ACC-1B Lecture Notes - Lecture 21: Income Statement

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lemonwasp425

7 Aug 2020

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Each of the operating budgets we just prepared corresponds to a line item on the income statement. We started with a sales forecast that we used to compute budgeted sales revenue. We then created budgets for all of the manufacturing costs, which we used to compute budgeted cost of goods sold. Finally we created a selling and administrative expense budget, we can now combine all of the operating budgets into a budgeted income statement. Prepare the cash budget and merchandise purchases budget. The cash budget is a future-oriented version of the statement of cash flows that provides managers with critical information needed to manage their daily operations. Because cash is such a critical resource, most managers prepare a cash budget on a monthly, weekly, or even daily basis. (however for our purposes we will prepare them quarterly) The operating budgets feed directly into the cash budget, which then feeds into the budgeted balance sheet.

Related Questions

The purpose of this problem is to demonstrate some of theinterrelationships in the budgeting process. Shown below is a verysimple balance sheet at January 1, along with a simple budgetedincome statement for the month. (Assume dollar amounts are statedin thousands; you also may state dollar amounts in thismanner.)
Cash
. . . . . . . . . $ 40
Accounts payable . . . . . . . $ 30
Ownersâ equity . . . . . . . . . 180
Total . . . . . . . . . . . . $210
NUTSHELL BALANCE SHEET JANUARY 1
Assets Liabilities & Equity
NUTSHELL BUDGETED INCOME STATEMENT FOR JANUARY
Sales . . . . . . . . . . . . . . . $100Cost of goods
Accounts receivable . . . 120
Inventory . . . . . . 50
Total . . . . . . . . . . $210
sold . . . . . . . . . . . . . . Grossprofit . . . . . . . . . . Expenses . . . .. . . . . . . . Net income . . . . . . . . . .
60
$ 40 25
$ 15
As Nutshell has no plant assets, there is no depreciation expense.Prepare a cash budget for Janu- ary and a budgeted balance sheet asof January 31.
These budgets are to reflect your own assumptions as to the amountsof cash and credit sales, collections of receivables, purchases ofinventory, and payments to suppliers. We require only that the cashbalance be $50 at January 31, that receivables and inventory changefrom the January 1 levels, and that the company engage in noâfinancingâ or âinvestingâ activities (as these terms are used in astatement of cash flows).
Clearly state your assumptions as part of your solution, and beprepared to explain in class how they result in the amounts shownin your budgets

erinmuskrat419

NUTSHELL BALANCE SHEET JANUARY 1

Cash- $40 Accounts Payable- $30

Accounts Receivable- 120 Owner`s Equity- 180

Inventory- 50 Total- 210

Total- 210

NUTSHELL BUDGETED INCOME STATEMENT FOR JANUARY

Sales . . . . . . . . . . . . . . . $100

COGS ...............................60

Gross Profit .........................40

Expenses ........................25

Net Income ................... 15

As Nutshell has no plant assets, there is no depreciation expense.Prepare a cash budget for Janu- ary and a budgeted balance sheet asof January 31.
These budgets are to reflect your own assumptions as to the amountsof cash and credit sales, collections of receivables, purchases ofinventory, and payments to suppliers. We require only that the cashbalance be $50 at January 31, that receivables and inventory changefrom the January 1 levels, and that the company engage in noâfinancingâ or âinvestingâ activities (as these terms are used in astatement of cash flows).
Clearly state your assumptions as part of your solution, and beprepared to explain in class how they result in the amounts shownin your budgets

violeteel399

PROBLEM 1 (60 Points)

Newtown Supply Company is preparing its master budget for 2017.Relevant data pertaining to its operating budgets are asfollows:

Sales Budget: Sales for the year are expectedto total 800,000 units. 20% of sales are expected to occur in the1^st quarter, 25% in the 2^nd quarter, 25% inthe 3^rd quarter, and 30% in the 4^th quarter.The unit selling price is expected to be $35 for the first 3quarters, and increasing to $38 beginning in the 4^thquarter.

Production Budget: Management desires tomaintain the ending finished goods inventories at 25% of the nextquarterâs budgeted sales volume.

(Sales in the 1^st quarter of 2018 areexpected to be the same as the 4^th quarter of2017.)

Direct Materials Budget: Each unit requires 3pounds of raw materials at a cost of $3 per pound. Managementdesires to maintain raw materials inventories at 10% of the nextquarterâs production requirements. (Production in the1^st quarter of 2018 is expected to be the same as the4^th quarter of 2017.)

Direct Labor Budget: Durham budgets 0.5 hoursfor direct labor per unit. The direct labor rate is expected to $20per hour for the 1^st, 2^nd, and 3^rdquarters, and increasing to $22 per hour in the 4^thquarter.

Budgeted Income Statement: The budgeted unitcost including budgeted direct materials, budgeted direct labor,and budgeted manufacturing overhead for 2017 is $22. The totalbudgeted selling and administrative expenses for 2017 are$2,200,000. The companyâs effective tax rate is 30%.

Instructions

Prepare the following budgets by quarters and in total for2017:

(a)Sales

(b)Production

(c) Directmaterials

(d) Direct labor

(e) Income statement (Totals only âdetail by quarter is not required.)

PROBLEM 2 (40 Points)

HFC Corp. has budgeted sales revenues as follows for the firstquarter of 2017:

January February March

Cashsales $ 95,000 $260,000 $200,000

Creditsales 130,000 140,000 90,000

Total sales $225,000 $400,000 $290,000

Past experience indicates that 60% of the creditsales will be collected in the month of sale and theremaining 40% will be collected in the following month. Purchasesof direct materials are all on credit and 50% arepaid in the month of purchase and 50% in the month followingpurchase. Budgeted materials purchases are as follows:

January $300,000

February $250,000

March $105,000

Other cash receipts:

(a) Proceeds from the sale of marketable securities in Marchwill net $60,000

Other cash disbursements are budgeted asfollows:

(a) Direct labor $45,000 in February and $35,000 in March.

(b) Manufacturing overhead $20,000 in February and $16,000 inMarch.

depreciation expense permonth.

(d) Dividends of $70,000 will be paid in February.

(e) Equipment purchase of $75,000 in March.

The company wishes to maintain a minimum cash balance of $50,000at the end of each month. If necessary, the company borrows moneyfrom the bank at 6% interest (.5% monthly rate) to maintain theminimum cash balance. Borrowed money is repaid in months when thereis an excess cash balance (that is, when the cash on hand exceedsthe $50,000 minimum balance).The beginning cash balance on February1 is expected to be $60,000.

Instructions

(a) Prepare schedules for (1) expectedcollections from customers and

(2) expected payments for directmaterial purchases for February and

March.

(b) Prepare a cash budget for Februaryand March in columnar form.

jadeserval260

ACC-1B Lecture Notes - Lecture 21: Income Statement

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