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Q.1 VIEWSONIC PVT.LTD BUDGETED INCOME STATEMENT FOR 1st QUARTER 1999



Description Sales Purchases Wages Supplies Utilities Rent Insurance Advertising Depreciation Net Profit



JANUARY 285,000 129,000 35,000 26,000 6,500 15,000 12,000 24,500 20,000 17,000



FEBRUARY 323,000 168,000 37,000 23,000 8,700 12,800 12,000 28,500 20,000 13,000



MARCH 221,000 95,000 30,000 21,500 7,200 13,600 12,000 18,000 20,000 3,700



Please make a cash budget for the months of January, February and March 1999 based on the data for View sonic Receivable Trend: 30% of Sales are collected in the month of sale 30% of Sales are collected after the month of sale 40% of Sales are collected two months after the sale is made View sonic Payable Trend: 10% of Purchases are paid for in the month of purchase 35% of Purchases are paid after the month of purchase 55% of Purchases are paid two months after the purchase is made Additional Information: Rent and Insurance expense were prepaid at the end of 1998 All other expenses are paid for in the month they were incurred November Sales = 195,000 November Purchases = 100,000 December Sales = 250,000 December Purchases = 165,000 Please see attached Budgeted Income Statement for 1st Quarter 1999 Q.2 Niblick supplies golf equipment. Ten percent of his sales are for cash; the remainder is on one month’s credit. He receives one month’s credit on all purchases. Sales and purchases are as follows: Sales Purchases $ $ December 2007 30,000 16,000 January 2008 25,000 14,000 February 18,000 20,000 March 22,000 25,000 April 28,000 30,000 Niblick pays wages of $2,000 per month. He pays rent of $10,000 per annum; he paid one year’s rent in advance on 1 January 2008. Other expenses, $1,500 per month, are paid currently. On 6



February 2008, Niblick plans to sell a van for $2,300 and to buy a new one for $6,000 on 15 March 2008. Niblick draws $1,000 a month for living expenses. At 31 December 2007, Niblick’s bank balance was $7,000 (in hand). His father will lend the business $4,000 on 1 April 2008. Required Niblick’s cash budget for the four months to 30 April 2008. Q.3 ABC Company is a retail sporting goods store that uses an accrual accounting system. Facts regarding its operations follow: • Sales are budgeted at $220,000 for December and $200,000 for January, terms 1/eom, n/60. • Collections are expected to be 60 percent in the month of sale and 38 percent in the month following the sale. Two percent of sales are expected to be uncollectible and recorded in an allowance account at the end of the month of sales. Bad debts expense is included as part of operating expenses. • Gross margin is 25 percent of sales. • All accounts receivable are from credit sales. Bad debts are written off against the allowance account at the end of the month following the month of sale. • ABC desires to have 80 percent of the merchandise for the following month’s sales on hand at the end of each month. Payment for merchandise is made in the month following the month of purchase. • Other monthly operating expenses to be paid in cash total $22,600. • Annual depreciation is $216,000, one-twelfth of which is reflected as part of monthly operating expenses. ABC Company’s statement of financial position at the close of business on November 30 follows: ABC COMPANY Statement of Financial Position November 30, 2010 Assets Cash $ 22,000 Accounts receivable (net of $4,000 allowance for doubtful accounts) 76,000 Inventory 132,000 Property, plant, and equipment (net of$680,000 accumulated depreciation) 870,000 Total assets $1,100,000 Liabilities and Stockholders’ Equity Accounts payable $ 162,000 Common stock 800,000 Retained earnings 138,000 Total liabilities and equity $1,100,000 Required 1. What is the total of budgeted cash collections for December? 2. How much is the book value of accounts receivable at the end of December? 3. How much is the income (loss) before income taxes for December?



4. What is the projected balance in inventory on December 31, 2010? 5. What are budgeted purchases for December? 6. What is the projected balance in accounts payable on December 31, 2010? Q4. Hansell Company’s management wants to prepare budgets for one of its products, duraflex, for July 2010. The firm sells the product for $80 per unit and has the following expected sales (in units) for these months in 2010: April May June July August September 5,000 5,400 5,500 6,000 7,000 8,000 The production process requires 4 pounds of dura-1000 and 2 pounds of flexplas. The firm’s policy is to maintain an ending inventory each month equal to 10 percent of the following month’s budgeted sales, but in no case less than 500 units. All materials inventories are to be maintained at 5 percent of the production needs for the next month, but not to exceed 1,000 pounds. The firm expects all inventories at the end of June to be within the guidelines. The purchase department expects the materials to cost $1.25 per pound and $5.00 per pound for dura1000 and flexplas, respectively. The production process requires direct labor at two skill levels. The rate for labor at the K102 level is $50 per hour and for the K175 level is $20 per hour. The K102 level can process one batch of duraflex per hour; each batch consists of 100 units. The manufacturing of duraflex also requires one-tenth of an hour of K175 workers’ time for each unit manufactured. Variable manufacturing overhead is $1,200 per batch plus $80 per direct labor-hour. The company uses an actual cost system with a LIFO cost-flow assumption. Hansell Company expects its trial balance on June 30 to be as follows:



Typically, cash sales represent 20 percent of sales while credit sales represent 80 percent. Credit sales terms are 2/10, n/30. Hansell bills customers on the first day of the month following the month of sale. Experience has shown that 60 percent of the billings will be collected within the discount period, 25 percent by the end of the month after sales, 10 percent by the end of the



second month after the sale, and 5 percent will ultimately be uncollectible. The firm writes off uncollectible accounts after 12 months. The purchase terms for materials are 2/15, n/60. The firm makes all payments within the discount period. Experience has shown that 80 percent of the purchases are paid in the month of the purchase and the remainder is paid in the month immediately following. In June 2010, the firm budgeted purchases of $25,000 for dura-1000 and $22,000 for flexplas. In addition to variable overhead, the firm has a monthly fixed factory overhead of $50,000, of which $20,000 is depreciation expense. The firm pays all manufacturing labor and factory overhead when incurred. Total budgeted marketing, distribution, customer service, and administrative costs for 2010 are $2,400,000. Of this amount, $1,200,000 is considered fixed and includes depreciation expense of $120,000. The remainder varies with sales. The budgeted total sales for 2010 are $4 million. All marketing and administrative costs are paid in the month incurred. Management desires to maintain an end-of-month minimum cash balance of $40,000. The firm has an agreement with a local bank to borrow its short-term needs in multiples of $1,000 up to $100,000 at an annual interest rate of 12 percent. Borrowings are assumed to occur at the end of the month. Bank borrowing at July 1 is none. Required On the basis of the preceding data and projections, prepare the following budgets: a. Sales budget for July (in dollars). b. Production budget for July (in units). c. Production budget for August (in units). d. Direct materials purchases budget for July (in pounds). e. Direct materials purchases budget for July (in dollars). f. Direct manufacturing labor budget for July (in dollars). g. Prepare the cash budget for July 2010. h. Prepare the budgeted income statement for July 2010. Q5. John commenced business on I January 2012 trading as “John Kitchen Cabinets”, selling 3D kitchen furniture. He had opened a business bank account on 15 December 2011, paying $25000 into it as his opening capital. On 21st December 2011, He rented premises paying the first quarter’s rent, due on 25th of December 2011, $1200. Other expenditure in the same month was for the purchase of fixed assets for cash, $8000, and stock $20,000which was bought on one month’s credit. John estimates that his other purchases and the sales for the year to 31st December 2012 will be as follows: Qtr. Purchases Sales $ $ 01 Jan – 31 Mar 12,000 15,000 01 Apr – 30 Jun 18,000 24,000 01 Jul – 30 Sep 21,000 30,000 01 Oct – 31 Dec 15,000 36,000 All purchases and sales will be on one month’s credit Other expenditure in 2012 will be as follows:



January 5 purchase of motor van for cash $5,000; the van is to be depreciated annually at the rate of 20% on cost. Wages $2,000 per month paid currently. John will draw $500 per month for leaving expenses. He plans to sell his private car in June for $1500 and to pay the proceeds into the business as additional capital. A friend has also promised to lend the business $6,000 in September 2012. John’s bank has agreed to allow overdraft facilities. If they are required with interest at 10% per annum. Interest will be debited in the bank statements on the last day of each half year and will be calculated on the average overdraft. Required: Prepare John’s Cash Budget for the year to 31st December 2012. Q6 Tesco estimates that his purchases and sales for the year to 30 June 1994 will be as follows: Tesco balance sheet at 30 June 1993 was as follows: Fixed assets Cost Acc. Dep. Net Equipment 5000 3000 2000 Motor vehicles 8000 5000 3000 13,000 8,000 5,000 Current asset Stock 4,800 Trade debtors 6,800 Cash at bank 10,000 21,600 Less current liabilities Trade creditors (3,100) Net working capital 18,500 Finance by capital account: balance at 1 July 1992 23,500 20,000 Add: profit for the year 8500 28,500 Less drawing (5,000) 23,500 Purchase Sale 1993 July- September 18,000 33,000 October – December 24,000 51,000 1994 January – march 21,000 42,000 April – June 24,000 48,000 Tesco receives one month’s credit on all purchases and allows one month’s credit on all sales. The following expenses will be incurred in the year to 30 June 1994: Rent $800 per quarter payable in advance on 1 January, 1 April, 1 July 1 October. Wage $1,800 per month payable currently On 1 July 1993 Tesco will pay an insurance premium in the sum of $1,500 up to 30 September 1994 Other expenses will amount to $2000 per month Tesco will additional equipment on 1 October 1993 $3,000



A van which cost $4000 and has a written down value at 30 June 1993 of $1,500 will be sold for $1,100 on 1 January 1994. A new van will be purchased on 1 October 1993 for $8000 Motor van is depreciated at 12 ½% per annum on cost, Equipment is depreciated by 10% per annum on cost. Tesco will draw $1,000 per month for living expenses. Stock of goods at 30 June 1994 will be $7,300. Required: I. II.



III.



Tesco cash budget for the year to 30 June 1994 and A forecast trading and profit and loss account for the year to 30 June 1994 and A balance sheet as at that date.



Q7 Gold Sporting Equipment (GSE) is in the process of preparing its budget for the third quarter of 2010. The budgeting staff has gathered the following data: 1. Account balances as of June 30: Cash $ 25,000 Accounts receivable 15,000 Short-term payable (equipment purchase) 0 Merchandise inventory 47,520 Building and equipment (net) 200,000 Bank loans pay 0 Income tax payable 0 2. Recent and forecasted sales: June (actual) $ 75,000 July 80,000 August 82,000 September 90,000 October 100,000 3. Sales are 80 percent cash and 20 percent on credit. Credit accounts are all collected 30 days after sale. 4. At gross purchase prices of inventories, GSE’s gross margin averages 40 percent of revenues. GSE records all inventory purchases net of available purchase discounts. 5. Operating expenses: Salaries and wages, $8,000 per month plus 5 percent of revenue; rent and property tax, $1,000 per month; other operating expenses, excluding depreciation, 2 percent of revenues; depreciation $800 per month. All cash operating expenses in a month are paid before the end of the month. 6. GSE has no minimum inventory requirement. The policy is to purchase each month on the 15th the expected sales (@ cost) for the following month. Terms of purchases are 1/10, n/30. Purchases usually arrive on or before the 20th. GSE’s policy is to take all cash discounts offered. 7. GSE is negotiating the purchase of new equipment for $127,000 to be installed in September. Terms are 50 percent in the month before and 50 percent after the month of installation.



8. Minimum cash balance is $30,000. All borrowings are effective at the beginning of the month and all repayments are made at the end of the month of repayment. Loans are repaid when sufficient cash is available. The interest rate is 15 percent per year, payable at the end of each month. Both borrowings and repayments are in multiples of $10,000. Management does not want to borrow any more cash than is necessary and wants to repay whenever the cash on hand exceeds the minimum requirement. 9. GSE plans to pay no dividend to stockholders. Required Complete schedules A through E. 2. Prepare a budgeted income statement for the third quarter and beginning and end-of-quarter balance sheets. GSE estimates its income tax rate at 25 percent, payable in the second quarter of the following year. (Hint: Cost of goods sold % is 59.4 %.)



QUESTION 8 MERCY COMPANY produces a single product; product X. In February 2011, The company’s management is concerning preparation of the company’s master budget for next month (march 2011) to plan its profit. The company’s management predicts sales for March 2011 and April 2011 will be $42,000 and $48,000, respectively. Product X are purchased to resell at a markup of 60% of cost. Starting from March 2011 onward, 70% of the sales are cash sales. The credit sales should be collected in the following manners : 60% collected in the month of sale 40% collected in the next month On 1 March 2011, the company has balance of accounts receivable of $5,460. No uncollectible amount is estimated. To be a cushion against short of product X available for sale, the management planned to maintain balance of inventory of product X at the end of each month at 20% of next month’s cost of goods sold. On 1 March 2011, the company has balance of inventory (Product X) of $12,960 All Product X purchases are made on credit and due within 10 days after purchased. This mean that two-third (2/3) of the amount purchases in March 2011 is due in March 2011 and remaining one-third (1/3) of amount purchases in March 2011 is due in April 2011. On 1 March 2011, the company has balance of accounts payable of $5,000 which is due in March 2011 in entirety The following selling general and administrative (SG&A) expenses are expected to incur in March 2011 : Salaries $ 5,800 Utilities 750 Rent (prepayment) 3,000 Gasoline 500 Advertising (prepayment) 1,200 Depreciation 1,500 Salaries and gasoline are paid for when the expense is incurred. Utilities are paid for in the following month (the February 2011 utility bill was $720). Three-month rent was prepaid on 1 February 2011 . On 1 March 2011, an advance of $3,600 was given to an advertising agency for 3 months of promotion. The company is subjected to 30% tax rate. No tax payment is made in March 2011 (Tax payment will be made in May 2011). The cash balance as at 1 March 2011 is $8,600. Required: Prepare the cash budget and budgeted income statement



QUESTION 9 Mrs. Angela runs a children toy shop named ENJOY COMPANY. In July 2010, she is in process of preparing her company’s first cash budget to make liquidity planning. She predicts sales for August 2010 and September 2010 will be $35,000 and $28,000, respectively. All toys are purchased to resell at a markup of 80% of cost.



Starting from August 2010 onward, 40% of the sales are cash sales. The credit sales should be collected in the following manners : 70% collected in the month of sale 28% collected in the next month 2% is estimated to be uncollectible in the month of sale On 1 August 2010, customers owe the shop $350 for sales made in June 2010 and $3,150 for sales made in July 2010 (Balance of accounts receivable as at 1 August is $350 + $3,150 = $3,500). Angela estimated in August 2010 that the balance of receivables of $350 resulting from credit sales in June 2010 will entirely go uncollected and all balance of receivables of $3,150 from credit sales in July 2010 will entirely be collected in August 2010. To be a cushion against short of toys available for sale, she planned to maintain balance of inventory of toys at the end of each month equal to 20% of next month’s cost of goods sold. The toys purchases for July are $13,125. All toys purchases are made on credit and due within 10 days after purchased. This mean that approximately two-third (2/3) of each month’s purchases are paid for in the month of purchases and one-third (1/3) of each month’s purchases are paid for in the month after the purchases were made. On 1 August 2010, the company has balance of accounts payable of $3,850 whereby payments to suppliers are due in August in entirety The following selling general and administrative (SG&A) expenses are expected to incur in August 2010 : Salaries $ 2,800 Utilities 875 Rent (prepayment) 5,250 Gasoline 350 Advertising (prepayment) 875 Depreciation 1,200 Bad debt ? Salaries and gasoline are paid for when the expense is incurred. Utilities are paid for in the following month (the July utility bill was $787). Three-month rent was prepaid on 1 July 2010 . On 1 August 2010, an advance of $1,750 was given to an advertising agency for 2 months of promotion. The cash balance as at 1 August 2010 is $2,625. Required : Prepare the cash budget and budgeted income statement