BRIEF EXERCISES

BE 149
Key Co. manufactures beanies. The budgeted units to be produced and sold are below:
Expected Production Expected Sales
August 3,100 2,900
September 2,800 3,900

It takes 24 yards of yarn to produce a beanie. The company's policy is to maintain yarn at the end of each
month equal to 5% of next month's production needs and to maintain a finished goods inventory at the end
of each month equal to 20% of next month's anticipated production needs. The cost of yarn is $0.20 a yard.
At August 1, 3,720 yards of yarn were on hand.

Instructions
Compute the budgeted cost of purchases.

BE 150
The budget components for McLeod Company for the quarter ended June 30 appear below. McLeod sells
trash cans for $12 each. Budgeted production for the next four months is:
April 26,000 units
May 46,000 units
June 29,000 units
McLeod desires to have trash cans on hand at the end of each month equal to 20 percent of the following
month’s budgeted sales in units. On March 31, McLeod had 4,000 completed units on hand. The number of
trash cans to be produced in April and May are 26,000 and 46,000, respectively. Seven pounds of plastic
are required for each trash can. At the end of each month, McLeod desires to have 10 percent of the
following month’s production material needs on hand. At March 31, McLeod had 18,200 pounds of plastic
on hand. The materials used in production costs $0.60 per pound. Each trash can produced requires 0.10
hours of direct labor.

Instructions
Compute the cost of the plastic inventory at the end of May.

BE 152
The budget components for McLeod Company for the quarter ended June 30 appear below. McLeod sells
trash cans for $12 each. Budgeted sales and production for the next three months are:
Sales Production
April 20,000 units 26,000 units
May 50,000 units 46,000 units
June 30,000 units 29,000 units

McLeod desires to have trash cans on hand at the end of each month equal to 20 percent of the following
month’s budgeted sales in units. On March 31, McLeod had 4,000 completed units on hand. The number of
trash cans to be produced in April and May are 26,000 and 46,000, respectively. Seven pounds of plastic
are required for each trash can. At the end of each month, McLeod desires to have 10 percent of the
following month’s production material needs on hand. At March 31, McLeod had 18,200 pounds of plastic
on hand. The materials used in production cost $0.60 per pound. Each trash can produced requires 0.10
hours of direct labor.

Instructions
Determine how much the materials purchases budget will be for the month ending April 30.
BE 154
Johnson Company budgeted the following information for 2008:
May June July
Budgeted purchases $104,000 $110,000 $102,000

 Cost of goods sold is 40% of sales. Accounts payable is used only for inventory acquisitions.
 Johnson purchases and pays for merchandise 60% in the month of acquisition and 40% in the following
month.
 Selling and administrative expenses are budgeted at $40,000 for May and are expected to increase 5%
per month. They are paid during the month of acquisition. In addition, budgeted depreciation is $10,000
per month.
 Income taxes are $38,400 for July and are paid in the month incurred.

Instructions
Compute the amount of budgeted cash disbursements for July.

BE 158
The beginning cash balance is $15,000. Sales are forecasted at $600,000 of which 80% will be on credit.
70% of credit sales are expected to be collected in the year of sale. Cash expenditures for the year are
forecasted at $375,000. Accounts Receivable from previous accounting periods totaling $9,000 will be
collected in the current year. The company is required to make a $15,000 loan payment and an annual
interest payment on the last day of every year. The loan balance as of the beginning of the year is $90,000,
and the annual interest rate is 10%.

Instructions
Compute the excess of cash receipts over cash disbursements.

Ex. 160
Walker, Inc. makes and sells a single product, widgets. Three pounds of wackel are needed to make one
widget. Budgeted production of widgets for the next few months follows:
September 29,000 units
October 31,000 units
The company wants to maintain monthly ending inventories of wackel equal to 20% of the following month's
production needs. On August 31, 9,000 pounds of wackel were on hand.

Instructions
How much wackel should be purchased in September?

Ex. 161
Kelso Company manufactures two products, (1) Regular and (2) Deluxe. The budgeted units to be
produced are as follows:
Units of Product
2008 Regular Deluxe Total
July 10,000 15,000 25,000
August 6,000 10,000 16,000
September 9,000 14,000 23,000
October 8,000 12,000 20,000

It takes 3 pounds of direct materials to produce the Regular product and 5 pounds of direct materials to
produce the Deluxe product. It is the company's policy to maintain an inventory of direct materials on hand
at the end of each month equal to 30% of the next month's production needs for the Regular product and
20% of the next month's production needs for the Deluxe product. Direct materials inventory on hand at
June 30 were 9,000 pounds for the Regular product and 15,000 pounds for the Deluxe product. The cost
per pound of materials is $5 Regular and $7 Deluxe.

Instructions
Prepare separate direct materials budgets for each product for the third quarter of 2008.

Ex. 164
The following facts are known:
 The total pounds needed for production are 2 times the units to be produced.
 The desired ending direct materials inventory is 20% of the total pounds needed for production.
 The beginning direct materials inventory is equal in number to 10% of the units to be produced.
 Cost per pound is $10.
 Total cost of the direct materials purchases is $1,610,000.

Instructions
Prepare a direct materials budget for the period.

Ex. 169
Neeley Company combines its operating expenses for budget purposes in a selling and administrative
expense budget. For the first quarter of 2008, the following data are developed:
1. Sales: 20,000 units; unit selling price: $35
2. Variable costs per dollar of sales:
Sales commissions 6%
Delivery expense 2%
Advertising 4%
3. Fixed costs per quarter:
Sales salaries $24,000
Office salaries 17,000
Depreciation 6,000
Insurance 2,000
Utilities 1,000

Instructions
Prepare a selling and administrative expense budget for the first quarter of 2008.

Ex. 170
The Northeast Regional Division of Hight Wholesale Corporation has been requested to prepare a quarterly
budgeted income statement for 2009. The regional manager expects that sales in the first quarter of 2009
will increase by 10% over the same quarter of the preceding year and will then increase by 5% for each
succeeding quarter in 2009.
The corporate head office has requested that the regional manager maintain an inventory in dollars equal
to 25% of the next quarter's sales. Quarterly purchases average 55% of quarterly sales. Budgeted ending
inventory on December 31, 2008 is $132,000. Quarterly salaries are $15,000 plus 5% of sales. All salaries
are classified as sales salaries. Other quarterly expenses are estimated to be as follows:
Rent expense $18,000
Depreciation on office equipment $9,000
Utilities expense $2,700
Miscellaneous expenses 2% of sales
The income statement for the first quarter of 2008 was as follows:
Income Statement
For the Quarter Ended March 31, 2008
Sales .................................................................................................... $480,000
Cost of goods sold ................................................................................ 264,000
Gross profit ........................................................................................... 216,000
Operating expenses
Sales salaries ................................................................................ $39,000
Rent expense ................................................................................ 18,000
Depreciation .................................................................................. 9,000
Utilities .......................................................................................... 2,700
Miscellaneous ............................................................................... 9,600
Total operating expenses ....................................................... 78,300
Net income ........................................................................................... $137,700
Instructions
Prepare a budgeted quarterly income statement in tabular form for the first quarter of 2009. (Show
computations.)

Ex. 173
Scott Company has budgeted sales revenues as follows:
Budgeted Sales Revenues
January $55,000
February 75,000
March 90,000
April 60,000
May 45,000
June 35,000
Past experience has indicated that 80% of sales each month are on credit and that collection of credit sales
occurs as follows: 60% in the month of sale, 30% in the month following the sale, and 5% in the second
month following the sale. The other 5% is uncollectible.

Instructions
Prepare a schedule which shows expected cash receipts from sales for the months of April, May, and June.

Ex. 174
Farley Company has budgeted sales revenues as follows:
June July August
Credit sales $135,000 $145,000 $ 90,000
Cash sales 90,000 255,000 195,000
Total sales $225,000 $400,000 $285,000
Past experience indicates that 60% of the credit sales will be collected in the month of sale and the
remaining 40% will be collected in the following month. Purchases of inventory are all on credit and 50% is
paid in the month of purchase and 50% in the month following purchase. Budgeted inventory purchases
are:
June $300,000
July 250,000
August 105,000
Other cash disbursements budgeted: (a) selling and administrative expenses of $48,000 each month, (b)
dividends of $103,000 will be paid in July, and (c) purchase of equipment in August for $30,000 cash.
The company wishes to maintain a minimum cash balance of $50,000 at the end of each month. The
company borrows money from the bank at 8% interest if necessary to maintain the minimum cash balance.
Borrowed money is repaid in months when there is an excess cash balance. The beginning cash balance
on July 1 was $50,000. Assume that borrowed money in this case is for one month.

Instructions
Prepare a cash budget for the months of July and August. Prepare separate schedules for expected
collections from customers and expected payments for purchases of inventory.
Ex. 176
The City National Bank has asked Mackey, Inc. for a budgeted balance sheet for the year ended December
31, 2008. The following information is available:
1. The cash budget shows an expected cash balance of $75,000 at December 31, 2008.
2. The 2008 sales budget shows total annual sales of $900,000. All sales are made on account and
accounts receivable at December 31, 2008 are expected to be 10% of annual sales.
3. The merchandise purchases budget shows budgeted cost of goods sold for 2008 of $600,000 and
ending merchandise inventory of $105,000. 20% of the ending inventory is expected to have not yet
been paid at December 31, 2008.
4. The December 31, 2007 balance sheet includes the following balances: Equipment $294,000,
Accumulated Depreciation $120,000, Common Stock $270,000, and Retained Earnings $48,000.
5. The budgeted income statement for 2008 includes the following: depreciation on equipment $15,000,
federal income taxes $24,000, and net income $66,000. The income taxes will not be paid until 2009.
6. In 2008, management does not expect to purchase additional equipment or to declare any dividends. It
does expect to pay all operating expenses, other than depreciation, in cash.

Instructions
Prepare an unclassified budgeted balance sheet at December 31, 2008.

Ex. 178
The beginning cash balance is $20,000. Sales are forecasted at $800,000 of which 80% will be on credit.
70% of credit sales are expected to be collected in the year of sale. Cash expenditures for the year are
forecasted at $500,000. Accounts receivable from previous accounting periods totaling $12,000 will be
collected in the current year. The company is required to make a $20,000 loan payment and an annual
interest payment on the last day of the year. The loan balance as of the beginning of the year is $120,000,
and the annual interest rate is 10%.

Instructions
How much will be reported as 'cash' on the budgeted balance sheet?

Ex. 180
In September 2008, the management of Vinson Company assembles the following data in preparation of
budgeted merchandise purchases for the months of October and November.
1. Expected Sales
October $1,500,000
November 2,100,000
December 2,700,000
2. Cost of goods sold is expected to be 68% of sales.
3. Desired ending merchandise inventory is 25% of the next month's cost of goods sold.
4. The beginning inventory at October 1 will be the desired amount.

Instructions
Compute the budgeted merchandise purchases for October and November. Use a columnar format with
separate columns for each month.