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A master budget, or profit plan, is a comprehensive set of budgets covering all phases of an
organization's operations for a specified period of time. The master budget includes the
following parts: sales budget, operational budgets (including a production budget,
inventory budgets, a labor budget, an overhead budget, a selling and administrative expense
budget, and a cash budget), and budgeted financial statements (including a budgeted
income statement, budgeted balance sheet, and budgeted statement of cash flows).
9-21
(a)
(b)
(c)
(d)
(e)
9-22
(a) Ordering costs: The cost of preparing, placing, and receiving a purchase order.
(Examples include the clerical costs of preparing purchase orders, time spent finding
suppliers and expediting orders, transportation, and receiving costs, such as unloading and
inspection.)
Holding costs: The cost incurred in keeping inventory on hand for some period of time.
(Examples include the costs of storage space such as a warehouse, depreciation, security,
insurance, forgone interest on working capital tied up in inventory, and the costs of
deterioration and theft.)
Shortage costs: The cost incurred by the organization when it does not have materials or
finished goods on hand when needed. (Examples include the costs caused by disrupted
production when raw materials are unavailable, lost sales, dissatisfied customers, and the
loss of quantity discounts on purchases.)
(b)
(c)
SOLUTIONS TO EXERCISES
EXERCISE 9-26 (20 MINUTES)
1.
1
Sales...........................................................
Cash receipts:
From cash sales ....................................
From sales on account .........................
Total cash receipts ....................................
2.
a$270,000
= $135,000 2
b$120,000
= $240,000 .5
c$
= $180,000 .5
90,000
July
$240,000
August
$180,000
September
$270,000a
$120,000b
108,000d
$228,000
$ 90,000c
102,000
$ 192,000
$135,000
117,000e
$252,000
d$108,000
e$117,000
600,000 euros
2,400,000 euros
(2,200,000) euros*
800,000 euros
*2,200,000 euros
= 600,000 euros + 2,400,000 euros 800,000 euros
3.
1,700,000y
4,500,000y
(3,900,000y)
2,300,000y
4.
$ 405,000
75,000
$ 480,000
5.
$1,537,500
300,000
0
$1,837,500
McGraw-Hill/Irwin
3-2
2.
800 hours
1,600 hours
2,400 hours
$ 90
$216,000
May
3,200
$60
$192,000
800
$105
$ 84,000
$276,000
June
3,200
$60
$192,000
800
$105
$ 84,000
$276,000
10%
$ 27,600
90%
$248,400
$276,000
SOLUTIONS TO PROBLEMS
PROBLEM 9-36 (30 MINUTES)
$12,000
18,000
$30,000
1.
2.
February
$ 33,000
270,000
$303,000
$157,500
324,000
$189,000
$481,500
333,000
15,000
$537,000
3.
March
February
March
$ 66,000
189,000
93,000
$348,000
$ 81,000
210,000
$ 90,000
72,000
$363,000
294,000
135,000
$519,000
February
March
Be
g
i
n
ni
ngc
a
s
hb
a
l
a
nc
e
. $ 60,000
T
ot
a
l
r
e
c
e
i
pt
s
. 303,000
Subt
o
t
a
l
. $363,000
L
e
s
s
:To
t
a
l
d
i
s
bu
r
s
e
me
nt
s
348,000
Ca
s
he
x
c
e
s
s(
de
f
i
c
i
e
nc
y
)be
f
o
r
ef
i
n
a
nc
i
n
g $ 15,000
Financing:
Borrowing to maintain $60,000 balance..
45,000
Lo
a
npr
i
n
c
i
pa
l
r
e
pa
i
d
Lo
a
ni
nt
e
r
e
s
tp
a
i
d.
.
Endi
n
gc
a
s
hba
l
a
n
c
e
$ 60,000
$ 60,000
481,500
$541,500
363,000
$178,500
$132,900
537,000
$669,900
519,000
$150,900
(45,000)
(600)*
$132,900
-0-0-0$150,900
* $45,000 x 8% x 2/12
McGraw-Hill/Irwin
3-4
Sales budget:
Box C
500,000
$1.35
$675,000
Box P
500,000
$1.95
$975,000
$1,650,000
3.
Total
Box C
500,000
5,000
505,000
10,000
495,000
Box P
500,000
15,000
515,000
20,000
495,000
Raw-material budget:
CORRUGATING MEDIUM
Production requirements (number of boxes).........
Raw material required per box (pounds)................
Raw material required for
production (pounds) ............................................
Add: Desired ending
raw-material inventory .........................................
Total raw-material needs .........................................
Deduct: Beginning raw-material inventory ............
Raw material to be purchased.................................
Price (per pound) .....................................................
Cost of purchases (corrugating medium) ..............
Total cost of raw-material purchases
($145,500 + $37,875) .............................................
Box C
495,000
.2
Box P
495,000
.3
Total
99,000
148,500
247,500
10,000
257,500
5,000
252,500
$.15
$ 37,875
$183,375
PAPERBOARD
Production requirement (number of boxes)...........
Raw material required per box (pounds)................
Raw material required for
production (pounds) ............................................
Add: Desired ending
raw-material inventory .........................................
Total raw-material needs .........................................
Deduct: Beginning raw-material inventory ............
Raw material to be purchased.................................
Price (per pound) .....................................................
Cost of purchases (paperboard) .............................
4.
Box P
495,000
.7
Total
148,500
346,500
495,000
5,000
500,000
15,000
485,000
$.30
$145,500
Direct-labor budget:
Production requirements (number of boxes)
Direct labor required per box (hours) .....................
Direct labor required for production (hours)
Direct-labor rate .......................................................
Total direct-labor cost..............................................
5.
Box C
495,000
.3
Box C
495,000
.0025
1,237.5
Box P
495,000
.005
2,475
3,712.5
$18
$66,825
Manufacturing-overhead budget:
Indirect material ...........................................................................................
Indirect labor ................................................................................................
Utilities ..........................................................................................................
Property taxes ..............................................................................................
Insurance ......................................................................................................
Depreciation .................................................................................................
Total overhead..............................................................................................
6.
Total
$ 15,750
75,000
37,500
27,000
24,000
43,500
$222,750
McGraw-Hill/Irwin
3-6
$112,500
22,500
135,000
39,000
6,000
$315,000
7.
$1,650,000
480,000
$1,170,000
315,000
$ 855,000
299,250
$ 555,750
(b)
$222,750
(495,000)(.0025) (495,000)(.005)
$222,750
$60 per hour
3,712.5 hours
Box P
$.090
$.210
.030
.045
.045
.090
.150
___
$.315
.300
$.645
1.
2.
3.
annual
annual
=
order
cost per
order
2
unit
quantity
(2)(4,800)($150)
$4
360,000 = 600
4,800
600
$150
$4
600
2
= $2,400
Note that this cost does not include the actual cost of XL-20 purchases (i.e., the
quantity purchased multiplied by the price).
4.
5.
8
order quantity
600
EOQ =
b.
(2)(4,800)($20)
$19.20
10,000 = 100
Number of orders per year =
=
McGraw-Hill/Irwin
3-8
order quantity
100
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