ADMS 1500 Study Guide - Income Statement, Contribution Margin, Earnings Before Interest And Taxes
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Preparing a Comprehensive Budget
Ginnie Springs Company has been bottling and selling water since1940. The companyâs current owner would like to know how a newproduct would affect the companyâs rent income in the comingyear.
Required
Calculate Ginnie Springs net income for the new product in thecoming year by completing the operating budgets and budgeted incomestatement that follow. Assume that the selling price will remainconstant.
Sales budget
Ginnie Springs Company
Sales Budget
Forthe year Ended December 31
Quarter
1 | 2 | 3 | 4 | Year | |
Sales in Units | 40,000 | 30,000 | 50,000 | 55,000 | 175,000 |
Selling price per unit | X $1 | X ? | X ? | X ? | X ? |
Totals Sales | 40,000 | $ ? | X ? | X ? | X ? |
2. Production Budget:
Ginnie SpringsCompany
ProductionBudget
For the year Ended December31_____________
Quarter
1 | 2 | 3 | 4 | Year | |
Sales in Units | 40,000 | ? | ? | ? | ? |
Plus desired units of ending finished goods inventory* | 30,000 | ? | ? | 6000 | 6000 |
Desired total Units | 43000 | ? | ? | ? | ? |
Less desired units of ending finished goods inventory* | 4000 | ? | ? | ? | 4000 |
Total Production units | 39,000 | ? | ? | ? | ? |
*Desired units of ending finished goods inventory = 10% of nextquarterâs budgeted production needs in ounces. Desired ounces ofbeginning direct materials inventory = 20% of current quartersbudgeted production needs in ounces.
3.DirectMaterials Purchases budget
Ginnie SpringsCompany
Direct Materials PurchaseBudget
For the year Ended December31_____________
Quarter
1 | 2 | 3 | 4 | Year | |
Total production units | 39,000 | 32,000 | 50,500 | 55,500 | ? |
Ounces per unit | X 20 | X 20 | X 20 | X 20 | X 20 |
Total production needs in ounces | 780,000 | ? | ? | ? | ? |
Plus desired ounces of ending direct materials inventory* | 128,000 908,000 | ? ? | ? ? | 240,000 ? | 240,000 ? |
Less desired ounces of ending direct materials inventory* | 156,000 | ? | ? | ? | 156,000 |
Total ounces of direct material to be purchased | 752,000 | ? | ? | ? | ? |
Cost per ounce | X $0.01 | X ? | X ? | X ? | X ? |
Total cost of direct materials purchases | $7520 | ? | ? | ? | ? |
Desired ounces of ending direct material inventory =20% of nextquarters budgeted production needs in ounces.
Desired ounces of beginning direct materials inventory = 20% ofcurrent quarters budgeted production needs in ounces.
4.Directlabor budget:
Ginnie SpringsCompany
Direct LaborBudget
For the year EndedDecember 31_____________
Quarter
1 | 2 | 3 | 4 | Year | |
Total production units | 39,000 | ? | ? | ? | ? |
Direct labor hours per units | X 0.001 | X ? | X ? | X ? | X ? |
Total direct labor hours | 39.0 | ? | ? | ? | ? |
Direct labor cost per hour | X $8 | X ? | X ? | X ? | X ? |
Total direct labor cost | $312 | $ ? | $ ? | $ ? | $ ? |
5.Overheadbudget
Ginnie SpringsCompany
Overhead Budget
For the year EndedDecember 31_____________
Quarter
1 | 2 | 3 | 4 | Year | |
Variable overhead costs: | |||||
Factory supplies ($0.01) | $ 390 | $ ? | $ ? | $ ? | $ ? |
Employee benefits ($0.05) | 1,950 | ? | ? | ? | ? |
Inspection ($0.01) | 390 | ? | ? | ? | ? |
Maintenance and repairs($0.02) | 780 | ? | ? | ? | ? |
Utilities ($0.01) | 390 | ? | ? | ? | ? |
Total Variable overheadcosts | $3900 | $ ? | $ ? | $ ? | $ ? |
Total fixed overhead costs | 1416 | ? | ? | ? | ? |
Total overhead costs | $5,316 | $ ? | $ ? | $ ? | $ ? |
Note: The figures in parentheses are variable costs perunit.
6.Sellingand administrative expenses budget:
Ginnie SpringsCompany
Selling and Administrative Expenses Budget
For the year EndedDecember 31_____________
Quarter
1 | 2 | 3 | 4 | Year | |
Variable Selling and Administrative expenses | |||||
Delivery expenses ($0.01) | $ 400 | $ ? | $ ? | $ ? | $ ? |
Sales Commission ($0.02) | 800 | ? | ? | ? | ? |
Accounting ($0.01) | 400 | ? | ? | ? | ? |
Other administrative expenses($0.01) | 400 | ? | ? | ? | ? |
Total Variable selling and administrative exp. | $2,000 | $ ? | $ ? | $? | $? |
Total fixed selling and administrative exp. | 5000 | ? | ? | $? | ? |
Total selling and administrative expenses | $ 7,000 | $ ? | $ ? | $ ? | $ ? |
Note: The figures in parentheses arevariable costs per unit
7. Cost of goods manufactured budget:
Ginnie SpringsCompany
Cost of Goods Manufactured Budget
For the year EndedDecember 31_____________
Direct Material Used:
Direct Material Inventory,Beginning
Purchases
Cost of Direct materials available foruse
Less: Direct materials Inventory,ending
Cost of Direct Materialsused
Direct laborcosts:
Overhead costs:
Total manufacturing costs
Work in Process Inventory,beginning*
Less: work in process inventory,ending*
Cost of Goods Manufactured
Units produced
Manufactured cost perunit
It is the companyâs policy to have no units in process at theend of theyear.
8. Budgeted income statement
Ginnie Springs Company
Selling and Administrative Expenses Budget
For the year EndedDecember 31_____________
Sales
Cost of goods sold
Finished goods inventory beginning
Cost of goods manufactured
Cost of Goods available for sale
Less finished goods inventory, ending
Cost of good sold
Gross margin
Selling and administrative expenses
Income from operations
Income taxes expenses (30% tax rate)
Net Income
Requirement 2:
The company has just hired a new marketing manager who insiststhat unit sales can be dramatically increased by dropping theselling price from $8 to $7. The marketing manager would like touse the following projections in the budget:
Check your worksheet by changing the budgeted unit sales inQuarter 2 of Year 2 in cell C5 to 75,000 units. The total expectedcash collections for the year should now be $2,085,000. If you donot get this answer, find the errors in your worksheet and correctthem.
Data | Year 2 Quarter | Year 3 Quarter | ||||
1 | 2 | 3 | 4 | 1 | 2 | |
Budgeted unitsales | 50,000 | 70,000 | 115,000 | 60,000 | 80,000 | 95,000 |
Selling price perunit | $7 | per unit | ||||
A | B | C | D | E | F | F | |
1 | Chapter 9: Applying Excel | ||||||
2 | |||||||
3 | Data | Year 2 Quarter | Year 3 Quarter | ||||
4 | 1 | 2 | 3 | 4 | 1 | 2 | |
5 | Budgeted unit sales | 50,000 | 70,000 | 115,000 | 60,000 | 80,000 | 95,000 |
6 | |||||||
7 | ⢠Selling price per unit | $7 | per unit | ||||
8 | ⢠Accounts receivable, beginning balance | $65,000 | |||||
9 | ⢠Sales collected in the quarter sales are made | 75% | |||||
10 | ⢠Sales collected in the quarter after sales are made | 25% | |||||
11 | ⢠Desired ending finished goods inventory is | 30% | of the budgeted unit sales of the next quarter | ||||
12 | ⢠Finished goods inventory, beginning | 12,000 | units | ||||
13 | ⢠Raw materials required to produce one unit | 5 | pounds | ||||
14 | ⢠Desired ending inventory of raw materials is | 10% | of the next quarter's production needs | ||||
15 | ⢠Raw materials inventory, beginning | 23,000 | pounds | ||||
16 | ⢠Raw material costs | $0.80 | per pound | ||||
17 | ⢠Raw materials purchases are paid | 60% | in the quarter the purchases are made | ||||
18 | and | 40% | in the quarter following purchase | ||||
19 | ⢠Accounts payable for raw materials, beginning balance | $81,500 | |||||
20 |
c. What is the total cost of raw materials to be purchased forthe year under this revised budget?
d. What are the total expected cash disbursements for rawmaterials for the year under this revised budget?
Here is what I got... but my answers are wrong... pleasehelp
Chapter 9: ApplyingExcel | |||||||
Data | Year 2 Quarter | Year 3 Quarter | |||||
1 | 2 | 3 | 4 | 1 | 2 | ||
Budgeted unit sales | 50,000 | 70,000 | 115,000 | 60,000 | 80,000 | 95,000 | |
⢠Selling price per unit | $7 | per unit | |||||
⢠Accounts receivable, beginningbalance | $65,000 | ||||||
⢠Sales collected in the quarter salesare made | 75% | ||||||
⢠Sales collected in the quarter aftersales are made | 25% | ||||||
⢠Desired ending finished goodsinventory is | 30% | of the budgeted unit sales of the next quarter | |||||
⢠Finished goods inventory,beginning | 12,000 | units | |||||
⢠Raw materials required to produce oneunit | 5 | pounds | |||||
⢠Desired ending inventory of rawmaterials is | 10% | of the next quarter's production needs | |||||
⢠Raw materials inventory,beginning | 23,000 | pounds | |||||
⢠Raw material costs | $0.80 | per pound | |||||
⢠Raw materials purchases are paid | 60% | in the quarter the purchases are made | |||||
and | 40% | in the quarter following purchase | |||||
⢠Accounts payable for raw materials,beginning balance | $81,500 | ||||||
Enter a formula into eachof the cells marked with a ? below | |||||||
Review Problem: Budget Schedules | |||||||
Construct the sales budget | Year 2 Quarter | Year 3 Quarter | |||||
1 | 2 | 3 | 4 | 1 | 2 | ||
Budgeted unit sales | 50,000 | 70,000 | 115,000 | 60,000 | 80,000 | 95,000 | |
Selling price per unit | $7 | $7 | $7 | $7 | $7 | $7 | |
Total sales | $350,000 | $490,000 | $805,000 | $420,000 | $560,000 | $665,000 | |
Construct the schedule of expected cashcollections | Year 2 Quarter | ||||||
1 | 2 | 3 | 4 | Year | |||
Accounts receivable, beginningbalance | $ 65,000 | $ 65,000 | |||||
First-quarter sales | 262,500 | $ 87,500 | $ 350,000 | ||||
Second-quarter sales | 367,500 | $ 122,500 | $ 490,000 | ||||
Third-quarter sales | 603,750 | $ 201,250 | $ 805,000 | ||||
Fourth-quarter sales | 315,000 | $ 315,000 | |||||
Total cash collections | $ 327,500 | $ 455,000 | $ 726,250 | $ 516,250 | $ 2,025,000 | ||
Construct the production budget | Year 2 Quarter | Year 3 Quarter | |||||
1 | 2 | 3 | 4 | Year | 1 | 2 | |
Budgeted unit sales | 50,000 | 70,000 | 115,000 | 60,000 | 295,000 | 80,000 | 95,000 |
Add desired finished goodsinventory | 21,000 | 34,500 | 18,000 | 24,000 | 24,000 | 28,500 | |
Total needs | 71,000 | 104,500 | 133,000 | 84,000 | 319,000 | 108,500 | |
Less beginning inventory | 12,000 | 21,000 | 34,500 | 18,000 | 12,000 | 24,000 | |
Required production | 59,000 | 83,500 | 98,500 | 66,000 | 307,000 | 84,500 | |
Construct the raw materials purchasesbudget | Year 2 Quarter | Year 3 Quarter | |||||
1 | 2 | 3 | 4 | Year | 1 | ||
Required production (units) | 59,000 | 83,500 | 98,500 | 66,000 | 307,000 | 84,500 | |
Raw materials required to produce oneunit | 5 | 5 | 5 | 5 | 5 | 5 | |
Production needs (pounds) | 295,000 | 417,500 | 492,500 | 330,000 | 1,535,000 | 422,500 | |
Add desired ending inventory of rawmaterials (pounds) | 41,750 | 42,500 | 28,000 | 36,500 | 36,500 | ||
Total needs (pounds) | 336,750 | 460,000 | 520,500 | 366,500 | 1,571,500 | ||
Less beginning inventory of rawmaterials (pounds) | 23,000 | 41,750 | 42,500 | 28,000 | 23,000 | ||
Raw materials to be purchased | 313,750 | 418,250 | 478,000 | 338,500 | 1,548,500 | ||
Cost of raw materials per pound | $0.80 | $0.80 | $0.80 | $0.80 | $0.80 | ||
Cost of raw materials to bepurchased | $251,000 | $334,600 | $382,400 | $270,800 | $1,238,800 | ||
Construct the schedule of expected cashpayments | Year 2 Quarter | ||||||
1 | 2 | 3 | 4 | Year | |||
Accounts payable, beginningbalance | $ 81,500 | $ 81,500 | |||||
First-quarter purchases | 150,600 | $ 100,400 | 251,000 | ||||
Second-quarter purchases | 200,760 | $ 133,840 | $ 334,600 | ||||
Third-quarter purchases | 229,440 | $ 152,960 | 382,400 | ||||
Fourth-quarter purchases | 162,480 | $ 162,480 | |||||
Total cash disbursements | $ 232,100 | $ 301,160 | $ 363,280 | $ 315,440 | $ 1,211,980 | ||
Watsonâs revised pro forma cost of goods sold is closest to | |
A. | $16,565,000 |
B. | $16,942,000 |
C. | $17,377,000 |
D. | $17,760,000 |
The following information was adapted from a question on Part 4 of the December 1990 CMA examination that concerned preparation of a pro forma statement of cost of goods sold. The following is Watson Corporationâs pro forma statement of cost of goods sold for the year ended August 31, Year 2.
| The results for the first quarter required the following changes in the budget assumptions: The estimated production in units for the fiscal year should be revised from 140,000 to 145,000 units with the balance of production being scheduled in equal segments over the last 9 months of the year. The actual first quarterâs production was 25,000 units. The planned inventory for finished goods of 3,300 units at the end of the fiscal year remains unchanged and will be valued at the average manufacturing cost for the year. The finished goods inventory of 9,300 units on September 1, Year 1, had dropped to 9,000 units by November 30, Year 1. Due to a new labor agreement, the labor rate will increase 8% effective June 1, Year 2, the beginning of the fourth quarter, instead of the previously anticipated effective date of September 1, Year 2, the beginning of the next fiscal year. The assumptions remain unchanged for direct materials inventory at 16,000 units for the beginning inventory and 18,500 units for the ending inventory. Direct materials inventory is valued on a FIFO basis. During the first quarter, direct materials for 27,500 units of output were purchased for $2,200,000. Although direct materials will be purchased evenly for the last 9 months, the cost of the direct materials will increase by 5% on March 1, Year 2, the beginning of the third quarter. One unit of raw material is used in each unit of product. Indirect materials costs will continue to be projected at 10% of the cost of direct materials consumed. One-half of general factory overhead is considered fixed. |