	17000	51000
TOTAL OVERHEAD	41057	76454	141578	259089
CASH PAYMENT FOR OVERHEAD	34057	69454	134578	252089

 

SELLING AND ADMINISTRATIVE EXPENSES BUDGET
PARTICULARS	JANUARY	FEBURARY	MARCH	QUARTER TOTAL
NO. OF UNIT SOLD	2400	4300	11900	18600
SALES COMMISSION PER UNIT	5.2	5.2	5.2
TOTAL SALES COMMISSION	12480	22360	61880	96720
SHIPPING COST PER UNIT	3	3	3
TOTAL SHIPPING COST	7200	12900	35700	55800
SALARY	4000	4000	4000	12000
RENT	2500	2500	2500	7500
DEPRECIATION	2000	2000	2000	6000
				0
TOTAL	28180	43760	106080	178020
CASH PAYMENT FOR SELLING AND ADMIN EXPENSE	26180	41760	104080	172020

 

CASH BUDGET
PARTICULARS	JANUARY	FEBURARY	MARCH	QUARTER TOTAL
CREDIT		19,419.00
REVENUE RECEIVED	97,200.00	345,200.00	818,350.00	1,260,750.00
TOTAL (A)	97,200.00	364,619.00	818,350.00	1,260,750.00
PAYMENT FOR MATERIAL	30,962.00	89,472.00	194,624.00	315,058.00
PAYMENT FOR LABOUR	47,520.00	117,440.00	246,080.00	411,040.00
PAYMENT FOR OVERHEAD	34,057.00	69,454.00	134,578.00	238,089.00
PAYMENT FOR SELLING AND ADMIN EXPENSE	26,180.00	41,760.00	104,080.00	172,020.00
DIVIDEND	6,000.00			6,000.00
EQUIPMENT		16,500.00		16,500.00
INTEREST		194.19	90.39	284.58
TOTAL(B)	144,719.00	334,820.19	679,452.39	1,158,991.58
NET RECEIPT	-47,519.00	29,798.81	138,897.61	101,758.42
OPENING BALANCE	43,100.00	-4,419.00	15,000.00	43,100.00
CLOSING BALANCE	-4,419.00	25,379.81	153,897.61
PRINCIPAL PAYMENT		10,379.81	9,039.19	19,419.00
ADJUSTED CLOSING BALANCE	-4,419.00	15,000.00	144,858.42	144,858.42