Problem 9-15 (60 minutes)

1. The sales budget for the third quarter:

Month AugustJuly September Quarter

Budgeted sales in units..... 30,000 70,000 50,000 150,000Selling price per unit ......... × $12 × $12 × $12 × $12 Budgeted sales .............. $360,000 $840,000 $600,000 $1,800,000

The schedule of expected cash collections from sales:

Accounts receivable, June 30: $300,000 x 65%.................................

$195,000 $195,000July sales: $360,000 × 30%, 65%........................

108,000 $234,000 342,000

August sales: $840,000 × 30%, 65%.....................

252,000 $546,000 798,000

September sales: $600,000 × 30% ..............

180,000 180,000

Total cash collections ........ $303,000 $486,000 $726,000 $1,515,000 2. The production budget for July-October:

July August September OctoberBudgeted sales in units................ 30,000 70,000 50,000 20,000Add desired ending inventory ...... 10,500 7,500 3,000 1,500 Total needs................................ 40,500 77,500 53,000 21,500Less beginning inventory ............. 4,500 10,500 7,500 3,000Required production..................... 36,000 67,000 45,500 18,500

13

3. The material purchases budget for the third quarter:

Month AugustJuly September Quarter

Required production (above)

36,000 67,000 45,500

148,500

Raw material needs per unit ..............................

× 4 ft. × 4 ft.

× 4 ft.

× 4 ft.

Production needs (ft.).......... 144,000 268,000 182,000 594,000Add desired ending inventory (ft.) .....................

134,000 91,000 37,000

* 37,000

*

Total needs (ft.) ................ 278,000 359,000 219,000 631,000Less beginning inventory (ft.).....................................

72,000 134,000 91,000

72,000

Raw materials to be purchased .........................

206,000 225,000 128,000

559,000

Cost of raw materials to be purchased at $0.80 per ft. .................................

$164,800 $180,000 $102,400 $447,200 *18,500 units (October) × 4 ft. = 74,000 ft.; 74,000 ft. × 1/2 = 37,000 ft.

14

The schedule of expected cash payments:

Accounts payable, June 30 ............................

$76,000 $76,000

July purchases: $164,800 ..........................

82,400 $82,400 164,800

August purchases: $180,000 ..........................

90,000 $90,000 180,000

September purchases: $102,400 ..........................

51,200 51,200

Total cash payments ....... $158,400 $172,400 $141,200 $472,000

15

Problem 9-18 (120 minutes)

1. Schedule of expected cash collections:

FebruaryJanuary March QuarterCash sales ............................ $ 80,000* $120,000 $ 60,000 $ 260,000Credit sales ........................... 224,000* 320,000 480,000 1,024,000 Total cash collections ......... $304,000* $440,000 $540,000 $1,284,000

*Given.

2. a. Inventory purchases budget:

January February March QuarterBudgeted cost of goods sold1................................

$240,000* $360,000

$180,000 $780,000

Add desired ending inventory2........................

90,000

* 45,000

30,000 30,000

Total needs .................... 330,000* 405,000 210,000 810,000Less beginning inventory .. 60,000* 90,000 45,000 60,000Required purchases.......... $270,000* $315,000 $165,000 $750,000

1For January sales: $400,000 × 60% cost ratio = $240,000. 2At January 31: $360,000 × 25% = $90,000. At March 31: $200,000 April sales × 60% cost ratio × 25% = $30,000. *Given.

19

20

Problem 9-18 (continued)

b. Schedule of cash disbursements for purchases:

January February March Quarter December purchases..... $ 93,000* $93,000*January purchases ($270,000) ..................

135,000

* $135,000*

270,000

*

February purchases ($315,000) ..................

157,500

$157,500 315,000

March purchases ($165,000) ..................

82,500 82,500

Total cash disbursements for purchases .................

$228,000

* $292,500

$240,000 $760,500

*Given. 3. Schedule of cash disbursements for operating expenses:

FebruaryJanuary March QuarterSalaries and wages............... $ 27,000

* $ 27,000 $ 27,000 $ 81,000

Advertising ............................ 70,000* 70,000 70,000 210,000Shipping ................................ 20,000* 30,000 15,000 65,000Other expenses..................... 12,000* 18,000 9,000 39,000 Total cash disbursements for operating expenses ....

$129,000

* $145,000 $121,000 $395,000

*Given.

Problem 9-18 (continued)

4. Cash budget: January February March QuarterCash balance, beginning . $ 48,000* $ 30,000 $ 30,800 $ 48,000Add cash collections........ 304,000* 440,000 540,000 1,284,000 Total cash available ...... 352,000* 470,000 570,800 1,332,000Less disbursements: Purchases of inventory .

228,000* 292,500 240,000 760,500

Operating expenses ..... 129,000

* 145,000 121,000 395,000 Purchases of equipment................... —

* 1,700 84,500

86,200

Cash dividends ............. 45,000 — — 45,000 Total disbursements... 402,000* 439,200 445,500 1,286,700Excess (deficiency) of cash ...............................

(50,000

)* 30,800 125,300

45,300

Financing: Borrowing ..................... 80,000 — — 80,000 Repayments.................. — — (80,000) (80,000) Interest.......................... — — (2,400)** (2,400) Total effects................ 80,000 — (82,400) (2,400)Cash balance, ending...... $ 30,000 $ 30,800 $ 42,900 $ 42,900

*Given. **$80,000 × 12% × 3/12 = $2,400.

21

Problem 9-18 (continued)

5. Income Statement:

HILLYARD COMPANY Income Statement

For the Quarter Ended March 31

Sales .............................................................. $1,300,000Less cost of goods sold: Beginning inventory (given) ........................ $ 60,000 Add purchases (Part 2) ............................... 750,000 Goods available for sale ............................. 810,000 Ending inventory (Part 2) ............................ 30,000 780,000*Gross margin ................................................. 520,000Less operating expenses: Salaries and wages (Part 3)........................ 81,000 Advertising (Part 3) ..................................... 210,000 Shipping (Part 3) ......................................... 65,000 Depreciation ($14,000 x 3).......................... 42,000 Other expenses (Part 3).............................. 39,000 437,000Net operating income..................................... 83,000Less interest expense (Part 4) ....................... 2,400Net income..................................................... $ 80,600

*A simpler computation would be: $1,300,000 × 60% = $780,000.

22

Problem 9-18 (continued)

6. Balance sheet:

HILLYARD COMPANY Balance Sheet As of March 31

Assets Current assets: Cash (Part 4).................................................................... $ 42,900 Accounts receivable (80% × $300,000)............................ 240,000 Inventory (Part 2) ............................................................. 30,000 Total current assets ....................................................... 312,900Buildings and equipment, net ($370,000 + $86,200 – $42,000).................................

414,200

Total assets ......................................................................... $727,100

Liabilities and Equity Current liabilities: Accounts payable (Part 2: 50% × $165,000) .. $ 82,500Stockholders’ equity: Capital stock .................................................. $500,000 Retained earnings* ........................................ 144,600* 644,600Total liabilities and equity .................................. $727,100

*Retained earnings, beginning..................... $109,000 Add net income .......................................... 80,600 Total......................................................... 189,600 Deduct cash dividends ............................... 45,000 Retained earnings, ending ......................... $144,600

23