Chapter 7 The Master Budget: Profit Planning 361Chapter 7The Master Budget: Profit PlanningShort Exercises(5 minutes) S 7-1The budget forces managers to plan.The budget promotes coordination and communicationThe budget provides a benchmark.(5-10 minutes) S 7-2List in order of preparation the items of the master budget:7 a. Budgeted balance sheet1 b. Sales budget5 c. Budgeted income statement6 d. Cash budget3 e. Direct materials, direct labor, manufacturing overhead, and ending finished goods inventory budgets4f. Selling and administrative budget2g. Production budgetManagerial Accounting, 1/e Solutions Manual362(5 minutes) S 7-3Mountaineers Sales Budget JanuaryFebruaryTotal Sales price per pair$ 165$ 220 Number of pairs 4,000 2,000 Total sales$660,000$440,000$1,100,000(continues S 7-3) (35-45 minutes) S 7-4Mountaineers Production BudgetJanuary February March Budgeted sales in shoes quantity (From S 7-3) 4,000 2,000 4,600 Add: Ending finished goods inventory 800 a 1,840 b 1,600 c Budgeted finished goods available 4,800 3,840 6,200 Less: Beginning finished goods inventory. 0 800 1,840Budgeted production 4,800 3,040 4,360 _ a0.40 2,000b0.40 4,600c0.40 4,000Chapter 7 The Master Budget: Profit Planning 363(continued) S 7-4Mountaineers Direct Materials BudgetJanuaryFebruaryMarch Budgeted production 4,800 3,040 4,360 Direct materials cost per pair$ 80 $ 80 $ 80 Budgeted direct materialsneeded to be purchased$384,000 $243,200 $348,800 Mountaineers Direct Labor BudgetJanuaryFebruaryMarch Budgeted production 4,800 3,040 4,360 Direct labor cost per pair$ 50 $ 50 $ 50 Budgeted direct labor$240,000 $152,000 $218,000 Mountaineers Manufacturing Overhead BudgetJanuaryFebruaryMarch Budgeted production 4,800 3,040 4,360 Variable manufacturing overhead cost per pair*$ 40 $ 40 $ 40 Budgeted variable manufacturing overhead192,000121,600174,400 Fixed manufacturing overhead20,00020,00020,000 Total budgeted manufacturing overhead212,000141,600194,400 Less: Depreciation4,000 4,000 4,000 Budgeted cash disbursements for manufacturing overhead$208,000 $137,600$190,400*$20 per shoe 2 shoes per pair = $40 per pairManagerial Accounting, 1/e Solutions Manual364(continues S 7-4) (15-20 minutes) S 7-5Mountaineers Budgeted Cash Collections from Customers JanuaryFebruary Cash sales$ 132,000a$ 88,000 Collection of credit sales: 30% of current month credit sales158,400b105,600 60% of prior month credit sales191,760c316,800 7% of credit sales two months ago 21,616d 22,372 Total collection of credit sales371,776444,772 Total cash collections$ 503,776$ 532,772 _ a0.20 $660,000b0.80 $660,000 x 0.30c0.80 x $399,500 x 0.60d0.80 x $386,000 x 0.07(5-10 minutes) S 7-6Mountaineers Cash Budget Month Ended December 31 Beginning cash balance$ 8,600 Cash collections from customers548,600 Cash available before financing557,200 Total cash payments563,230 Ending cash balance before financing(6,030) Less: Minimum cash balance desired(7,400) Cash excess (deficiency)$ (13,430) _ Mountaineers will need to borrow $13,430 in cash by the end of December.Chapter 7 The Master Budget: Profit Planning 365(10-15 minutes) S 7-7Riverbed Sporting Goods Store Sales BudgetAprilMayJuneJulyApril-July Total Cash sales, 60%$32,400 $51,600 $24,000 $32,400 Credit sales, 40% 21,600 34,400 16,000 21,600 Total sales, 100% $54,000 $86,000 $40,000 $54,000 $234,000Exercises(15 minutes) E 7-8This Year ActualLast Year ActualVariance Sales revenue (8,000 $200)$1,600,000(10,000 $150)$1,500,000$100,000 Variable expenses ($150 8,000)(1,200,000) Variable expenses ($120 10,000)(1,200,000)-0- Fixed expenses (110,000) (110,000)-0- Net income$ 290,000$ 190,000$100,000A better system would compare this years actual results with this years budget, which considers all factors that affect this years operations.Managerial Accounting, 1/e Solutions Manual366(15-20 minutes) E 7-9BudgetPurposeOperatingProjects the operating income for the period through the budgeted income statementCapital expendituresPresents the companys plans for purchasing property, plant and equipment, and other long- term assets FinancialPresents the cash budget, the budgeted balance sheet, and the budgeted statement of cash flows(10-15 minutes) E 7-10Swensen, Inc. Production BudgetQuarter EndedMarch 31June 30Sept. 30 Budgeted sales of tire rims 1,000a 1,500b 1,300c Add: Ending finished goods inventory 150d 130e 200f Budgeted finished goods available 1,150 1,630 1,500 Less: Beginning finishedgoods inventory 100 150 130Budgeted production 1,050 1,480 1,370 _ a$100,000 / $100b$150,000 / $100c$130,000 / $100d0.10 1,500e0.10 1,300f 0.10 2,000Chapter 7