# 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 monthâ€™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:

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;

6. Selling and Administrative Expenses Budget;

7. Cash Budget.

 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

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