Ch8 Raiborn SM

C H A P TE R 8
TH E M A S TE R B U D G E T
Q U E S T IO N S
1. B u d g e tin g tra n sla te s g o a ls a n d o b je c tiv e s in to th e re so u rc e s, a c tiv itie s, a n d a r-

r a n g e m e n t s n e e d e d t o a c c o m p l i s h t h o s e g o a l s a n d o b j e c t i v e s . T h a t i n f o r m a tio n i s
e x t e n d e d t o a s s i g n a c t i v i ti e s a n d a l l o c a t e r e s o u r c e s t o d e p a r t m e n t s a n d p e r s o n n e l
re sp o n sib le fo r e x e c u tio n o f th e b u d g e t.
2. T h e stra te g ic p la n d e fin e s a n o rg a n iz a tio n ’s b a sic p u rp o se s a n d g o a ls. A s su c h ,

th e stra te g ic p la n id e n tifie s th e in te rn a l a n d e x te rn a l k e y v a ria b le s th a t w ill
la rg e ly d e te rm in e th e o rg a n iz a tio n ’s su c c e ss. In te rn a lly , c o n sid e ra tio n m u st b e
g iv e n to re so u rc e a v a ila b ility , c o re c o m p e te n c ie s, p ro d u c t d e v e lo p m e n t, a n d
p ro d u c t life c y c le s. S o m e e x te rn a l fa c to rs to b e c o n sid e re d in c lu d e th e lo c a l a n d
g lo b a l e c o n o m y , c o m p e tito r a c tio n s, te c h n o lo g y t re n d s, ra w m a te ria l a v a ila b il-
ity , o u tso u rc in g p o ssib ilitie s, a n d le g isla tiv e a n d p o litic a l c lim a te s. T h e lo n g -
te rm a n d sh o rt-te rm in fo rm a tio n g e n e ra te d fro m th e stra te g ic p la n in flu e n c e s
th e fin a n c ia l g o a ls a n d o b je c tiv e s th a t u n d e rlie th e b u d g e tin g p ro c e s s.
3. L o n g e r te rm (stra te g ic ) p la n s c o n ta in in su ffic ie n t d e ta il to d ire c t a b u sin e ss.

A lth o u g h stra te g ic p la n s p ro v id e g e n e ra l d ire c tio n fo r a b u sin e ss, th e y a re to o
v a g u e to p ro v id e g u id a n c e o n a d a y -to -d a y b a sis. C o n se q u e n tly , sh o rte r te rm
(ta c tic a l) p la n s a re c o m p ile d to im p le m e n t th e stra te g ic p la n s fo r a sp e c ific p e -
rio d . T a c tic a l p la n s a re p re p a re d w ith g re a te r a tte n tio n to c u rre n t o rg a n iz a tio n a l
a n d e n v iro n m e n ta l c o n stra in ts (c u rre n t m a rk e t, m a te ria l, a n d la b o r c o n d itio n s).
A lso , ro le s o f sp e c ific m id d le - a n d lo w e r-le v e l m a n a g e rs c a n b e in d ic a te d in th e
d e ta ile d sh o rt-te rm p la n s.
4. T h e b u d g e t re p re se n ts th e c o rn e rsto n e fo r a c o m p a n y ’s m a n a g e m e n t p la n n in g
sy ste m . B u d g e tin g o rig in a te s w ith stra te g ic p la n n in g a n d u tiliz e s g o a ls, o b je c -
tiv e s, a n d fo re c a sts in d e v e lo p in g p la n s fo r p ro d u c tio n , re v e n u e s, c o sts, c a sh
flo w s, a n d reso u rce p ro c u re m e n t. A s g o a ls a re im p le m e n te d a n d p ro g ra m s/
p ro d u c ts a re d e v e lo p e d , m a n a g e m e n t n e e d s in fo rm a tio n a b o u t v a rio u s a lte rn a -
tiv e s so th e y c a n b e e v a lu a te d . W h e n a sp e c ific p la n o f a c tio n is d e te rm in e d , th e
budget becom es m an ag em en t’s m a ste r p la n . T h e budget p ro v id e s a b a sis
a g a in st w h ic h m a n a g e m e n t c a n c o m p a re a c tu a l w ith fo re c a ste d o u tc o m e s. If th e
p l a n i s “ o f f - t r a c k ,” t h e b u d g e t - t o - a c t u a l c o m p a r i s o n c a n b e v i e w e d a s a c o n t r o l
in d ic a to r to m a n a g e m e n t a s to w h e re c h a n g e s (if th e y a re p o ssib le ) n e e d to b e
m a d e . W ith o u t fo rm a l p la n n in g , th e re c a n b e little c o n tro l.
5. A n o p e ra tin g b u d g e t p re se n ts u n its e x p e c te d to b e so ld o r u se d b y a c o m p a n y
a n d th e p ric e /c o sts a sso c ia te d w ith th o se u n its. S a le s, p ro d u c tio n , a n d p u rc h a s-
in g b u d g e ts a re o p e ra tin g b u d g e ts. R e su lts fro m th e o p e ra tin g b u d g e ts a re in p u t
so u rc e s fo r fin a n c ia l b u d g e ts. F in a n c ia l b u d g e ts d e ta il th e fu n d s to b e g e n e ra te d
o r u se d d u rin g th e b u d g e t p e rio d (c a sh b u d g e t a n d c a p ita l e x p e n d itu re b u d g e t).
F o r e x a m p le , th e sa le s fig u re s in th e (o p e ra tin g) sa le s b u d g e t a ffe c t th e c a sh c o l-
l e c t i o n s /r e c e ip ts p o r t i o n o f t h e ( f i n a n c i a l) c a s h b u d g e t . B o t h t y p e s o f b u d g e t s a r e
223
© 2 0 1 3 C e n g a g e L e a rn i n g . A l l R i g h t s R e s e rv e d . M a y n o t b e s c a n n e d , c o p i e d , d u p l i c a t e d , o r p o s t e d t o a p u b l i c l y
a c c e s s i b l e w e b s i t e , i n w h o l e o r i n p a rt .
224 C h ap ter 8
n e e d e d b e c a u se th e u n its c o n ta in e d in o p e ra tin g b u d g e ts h a v e to b e “ tr a n sla te d ”

in to m o n e ta ry a m o u n ts to g e n e ra te th e fin a l re su lt o f th e b u d g e tin g p ro c e ss — th e
b u d g e te d fin a n c ia l sta te m e n ts.
6. T h e m a ste r b u d g e t b e g in s w ith a “ d e m a n d d riv e n ” e stim a te o f sa le s. It is, h o w -

e v e r, p o ssib le th a t d e m a n d d o e s n o t “ e x ist” a t th e p o in t th e b u d g e t is p re p a re d
(fo r e x a m p le , w h e n th e c o m p a n y is in tro d u c in g a n e w p ro d u c t); th u s, e st im a te s
w o u ld be m ade a b o u t sa le s. W ith o u t sa le s o r e x p e c te d sa le s, th e c o m p a n y
w o u ld h a v e n o n e e d to a c q u ire re so u rc e s o r re m a in in o p e ra tio n .
T h e p ro d u c tio n b u d g e t is p re p a re d n e x t a s it fo llo w s d ire c tly fro m th e sa le s

b u d g e t. P ro d u c tio n a n d p u rc h a se s b u d g e ts a re sim ila r in th a t th e y b e g in w ith a
k e y v a ria b le to th e ir p a rtic u la r a re a , a d d e n d in g in v e n to ry , a n d su b tra c t b e g i n -
n in g in v e n to ry . T h e se b u d g e ts d iffe r in th a t th e k e y v a ria b le fo r th e p ro d u c tio n
a re a is sa le s, b u t th e k e y v a ria b le fo r p u rc h a se s is p ro d u c tio n . T h e p ro d u c tio n
b u d g e t is u se d to sc h e d u le th e n e e d e d m a n u fa c tu rin g in p u ts o f m a te ria l, la b o r,
a n d o v e rh e a d . T h e p u rc h a se s b u d g e t is u se d to d e te rm in e th e a m o u n t a n d tim -
in g o f m a te ria l in p u t to th e p ro d u c tio n p ro c e ss a s w e ll a s p ro v id e in p u t in to th e
c a sh b u d g e t a s to th e a m o u n t a n d tim in g o f c a sh d isb u rse m e n ts fo r su c h p u r-
c h a se s. R e ta il a n d se rv ic e o rg a n iz a tio n s w ill p re p a re p u rc h a sin g b u d g e ts d ire c t-
ly fro m sa le s b u d g e ts.
T o p re p a re th e o v e rh e a d b u d g e t fo r a sp e c ific p ro d u c tio n v o lu m e , c o sts m u st b e

se p a ra te d in to th o se th a t a re v o lu m e d e p e n d e n t (v a ria b le c o sts) a n d th o se th a t
a re v o lu m e in d e p e n d e n t (fix e d c o sts). T h e to ta l v a ria b le c o st is a fu n c tio n o f th e
v a ria b le c o st p e r u n it a n d th e e x p e c te d v o lu m e o f p ro d u c tio n . E x p e c te d o v e r-
h e a d fo r a g iv e n p e rio d is th e su m o f th e p ro je c te d v a ria b le a n d fix e d c o sts. D e -
p re c ia tio n a m o u n ts m u st b e n o te d se p a ra te ly a s th e y a re n o n c a sh ite m s.
S e llin g a n d a d m in istra tiv e b u d g e ts fo llo w , a n d th e n th e c a sh b u d g e t is p r e -

p a re d . M a n a g e rs e stim a te c o lle c tio n s fro m sa le s th ro u g h h isto ric a l c o m p a n y d a -
ta on c o lle c tio n p a tte rn s, in d u stry tre n d s/p a tte rn s, and ju d g m e n t. C u rren t
e c o n o m ic in fo rm a tio n c a n p la y a n im p o rta n t p a rt in e stim a tin g th e c o lle c tio n
p a tte rn sin c e in fla tio n o r d e fla tio n , in te re st ra te s, a n d e m p lo y m e n t a ffe c t b o th
b u sin e ss a n d c o n su m e r a b ility to p a y .
C a sh c o lle c tio n s a re im p o rta n t in th e b u d g e tin g p ro c e ss b e c a u se o f th e ir im p a c t

o n th e c a sh b u d g e t a n d th e a v a ila b ility o f fu n d s w ith w h ic h to m a k e d isb u rs e -
m e n ts fo r o p e ra tin g a n d c a p ita l e x p e n d itu re s, a n d o w n e rsh ip d istrib u tio n s.
A fte r a ll o f th e se b u d g e ts a re p re p a re d , a se t o f b u d g e te d fin a n c ia l sta te m e n ts is

p re p a re d to v isu a liz e th e e x p e c te d fin a n c ia l re su lts o f o p e ra tio n s a n d th e e n d in g
b a la n c e sh e e t p o sitio n .
T h is se q u e n c e is n e c e ssa ry b e c a u se th e in fo rm a tio n fro m o n e b u d g e t is o fte n a

p rim a ry in p u t in to a n o th e r b u d g e t.
7. A firm ’s p ro d u c tio n b u d g e t is in flu e n c e d b y th e fin ish e d g o o d s in v e n to ry p o l i-

c y b e c a u se th a t p o lic y d ic ta te s th e q u a n tity o f g o o d s th a t a re e x p e c te d to b e o n
h a n d a t p e rio d -e n d . T h u s, a c o m p a n y c a n n o t sim p ly m a k e p ro d u c tio n e q u a l to
sa le s if so m e fin ish e d g o o d s a re d e sire d . A d d itio n a lly , th e fin ish e d g o o d s fro m
o n e p e rio d b e c o m e th e b e g in n in g in v e n to ry fo r th e n e x t p e rio d , w h ic h a lso i n -
C h ap ter 8 225
flu e n c e s th e q u a n tity o f p ro d u c tio n n e e d e d in th e fo llo w in g p e rio d . T h e c o m p u -

ta tio n fo r p ro d u c tio n is sa le s p lu s d e sire d e n d in g fin ish e d g o o d s in v e n to ry m i-
n u s b e g in n in g fin ish e d g o o d s in v e n to ry .
8. C a sh is a n e ss e n tia l o rg a n iz a tio n a l re so u rc e b e c a u se it is th e m e d iu m of e x-
c h a n g e f o r o r g a n i z a t i o n a l i n p u t s a n d o u t p u t s . A s h o r t a g e o f c a s h c r e a t e s l i q u i d i-
ty p ro b le m s a n d m a y p re v e n t th e firm fro m a c q u irin g in p u ts th a t a re c ru c ia l to
its su rv iv a l. A firm c a n c o v e r p e rio d s o f c a sh sh o rta g e s w ith lo a n s, e q u ity sa le s,
o r sa le s o f a sse ts. W h e n th e c a sh b u d g e t in d ic a te s a p o te n tia l sh o rta g e , th e a c -
c o u n ta n t sh o u ld su g g e st th a t m a n a g e m e n t a d d re ss th e issu e w ith th e o rg a n iz a -
tio n ’s b a n k a n d (if e x tre m e ly c ritic a l) c re d ito rs to m a k e a d v a n c e a rra n g e m e n ts
to b o rro w fu n d s o r d e fe r p a y m e n ts.
9. T h e c a sh b u d g e t a n d b u d g e te d sta te m e n t o f c a sh flo w s a re sim ila r in th a t th e y

b o th fo c u s o n th e b a la n c e o f c a sh a n d e x p la in th e c h a n g e in c a sh b a la n c e o v e r a
p e rio d o f tim e . H o w e v e r, th e c a sh b u d g e t ty p ic a lly c o v e rs sh o rte r tim e p e rio d s
(g e n e ra lly m o n th ly ra th e r th a n fo r a q u a rte r o r y e a r) a n d h a s a s its p rim a ry o b -
je c tiv e th e id e n tific a tio n o f p e rio d s o f c a sh sh o rta g e s a n d c a sh e x c e sse s. T h e
sta te m e n t o f c a sh flo w s h a s a s its p rim a ry p u rp o se th e id e n tific a tio n o f th e a c -
tiv itie s (o p e ra tin g , in v e stin g , a n d fin a n c in g ) th a t e x p la in th e c h a n g e in th e c a sh
b a la n c e fo r a p e rio d .
1 0 . C o n tin u o u s b u d g e tin g is b e c o m in g m o re p o p u la r b e c a u se o f th e ra p id ity o f

c h a n g e . R a th e r th a n h a v in g a 1 2 -m o n th b u d g e t p e rio d th a t g e ts sh o rte r a s th e
y e a r p ro g re sse s, c o n tin u o u s b u d g e tin g a llo w s m a n a g e rs to a lw a y s h a v e a 1 2 -
m o n th b u d g e t p e rio d . C o n tin u o u s b u d g e tin g a ssu re s th a t th e p la n n in g p ro c e ss is
o n g o in g ra th e r th a n a “ o n c e -a -y e a r” a c tiv ity th a t is e n te re d in to a n d th e n i g -
n o re d u n til it is n e c e ssa ry to d o a g a in .
1 1 . T h e p ro c e ss o f d e v e lo p in g a b u d g e t is im p o rta n t b e c a u se m a n a g e rs a re a b le to
v ie w th e in te ra c tio n s o f th e ir a re a s o n th e firm a s a w h o le . A lso , a b u d g e t fo rc e s
m a n a g e rs to d e te rm in e w h a t c a u se d th e d iffe re n c e s b e tw e e n b u d g e te d a n d a c tu -
a l o u tc o m e s. S o m e tim e s th e d iffe re n c e s a re c a u se d b y fa c to rs o u tsid e m a n a g e -
m e n t’s c o n tro l, but o th e r tim e s th e y are n o t— in w h ic h c a se , k n o w in g th e
c a u se s sh o u ld h e lp m a n a g e rs to b e tte r b u d g e t in fu tu re p e rio d s.
1 2 . B u d g e ta ry sla c k re su lts fro m a n o v e re stim a tio n o f e x p e c te d e x p e n se s o r a n u n -

d e re stim a tio n o f e x p e c te d rev en u es so th a t th e b u d g e t w ill b e m o re e a sily
a c h ie v e d . B e c a u se m a n a g e ria l p e rfo rm a n c e is o fte n e v a lu a te d o n a n a c tu a l -to -
b u d g e t c o m p a riso n , th e a c tu a l p e rfo rm a n c e w ill a p p e a r to b e m o re fa v o ra b le if
su ffic ie n t sla c k is c o n ta in e d in th e b u d g e t. T w o p rim a ry w a y s to re d u c e b u d g e t
sla c k is to re d u c e p a rtic ip a tio n b y lo w e r -le v e l m a n a g e rs o r to se t u p th e re w a rd
sy ste m to e n c o u ra g e a m o re a c c u ra te b u d g e tin g p r o c e ss.
1 3 . T h e b u d g e t m a n u a l p r o v i d e s a “ s t a n d a r d ” m e t h o d o lo g y f o r p r e p a r i n g t h e b u d g e t
a s w e ll a s a re c o g n iz e d sta n d a rd fo r th e b u d g e tin g p ro c e ss. T h e b u d g e t m a n u a l
d i r e c t s s i m i la r e v e n t s t o b e b u d g e t e d i n s i m i l a r w a y s . H a v i n g a n d u s i n g a b u d g e t
m a n u a l c o m m u n ic a te s to p m a n a g e m e n t ’s c o m m itm e n t to a n e ffe c tiv e b u d g e t-
in g p ro c e ss fo r lo w e r-le v e l m a n a g e rs.
© 2 0 1 3 C e n g a g e L e a rn i n g . A l l R i g h t s R e s e r v e d . M a y n o t b e s c a n n e d , c o p i e d , d u p l i c a t e d , o r p o s t e d t o a p u b l i c l y
226 C h ap ter 8
E X E R C IS E S
14. Each stu d e n t w ill h a v e a d iffe re n t a n sw e r; h o w e v e r, th e fo llo w in g ty p e s o f

ite m s m ig h t b e in c lu d e d fo r e a c h p a rt.
a. W h a t in fla tio n ra te s a re e x p e c te d fo r th e c o u n trie s in w h ic h th e c o m p a n y

o p e ra te s?
W h a t w ill it c o st to o p e n a n e w p la n t in C o u n try X ?
W h a t w ill h a p p e n to n e t in c o m e if th e p ric e o f a n im p o rta n t ra w m a te ria l
in c re a se s b y X % ?
W h a t w o u ld h a p p e n to d e m a n d if se llin g p ric e w a s re d u c e d b y X % ?
S h o u ld th e c o m p a n y a tte m p t to a d v a n c e th e in tro d u c tio n o f a n e w p ro d u c t
b y se v e ra l m o n th s?
W h a t o u tso u rc in g o p p o rtu n itie s a re a v a ila b le , a n d h o w w o u ld u sin g th e se
a ffe c t th e c o m p a n y ’s p ro fita b ility a n d re p u ta tio n ?
b. W h a t n e w ta x e s o r ta x ra te s w ill b e im p o se d in th e c o m in g y e a r?
H o w w ill th e n e w o n e -w a y stre e ts a ffe c t th e c o m p a n y ’s c u sto m e r tra ffic ?
C a n th e c o m p a n y a ffo rd to m e e t th e n e w c o m p e tito r ’s lo w e r p ric e s?
H o w w i l l t h e c h a n g e i n m i n im u m w a g e a f f e c t t h e c o m p a n y ’ s a b i l i t y t o r e t a i n
o r in c re a se th e n u m b e r o f sa le sp e o p le ?
H o w w o u ld a d v e rtisin g in a n e w m e d iu m a ffe c t c o m p a n y sa le s a n d p ro fita -
b ility ?
15. a. A S W O T a n a ly sis is a n in te rn a l a n d e x te rn a l e n v iro n m e n ta l sc a n th a t d e -

ta ils in fo rm a tio n o n th e c o m p a n y ’s stre n g th s, w e a k n e sse s, o p p o rtu n itie s,
a n d th re a ts. S u c h a n a n a ly sis is u se fu l in th e p la n n in g p ro c e ss in th a t it
h e lp s m a tc h th e firm ’s re so u rc e s a n d c a p a b ilitie s to th e c o m p e titiv e e n v i-
ro n m e n t in w h ic h th e firm o p e ra te s. W h e n p re p a rin g a S W O T a n a ly sis,
c o m p a n y m a n a g e m e n t sh o u ld b e re a listic a b o u t th e o rg a n iz a tio n ’s stre n g th s
and w e a k n e sse s a n d sh o u ld d iffe re n tia te w h e re th e c o m p a n y is c u rre n tly
a n d w h e re it c o u ld b e in th e fu tu re (a n d w h a t it w o u ld ta k e to g e t th e firm to
th a t “ n e w ” p o sitio n ). It is h e lp fu l if th e a n a ly sis in d ic a te s w h e re th e firm is
in re la tio n to its c o m p e titio n . A S W O T a n a ly sis te m p la te is a v a ila b le a t
h t t p : / / w w w .b u s i n e s s b a l l s .c o m / f r e e _ S W O T _ a n a l y s i s _ t e m p l a t e .p d f .
b. E a c h stu d e n t w ill h a v e a d iffe re n t a n sw e r. H o w e v e r, th e fo llo w in g site s p ro -

v id e d e s c rip tio n s o f S W O T a n a ly se s fo r fo u r c o m p a n ie s:
h t t p : / / w w w .m a r k e t i n g t e a c h e r .c o m / S W O T / w a l m a r t - s w o t .h tm
h t t p : / / w w w .m a r k e t i n g t e a c h e r .c o m / S W O T / s ta r b u c k s -s w o t .h tm
h t t p : / / w w w .m a r k e t i n g t e a c h e r .c o m / S W O T / n i k e - s w o t .h tm
h t t p : / / w w w .c o m p a n i e s a n d m a r k e t s .c o m / C o m p a n y - P r o f il e /s ta g e - s to r e s ,- i n c .-
s w o t - a n a l y s i s - 7 2 7 0 7 8 .a s p
1 6 . E a c h stu d e n t w ill h a v e a d iffe re n t a n sw e r. H o w e v e r, so m e p o ssib ilitie s a re :

 R e d u c e a m o u n ts sp e n t fo r e n te rta in m e n t, in c lu d in g m o v ie s.
 R e d u c e a m o u n ts sp e n t fo r d in in g o u t o r in -h o m e d e liv e ry .
 P u t e a c h p e r s o n o n a n “ a l l o w a n c e .”
C h ap ter 8 227
 S e t a m a x im u m fo r g ifts , a n d d o n o t b u y g ifts fo r e a c h o th e r.
 G e t p e rm issio n fro m th e o th e r p e rso n b e fo re sp e n d in g a m o u n ts o v e r a sp e -

c ific a m o u n t, su c h a s $ 2 5 .
 R e d u c e a m o u n ts sp e n t o n fo o d ; b u y m o re v e g e ta b le s a n d fru its ra th e r th a n
m e a ts a n d p a strie s.
 V a c a t i o n “ o n t h e c h e a p ” — c a m p in g , v i s it in g r e l a t iv e s , o r e n j o y in g h o m e t o w n .
 D o n ’ t b u y “ i t ” i f c a s h c a n n o t b e p a i d f o r “ i t .”
 P u t so m e m o n e y a sid e e a c h p a y p e rio d fo r sa v in g s.
17. a. C o m p e tito rs ’ a c tio n s a re e x tre m e ly im p o rta n t to b u sin e ss p la n n in g b e c a u se

th o se a c tio n s w ill p ro b a b ly a ffe c t w h e th e r t h e p la n n in g c o m p a n y w ill su c -
c e e d in its p la n n e d a c tiv itie s. C o m p e tito rs m a y d e c id e to o ffe r n e w p ro d -
u c ts, m a k in g o th e r p ro d u c ts o b so le te ; c o m p e tito rs m a y d e c id e to e n te r o r
e x p a n d th e ir m a rk e ts, c re a tin g a m a rk e t d e c lin e fo r o th e r c o m p a n ie s; c o m -
p e tito rs m a y lo w e r p ric e s, fo rc in g o th e rs o ffe rin g th e sa m e o r sim ila r p ro d -
u c ts to a lso lo w e r p ro d u c t p ric e s o r in c re a se a d v e rtisin g th a t w o u ld e x p la in
h ig h e r p ric e s to c o n su m e rs.
b. C o m p e tito rs ’ a c tio n s m a y a ffe c t in te rn a l p la n n in g a c tiv itie s b e c a u se o f th e

im p lic a tio n s o f th o se a c tio n s o n sa le s a n d re la te d p ro d u c tio n fig u re s. A lso ,
a c tio n s su c h a s “ n o -in te re st” in sta llm e n t p ro m o tio n s m a y im p a c t sa le s a n d
c o lle c tio n p a tte rn s. C h a n g e s in p ro d u c ts m a y re q u ire c h a n g e s in p ro d u c tio n
te c h n o lo g y o r la b o r n e e d s.
c. O th e r in te rn a l fa c to rs th a t w ill a ffe c t th e b u d g e tin g p ro c e ss a re m a rk e tin g

p ro m o tio n s th a t a re b e in g p la n n e d , c a p ita l b u d g e tin g p u rc h a se s a n d pay-
m e n ts, sto c k o r b o n d issu a n c e s, n e w m a n a g e m e n t stra te g ie s (su c h a s m a rk e t
e n tra n c e s o r d e p a rtu re s), e x p a n sio n o r c o n tra c ti o n o f th e c o m p a n y ’s sa le s
fo rc e , a n d te c h n o lo g ic a l c h a n g e s th a t c o u ld a ffe c t tra in in g n e e d s.
O th e r e x te rn a l fa c to rs th a t w ill a ffe c t th e b u d g e tin g p ro c e ss a re in te re st ra te

c h a n g e s, w a r o r th re a ts o f w a r, e x p a n sio n o r c o n tra c tio n o f o il (o r o th e r ra w
m a te ria l) su p p lie s, a n d c h a n g e s in m in im u m -w a g e la w s.
18. B u s i n e s s l o a n s ( $ 6 ,0 0 0 ,0 0 0  0 .0 5 ) $ 3 0 0 ,0 0 0
C o n s u m e r l o a n s ( $ 4 ,0 0 0 ,0 0 0  0 .1 1 ) 4 4 0 ,0 0 0
I n v e s t m e n t s ( $ 1 ,6 0 0 ,0 0 0  0 .0 4 5 ) 7 2 ,0 0 0
T o ta l p ro je c te d re v e n u e $ 8 1 2 ,0 0 0
228 C h ap ter 8
19. 1 st Q u a rte r 2 n d Q u a rte r 3 rd Q u a rte r 4 th Q u a rte r T o ta l

A 6 0 0 ,0 0 0 3 0 0 ,0 0 0 6 4 0 ,0 0 0 4 6 0 ,0 0 0
 $17  $16  $14  $12

$ 1 0 ,2 0 0 ,0 0 0 $ 4 ,8 0 0 ,0 0 0 $ 8 ,9 6 0 ,0 0 0 $ 5 ,5 2 0 ,0 0 0 $ 2 9 ,4 8 0 ,0 0 0
B 4 0 0 ,0 0 0 7 0 0 ,0 0 0 2 5 0 ,0 0 0 6 5 0 ,0 0 0
 $17  $16  $14  $12
$ 6 ,8 0 0 ,0 0 0 $ 1 1 ,2 0 0 ,0 0 0 $ 3 ,5 0 0 ,0 0 0 $ 7 ,8 0 0 ,0 0 0 $ 2 9 ,3 0 0 ,0 0 0
C 5 3 0 ,0 0 0 4 8 0 ,0 0 0 8 0 0 ,0 0 0 1 9 0 ,0 0 0
 $17  $16  $14  $12

$ 9 ,0 1 0 ,0 0 0 $ 7 ,6 8 0 ,0 0 0 $ 1 1 ,2 0 0 ,0 0 0 $ 2 ,2 8 0 ,0 0 0 $ 3 0 ,1 7 0 ,0 0 0
T h e m o st fin a n c ia lly b e n e fic ia l sc e n a rio w o u ld b e C ; h o w e v e r, g iv e n th e la rg e

d isc re p a n c ie s in sa le s q u a n titie s p e r q u a rte r, P a ta k y C o m p a n y m a y n o t b e a b le
to sm o o th p ro d u c tio n a c tiv itie s o v e r th e y e a r. T h e re w o u ld n e e d to b e a la rg e
in v e n to ry b u ild -u p fo r th e th ird q u a rte r, w h ic h w o u ld in c re a se th e c o sts o f n o n -
v a lu e -a d d e d c o sts o f m o v in g a n d sto rin g u n its. T h e e x tre m e d e c lin e in fo u rth
q u a rte r sa le s m ig h t re su lt in la y o ffs, if o th e r v a lu e -a d d e d a c tiv itie s c o u ld n o t b e
d e v e lo p e d fo r d ire c t la b o r e m p lo y e e s.
S c e n a rio A m ig h t a c tu a lly b e a b e tte r situ a tio n b e c a u se o f th e le ss d ra m a tic a d -

ju stm e n ts b e tw e e n q u a rte rs.
20. Jan u ary F eb ru ary M arch

B u d g e te d sa le s 1 0 2 ,4 0 0 9 6 ,0 0 0 1 2 8 ,0 0 0
E n d in g in v e n to ry (5 % ) 4 ,8 0 0 6 ,4 0 0 7 ,6 8 0
T o ta l re q u ire d 1 0 7 ,2 0 0 1 0 2 ,4 0 0 1 3 5 ,6 8 0
B e g in n in g in v e n to ry ( 7 ,0 0 0 ) ( 4 ,8 0 0 ) ( 6 ,4 0 0 )
B u d g e te d p ro d u c tio n 1 0 0 ,2 0 0 9 7 ,6 0 0 1 2 9 ,2 8 0
21. Q U A R TER T o ta l
st nd rd th
1 2 3 4
S a le s 1 ,0 8 0 ,0 0 0 1 ,3 6 0 ,0 0 0 9 8 0 ,0 0 0 1 ,1 0 0 ,0 0 0 4 ,5 2 0 ,0 0 0
E I (1 0 % ) 1 3 6 ,0 0 0 9 8 ,0 0 0 1 1 0 ,0 0 0 1 2 0 ,0 0 0 1 2 0 ,0 0 0
T o ta l 1 ,2 1 6 ,0 0 0 1 ,4 5 8 ,0 0 0 1 ,0 9 0 ,0 0 0 1 ,2 2 0 ,0 0 0 4 ,6 4 0 ,0 0 0
B I ( 9 4 ,5 0 0 ) ( 1 3 6 ,0 0 0 ) ( 9 8 ,0 0 0 ) ( 1 1 0 ,0 0 0 ) ( 9 4 ,5 0 0 )
P ro d u c tio n 1 ,1 2 1 ,5 0 0 1 ,3 2 2 ,0 0 0 9 9 2 ,0 0 0 1 ,1 1 0 ,0 0 0 4 ,5 4 5 ,5 0 0
22. a. Jan u ary F eb ru ary M arch A p ril

S a le s 300 700 1 ,0 0 0 900
EI 1 ,7 0 0 1 ,9 0 0 1 ,3 0 0 700
T o ta l u n its n e e d e d 2 ,0 0 0 2 ,6 0 0 2 ,3 0 0 1 ,6 0 0
B I ( 1 ,0 0 0 ) ( 1 ,7 0 0 ) ( 1 ,9 0 0 ) ( 1 ,3 0 0 )
U n its p ro d u c e d 1 ,0 0 0 900 400 300
C h ap ter 8 229
b. F eb ru ary M arch A p ril

U n its p ro d u c e d 900 400 300
Pounds of R M p e r u n it  3  3  3
R M n e e d e d fo r p ro d u c tio n 2 ,7 0 0 1 ,2 0 0 900
EI 1 ,3 5 0 600 450
Pounds of R M needed 4 ,0 5 0 1 ,8 0 0 1 ,3 5 0
Pounds of R M in B I ( 1 ,5 0 0 ) ( 1 ,3 5 0 ) (6 0 0 )
Pounds of R M to p u rc h a se 2 ,5 5 0 450 750
C ost per pound  $ 2 .0 0  $ 2 .3 0  $ 2 .4 0
C ost of R M p u rch ases $ 5 ,1 0 0 $ 1 ,0 3 5 $ 1 ,8 0 0
c. F eb ru ary M arch A p ril

U n its p ro d u c e d 900 400 300
D L H s p e r u n it  10  10  10
T o ta l h o u rs 9 ,0 0 0 4 ,0 0 0 3 ,0 0 0
C ost per D L H  $12  $12  $12
C ost of D L $ 1 0 8 ,0 0 0 $ 4 8 ,0 0 0 $ 3 6 ,0 0 0
2 3 . S a le s o f g o w n s 3 2 5 ,0 0 0
EI of gow ns 1 5 ,8 0 0
T o ta l 3 4 0 ,8 0 0
B I of gow ns ( 2 1 ,0 0 0 )
P ro d u c tio n 3 1 9 ,8 0 0
3 1 9 ,8 0 0  2 .5 y a r d s = 7 9 9 ,5 0 0 y a r d s
Y a rd s n e e d e d fo r p ro d u c tio n 7 9 9 ,5 0 0
E n d in g in v e n to ry 4 ,5 5 0
T o ta l 8 0 4 ,0 5 0
B e g in n in g in v e n to ry ( 5 ,0 0 0 )
Y a rd s to p u rc h a se 7 9 9 ,0 5 0
D iv id e d b y y a rd s in b o lt ÷ 15
N e c e ssa ry b o lts 5 3 ,2 7 0
24. a. and b. S a le s (fe e t) 1 9 0 ,0 0 0

EI 1 0 ,0 0 0
T o ta l 2 0 0 ,0 0 0
B I ( 1 2 ,2 5 0 )
P ro d u c tio n 1 8 7 ,7 5 0
C o n c re te G rav el
P ro d u c tio n in fe e t 1 8 7 ,7 5 0 1 8 7 ,7 5 0
P o u n d s p er fo o t  4  7 .5
P o u n d s fo r p ro d u c tio n 7 5 1 ,0 0 0 1 ,4 0 8 ,1 2 5
EI 3 4 ,3 0 0 4 6 ,2 5 0
T o ta l p o u n d s n e e d e d 7 8 5 ,3 0 0 1 ,4 5 4 ,3 7 5
B I ( 4 1 ,0 0 0 ) ( 3 2 ,6 5 0 )
P u rch ase (p o u n d s) 7 4 4 ,3 0 0 1 ,4 2 1 ,7 2 5
C ost per pound  $ 0 .1 0  $ 0 .0 4
T o ta l c o st $ 7 4 ,4 3 0 $ 5 6 ,8 6 9
230 C h ap ter 8
25. a. B oxes T ray s

P ro d u c tio n b u d g e t
U n its o f sa le s 4 2 ,0 0 0 3 0 ,0 0 0
U n its d e sire d in e n d in g in v . 1 ,8 0 0 650
U n its n e e d e d 4 3 ,8 0 0 3 0 ,6 5 0
U n its in b e g in n in g in v . ( 1 ,2 0 0 ) (8 0 0 )
B u d g e te d p ro d u c tio n 4 2 ,6 0 0 2 9 ,8 5 0
b. P u rc h a se s b u d g e t— M a te ria l A
P o u n d s n e e d e d fo r p ro d u c tio n :
( 4 2 ,6 0 0  2 ) + ( 2 9 ,8 5 0  1 ) = ( 8 5 ,2 0 0 + 2 9 ,8 5 0 ) 1 1 5 ,0 5 0
D e sire d e n d in g in v e n to ry 1 ,5 0 0
T o ta l re q u ire m e n ts 1 1 6 ,5 5 0
L e ss b e g in n in g in v e n to ry ( 1 ,7 8 0 )
P o u n d s to b e p u rc h a se d 1 1 4 ,7 7 0
C ost per pound  $ 0 .0 5
T o ta l c o st o f M a te ria l A p u rc h a se s $ 5 ,7 3 8 .5 0
P u rc h a se s b u d g e t— M a te ria l B
P o u n d s n e e d e d fo r p ro d u c tio n :
( 4 2 ,6 0 0  1 .5 ) + ( 2 9 ,8 5 0  0 .8 ) = ( 6 3 ,9 0 0 + 2 3 ,8 8 0 ) 8 7 ,7 8 0
D e sire d e n d in g in v e n to ry 1 ,4 0 0
T o ta l re q u ire m e n ts 8 9 ,1 8 0
L e ss b e g in n in g in v e n to ry ( 5 ,0 0 0 )
P o u n d s to b e p u rc h a se d 8 4 ,1 8 0
C ost per pound  $ 0 .0 7
T o ta l c o st o f M a te ria l B p u rc h a se s $ 5 ,8 9 2 .6 0
M a te ria l p u rc h a se s:
M a te ria l A 1 1 4 ,7 7 0 l b s . $ 5 ,7 3 8 .5 0
M a te ria l B 8 4 ,1 8 0 l b s . 5 ,8 9 2 .6 0
T o ta l $ 1 1 ,6 3 1 .1 0
c. D ire c t la b o r b u d g e t
R e q u ire d h o u rs: B o x e s ( 4 2 ,6 0 0  0 .3 ) 1 2 ,7 8 0
T r a y s ( 2 9 ,8 5 0  0 .2 ) 5 ,9 7 0
T o ta l D L H s 1 8 ,7 5 0
A v e ra g e D L w a g e ra te  $ 9 .5 0
T o ta l D L c o st $ 1 7 8 ,1 2 5
d. B oxes T ray s T o ta l
A c tiv ity b a se (D L H s) 1 2 ,7 8 0 5 ,9 7 0
M u ltip lie d b y O H ra te  $ 1 .6 0  $ 1 .6 0
O v e rh e a d a p p lie d $ 2 0 ,4 4 8 $ 9 ,5 5 2 $ 3 0 ,0 0 0
2 6 . C o st o f g o o d s so ld $ 6 0 0 ,0 0 0
E n d in g in v e n to ry 8 4 ,0 0 0
B e g in n in g in v e n to ry ( 6 0 ,0 0 0 )
B u d g e te d p u rc h a se s $ 6 2 4 ,0 0 0
M o n t h l y p u r c h a s e s : $ 6 2 4 ,0 0 0 ÷ 1 2 = $ 5 2 ,0 0 0
C h ap ter 8 231
P a y m e n t f o r c u r r e n t y e a r p u r c h a s e s ( $ 5 2 ,0 0 0  1 1 ) $ 5 7 2 ,0 0 0
B e g in n in g A /P b a la n c e 4 0 ,0 0 0
T o ta l c a sh p a y m e n ts fo r p u rc h a se s in 2 0 1 4 $ 6 1 2 ,0 0 0
27. S e p t. O c t. N ov.
A u g . c r e d i t s a l e s ( 6 0 %  $ 7 8 ,0 0 0  8 0 % ) $ 3 7 ,4 4 0
S e p t . c a s h s a l e s ( 4 0 %  $ 8 0 ,0 0 0 ) 3 2 ,0 0 0
S e p t . c r e d i t s a l e s ( 6 0 %  $ 8 0 ,0 0 0  2 0 % ) 9 ,6 0 0
S e p t . c r e d i t s a l e s ( 6 0 %  $ 8 0 ,0 0 0  8 0 % ) $ 3 8 ,4 0 0
O c t. c a sh sa le s (4 0 %  $ 9 5 ,0 0 0 ) 3 8 ,0 0 0
O c t. c re d it sa le s (6 0 %  $ 9 5 ,0 0 0  2 0 % ) 1 1 ,4 0 0
O c t. c re d it sa le s (6 0 %  $ 9 5 ,0 0 0  8 0 % ) $ 4 5 ,6 0 0
N o v . c a s h s a l e s ( 4 0 %  $ 9 1 ,0 0 0 ) 3 6 ,4 0 0
N o v . c r e d i t s a l e s ( 6 0 %  $ 9 1 ,0 0 0  2 0 % ) 1 0 ,9 2 0
T o ta l c o lle c tio n s $ 7 9 ,0 4 0 $ 8 7 ,8 0 0 $ 9 2 ,9 2 0
28. a. Jan u ary F eb ru ary M arch
N o v . sa le s (3 0 %  $ 8 3 ,0 0 0 ) $ 2 4 ,9 0 0
D e c . s a l e s ( 3 0 %  $ 7 6 ,0 0 0 ) 2 2 ,8 0 0
D e c . s a l e s ( 3 0 %  $ 7 6 ,0 0 0 ) $ 2 2 ,8 0 0
J a n . s a l e s ( 4 0 %  $ 7 9 ,0 0 0  9 9 % ) 3 1 ,2 8 4
J a n . s a l e s ( 3 0 %  $ 7 9 ,0 0 0 ) 2 3 ,7 0 0
J a n . s a l e s ( 3 0 %  $ 7 9 ,0 0 0 ) $ 2 3 ,7 0 0
F e b . s a l e s ( 4 0 %  $ 8 8 ,0 0 0  9 9 % ) 3 4 ,8 4 8
F e b . s a l e s ( 3 0 %  $ 8 8 ,0 0 0 ) 2 6 ,4 0 0
M a r . s a l e s ( 4 0 %  $ 5 9 ,0 0 0  9 9 % ) 2 3 ,3 6 4
T o ta l c o lle c tio n s $ 7 8 ,9 8 4 $ 8 1 ,3 4 8 $ 7 3 ,4 6 4
b. F e b . s a l e s t o b e c o l l e c t e d i n A p r i l ( 3 0 %  $ 8 8 ,0 0 0 ) $ 2 6 ,4 0 0
M a rc h sa le s to b e c o lle c te d in A p ril (3 0 %  $ 5 9 ,0 0 0 ) 1 7 ,7 0 0
M a r c h s a l e s t o b e c o l l e c t e d i n M a y ( 3 0 %  $ 5 9 ,0 0 0 ) 1 7 ,7 0 0
T o ta l A /R b a la n c e a t M a rc h 3 1 $ 6 1 ,8 0 0
29. a. O c to b e r c o lle c tio n s:

F ro m A /R b a la n c e $ 1 1 ,0 0 0
F r o m O c t o b e r b i l l i n g s ( $ 1 0 0 ,0 0 0  0 .1 5 ) 1 5 ,0 0 0
T o ta l O c to b e r c o lle c tio n s $ 2 6 ,0 0 0
N o v e m b e r c o lle c tio n s:
F r o m O c t o b e r b i l l i n g s ( $ 1 0 0 ,0 0 0  0 .5 5 ) $ 5 5 ,0 0 0
F r o m N o v e m b e r b i l l i n g s ( $ 6 5 ,0 0 0  0 .1 5 ) 9 ,7 5 0
T o ta l N o v e m b e r c o lle c tio n s $ 6 4 ,7 5 0
D e c e m b e r c o lle c tio n s:
F r o m O c t o b e r b i l l i n g s ( $ 1 0 0 ,0 0 0  0 .3 0 ) $ 3 0 ,0 0 0
F r o m N o v e m b e r b i l l i n g s ( $ 6 5 ,0 0 0  0 .5 5 ) 3 5 ,7 5 0
F r o m D e c e m b e r b i l l i n g s ( $ 1 5 ,0 0 0  0 .1 5 ) 2 ,2 5 0
T o ta l D e c e m b e r c o lle c tio n s $ 6 8 ,0 0 0
232 C h ap ter 8
b. O c to b e r c o lle c tio n s $ 2 6 ,0 0 0
L e ss O c to b e r b u sin e ss c o sts ( 2 2 ,5 0 0 )
R e m a in d e r 1 0 /3 1 $ 3 ,5 0 0
N o v e m b e r c o lle c tio n s 6 4 ,7 5 0
T o ta l $ 6 8 ,2 5 0
L e ss N o v e m b e r b u sin e ss c o sts ( 2 2 ,5 0 0 )
R e m a in d e r 1 1 /3 0 $ 4 5 ,7 5 0
Y e s , I r b y c o u l d p a y t h e $ 4 5 ,0 0 0 f o r t h e t r i p a t t h e e n d o f N o v e m b e r .
c. If Irb y p a y s fo r th e trip a n d if e v e ry th in g w o rk s o u t e x a c tly a s p la n n e d , sh e

w o u ld h a v e $ 7 5 0 o f c a sh o n h a n d in th e b u sin e ss. T h is is a n e x c e p tio n a lly
sm a ll “ c u sh io n ” a n d sh e sh o u ld p ro b a b ly n o t m a k e su c h a la rg e c a sh e x -
p e n d itu re a t th e e n d o f N o v e m b e r.
R e m a in d e r 1 1 /3 0 $ 4 5 ,7 5 0
D e c e m b e r c o lle c tio n s 6 8 ,0 0 0
T o ta l $ 1 1 3 ,7 5 0
L e ss D e c e m b e r b u sin e ss c o sts ( 2 2 ,5 0 0 )
R e m a in d e r 1 2 /3 1 $ 9 1 ,2 5 0
H o w e v e r , i f I r b y h a s g o o d c r e d i t , s h e c o u l d b o r r o w t h e $ 4 5 ,0 0 0 t o p a y f o r
th e trip a t th e e n d o f N o v e m b e r a n d p a y th e m o n e y b a c k a t th e e n d o f D e -
c e m b e r w h e n sh e h a s a su b sta n tia l c a sh b a la n c e . If sh e c a n b o rro w a t 1 2 % ,
s h e w o u l d i n c u r 1 % p e r m o n t h f o r i n t e r e s t — o r $ 4 5 0 ( $ 4 5 ,0 0 0  0 .0 1 ) u n t i l
th e e n d o f D e c e m b e r. B y p a y in g fo r th e trip in N o v e m b e r, sh e ’d b e sa v in g
$ 5 ,0 0 0 a n d s p e n d i n g $ 4 5 0 — s a v i n g a t o t a l o f $ 4 ,5 5 0 .
30. a. B a la n c e a t M a y 3 1 $ 1 1 9 ,6 0 0
R e m a in d e r o f M a y c re d it sa le s ( 9 0 ,0 0 0 )
R e m a in d e r o f A p ril c re d it sa le s $ 2 9 ,6 0 0
% o f A p ril c re d it sa le s u n c o lle c te d a t e n d o f M a y ÷ 0 .1 0
A p ril sa le s o n c re d it $ 2 9 6 ,0 0 0
% o f to ta l sa le s m a d e o n c re d it ÷ 0 .8 0
T o ta l A p ril sa le s $ 3 7 0 ,0 0 0
b. R e m a in d e r o f M a y c re d it sa le s $ 9 0 ,0 0 0
% o f M a y c re d it sa le s u n c o lle c te d a t e n d o f M a y ÷ 0 .3 0
M a y c re d it sa le s $ 3 0 0 ,0 0 0
c. Ju n e c o lle c tio n s o f A p ril c re d it sa le s (re m a in d e r) $ 2 9 ,6 0 0
J u n e c o l l e c t i o n s o f M a y c r e d i t s a l e s ( $ 3 0 0 ,0 0 0  2 0 % ) 6 0 ,0 0 0
J u n e c a s h s a l e s ( $ 4 5 0 ,0 0 0  2 0 % ) 9 0 ,0 0 0
J u n e c o l l e c t i o n s o f J u n e c r e d i t s a l e s ( $ 4 5 0 ,0 0 0  8 0 % =
$ 3 6 0 ,0 0 0 c r e d i t s a l e s ; $ 3 6 0 ,0 0 0  7 0 % ) 2 5 2 ,0 0 0
T o ta l Ju n e c o lle c tio n s $ 4 3 1 ,6 0 0
d. B a l a n c e f r o m M a y s a l e s ( $ 3 0 0 ,0 0 0  1 0 % ) $ 3 0 ,0 0 0
B a l a n c e f r o m J u n e s a l e s ( $ 3 6 0 ,0 0 0  3 0 % ) 1 0 8 ,0 0 0
T o ta l Ju n e 3 0 A /R b a la n c e $ 1 3 8 ,0 0 0
C h ap ter 8 233
31. a. B a la n c e a t O c to b e r 1 $ 6 3 2 ,5 0 0
R e m a in d e r o f S e p te m b e r b illin g s ( 4 8 0 ,0 0 0 )
R e m a in d e r o f A u g u st b illin g s $ 1 5 2 ,5 0 0
% o f A u g u st b illin g s u n c o lle c te d a t e n d o f S e p te m b e r ÷ 0 .2 5
A u g u st b illin g s $ 6 1 0 ,0 0 0
b . R e m a in d e r o f S e p te m b e r b illin g s $ 4 8 0 ,0 0 0
% u n c o lle c te d a t e n d o f S e p te m b e r ÷ 0 .8 0
S e p te m b e r b illin g s $ 6 0 0 ,0 0 0
% e stim a te d u n c o lle c tib le  0 .0 3
T o ta l S e p te m b e r b illin g s e x p e c te d to b e u n c o lle c tib le $ 1 8 ,0 0 0
c . O c t . c o l l e c t i o n s o f A u g . b i l l i n g s ( $ 6 1 0 ,0 0 0  2 2 % ) $ 1 3 4 ,2 0 0
O c t . c o l l e c t i o n s o f S e p t . b i l l i n g s ( $ 6 0 0 ,0 0 0  5 5 % ) 3 3 0 ,0 0 0
O c t . c o l l e c t i o n s o f O c t . b i l l i n g s ( $ 7 5 0 ,0 0 0  2 0 % ) 1 5 0 ,0 0 0
T o ta l O c to b e r c o lle c tio n s $ 6 1 4 ,2 0 0
32. a. Jan u ary F eb ru ary M arch T o ta l

U n its p ro d u c e d 2 0 ,0 0 0 5 0 ,0 0 0 7 0 ,0 0 0 1 4 0 ,0 0 0
P o u n d s p e r u n it  2  2  2  2
Pounds needed 4 0 ,0 0 0 1 0 0 ,0 0 0 1 4 0 ,0 0 0 2 8 0 ,0 0 0
E I in p o u n d s 2 5 ,0 0 0 3 5 ,0 0 0 3 5 ,0 0 0 3 5 ,0 0 0
T o ta l re q u ire d 6 5 ,0 0 0 1 3 5 ,0 0 0 1 7 5 ,0 0 0 3 1 5 ,0 0 0
B I (0 ) ( 2 5 ,0 0 0 ) ( 3 5 ,0 0 0 ) (0 )
P o u n d s to p u rc h a se 6 5 ,0 0 0 1 1 0 ,0 0 0 1 4 0 ,0 0 0 3 1 5 ,0 0 0
C ost per pound  $7  $7  $7  $7
T o ta l c o st o f R M $ 4 5 5 ,0 0 0 $ 7 7 0 ,0 0 0 $ 9 8 0 ,0 0 0 $ 2 ,2 0 5 ,0 0 0
b. Jan u ary F eb ru ary M arch T o ta l

J a n . ( 4 0 % l e s s d i s c .; 6 0 % ) $ 1 6 3 ,8 0 0 $ 2 7 3 ,0 0 0 $ 4 3 6 ,8 0 0
F eb . p u rch ases 2 7 7 ,2 0 0 $ 4 6 2 ,0 0 0 7 3 9 ,2 0 0
M ar. p u rch ases 3 5 2 ,8 0 0 3 5 2 ,8 0 0
T o ta l p a y m e n ts $ 1 6 3 ,8 0 0 $ 5 5 0 ,2 0 0 $ 8 1 4 ,8 0 0 $ 1 ,5 2 8 ,8 0 0
c. If C a m p b e ll M a n u fa c tu rin g u se s a p e rp e tu a l i n -
v e n to ry sy ste m , p u rc h a se d isc o u n ts w ill n o t a p p e a r o n th e b u d g e te d fin a n -
c ia l sta te m e n ts. T h e d isc o u n t a m o u n ts w ill sim p ly re d u c e th e c o st o f R a w
M a te ria l In v e n to ry . If th e c o m p a n y u se s a p e rio d ic in v e n to ry sy ste m , th e
d isc o u n ts w ill b e re c o rd e d a s a c o n tra -a c c o u n t to P u rc h a se s a n d w ill b e
c lo se d (a lo n g w ith th e o th e r p u rc h a se s a c c o u n ts) a t th e e n d o f th e p e rio d in
d e te rm in a tio n o f C o st o f G o o d s M a n u fa c tu re d .
234 C h ap ter 8
3 3 . B e g in n in g c a sh b a la n c e $ 2 3 ,0 0 0
In c o m e a fte r ta x e s $ 3 3 6 ,0 0 0
D e p re c ia tio n (n o c a sh in v o lv e d ) 5 6 ,2 0 0
A c c ru e d in c o m e ta x e x p e n se (n o c a sh i n v o lv e d ) 8 2 ,0 0 0
In c re a se in A /R (so ld m o re th a n c o lle c te d ) ( 8 ,0 0 0 )
D e c re a se in A /P (p a id fo r m o re th a n p u rc h a se d ) ( 7 ,0 0 0 )
E stim a te d b a d d e b ts (n o c a sh in v o lv e d ) 4 ,1 0 0
D iv id e n d s d e c la re d (n o e ffe c t o n in c o m e o r c a sh ) 0
D iv id e n d s p a id ( 4 7 ,0 0 0 )
P ro je c te d in c re a se in c a sh 4 1 6 ,3 0 0
E n d in g c a sh b a la n c e $ 4 3 9 ,3 0 0
34. a. C G S ( $ 2 ,7 0 0 ,0 0 0  0 .6 0 ) $ 1 ,6 2 0 ,0 0 0
L e ss d e c re a se in in v e n to ry (so ld m o re th a n b o u g h t) ( 4 3 ,7 5 0 )
P lu s d e c re a se in A /P (p a id fo r m o re th a n b o u g h t) 3 5 ,0 0 0
C a sh p a y m e n ts fo r in v e n to ry $ 1 ,6 1 1 ,2 5 0
b. C a sh p a y m e n ts fo r in v e n to ry $ 1 ,6 1 1 ,2 5 0
W ages expense 3 2 5 ,5 0 0
L e ss in c re a se in W /P (e x p e n se d m o re th a n p a id ) ( 4 2 ,0 0 0 )
O th e r c a sh e x p e n se s 2 4 5 ,0 0 0
T o ta l c a sh d isb u rse m e n ts $ 2 ,1 3 9 ,7 5 0
35. Ju ly A ugust S e p t. T o ta l
B e g in n in g c a sh b a la n c e $ 7 ,4 0 0 $ 7 ,2 0 0 $ 7 ,2 0 0 $ 7 ,4 0 0
C a sh re c e ip ts 1 6 ,4 0 0 2 0 ,2 0 0 3 3 ,8 0 0 7 0 ,4 0 0
T o ta l c a sh a v a ila b le $ 2 3 ,8 0 0 $ 2 7 ,4 0 0 $ 4 1 ,0 0 0 $ 7 7 ,8 0 0
C a sh d isb u rse m e n ts:
P a y m e n ts o n a c c o u n t $ 2 ,6 0 0 $ 7 ,8 0 0 $ 1 1 ,4 0 0 $ 2 1 ,8 0 0
W age expenses 1 0 ,0 0 0 1 2 ,2 0 0 1 2 ,4 0 0 3 4 ,6 0 0
O v e rh e a d c o sts 8 ,0 0 0 9 ,2 0 0 8 ,8 0 0 2 6 ,0 0 0
T o ta l d isb u rse m e n ts $ 2 0 ,6 0 0 $ 2 9 ,2 0 0 $ 3 2 ,6 0 0 $ 8 2 ,4 0 0
C a sh e x c e s s (in a d e q u a c y ) $ 3 ,2 0 0 $ ( 1 ,8 0 0 ) $ 8 ,4 0 0 $ ( 4 ,6 0 0 )
M in im u m c a sh b a la n c e ( 7 ,0 0 0 ) ( 7 ,0 0 0 ) ( 7 ,0 0 0 ) ( 7 ,0 0 0 )
C a sh a v a ila b le (n e e d e d ) $ ( 3 ,8 0 0 ) $ ( 8 ,8 0 0 ) $ 1 ,4 0 0 $ ( 1 1 ,6 0 0 )
F in a n c in g :
B o rro w in g s (re p a y m e n ts) $ 4 ,0 0 0 $ 9 ,0 0 0 $ ( 1 ,0 0 0 ) $ 1 2 ,0 0 0
S e ll (a c q u ire ) in v e stm e n ts 0 0 0 0
R e c e iv e (p a y ) in te re st 0 0 (2 0 ) (2 0 )
E n d in g c a sh b a la n c e $ 7 ,2 0 0 $ 7 ,2 0 0 $ 7 ,3 8 0 $ 7 ,3 8 0
36. a. C G S = $ 2 ,0 0 0 ,0 0 0 + ( 0 .6 5  $ 8 ,0 0 0 ,0 0 0 ) = $ 7 ,2 0 0 ,0 0 0
b. C G S ( $ 8 0 0 ,0 0 0  0 .7 5 ) $ 6 0 0 ,0 0 0
In c re a se in In v e n to ry 2 0 ,0 0 0
D e c re a se in A c c o u n ts P a y a b le 4 5 ,0 0 0
T o ta l c a sh p a y m e n t fo r in v e n to rie s $ 6 6 5 ,0 0 0
C h ap ter 8 235
c. y = $ 2 5 0 ,0 0 0 + $ 1 7 .5 0 X
y = $ 2 5 0 ,0 0 0 + ( $ 1 7 .5 0  7 ,5 0 0 )
y = $ 2 5 0 ,0 0 0 + $ 1 3 1 ,2 5 0 = $ 3 8 1 ,2 5 0 t o t a l o v e r h e a d
C a s h o v e r h e a d c o s t = $ 3 8 1 ,2 5 0 – $ 9 5 ,0 0 0 = $ 2 8 6 ,2 5 0
d. B e g in n in g c a sh b a la n c e $ 1 5 ,0 0 0
C a sh c o lle c tio n s 4 7 0 ,5 0 0
T o ta l c a sh a v a ila b le $ 4 8 5 ,5 0 0
D isb u rse m e n ts:
P a y o ff o f n o te p a y a b le $ 5 2 ,5 0 0
In te re st o n n o te p a y a b le 4 ,7 0 0
P u rc h a se o f c o m p u te r sy ste m 1 7 ,9 0 0
O p e ra tin g c o sts a n d in v e n to ry p u rc h a se s 1 9 3 ,5 0 0
D ire c t la b o r w a g e s 1 1 0 ,0 0 0
O v e rh e a d c o sts 1 0 6 ,4 0 0
S e l l i n g a n d a d m i n i s t r a ti v e c o s t s 9 4 ,8 0 0 ( 5 7 9 ,8 0 0 )
C a sh d e fic ie n c y $ ( 9 4 ,3 0 0 )
B o rro w in g s n e e d e d 1 0 0 ,0 0 0
E n d in g c a sh b a la n c e $ 5 ,7 0 0
3 7 . N e w s a l e s i n u n i t s = 1 0 0 ,0 0 0  1 .2 5 = 1 2 5 ,0 0 0
N ew D M c o s t p e r u n i t = [ ( $ 4 0 0 ,0 0 0 ÷ 1 0 0 ,0 0 0 )  1 .1 0 ] = $ 4 .4 0
N e w D L c o s t p e r u n i t = [ ( $ 2 0 0 ,0 0 0 ÷ 1 0 0 ,0 0 0 )  1 .1 0 ] = $ 2 .2 0
O v e r h e a d r a t e = $ 1 0 0 ,0 0 0 ÷ $ 2 0 0 ,0 0 0 = 5 0 % o f D L c o s t = $ 1 .1 0 p e r u n i t
T o t a l c o s t p e r u n i t = $ 4 .4 0 + $ 2 .2 0 + $ 1 .1 0 = $ 7 .7 0
V a r i a b l e s e l l i n g e x p e n s e s = $ 1 0 4 ,0 0 0 – $ 2 4 ,0 0 0 = $ 8 0 ,0 0 0
$ 8 0 ,0 0 0 ÷ $ 1 ,0 0 0 ,0 0 0 = 8 % o f s a l e s
D e sire d N I = 1 0 % o f S a le s
S a le s – C G S – S e llin g E x p . – A d m in . E x p . = N e t In c o m e
S a le s – D M – D L – O H – SE – A E = N I
S a l e s – ( $ 7 .7 0  1 2 5 ,0 0 0 ) – $ 2 4 ,0 0 0 – ( 0 .0 8  S a l e s ) – $ 1 2 0 ,0 0 0 = ( 0 .1 0  S a l e s )
S a l e s – $ 9 6 2 ,5 0 0 – $ 2 4 ,0 0 0 – ( 0 .0 8  S a l e s ) – $ 1 2 0 ,0 0 0 = ( 0 .1 0  S a l e s )
S a l e s – $ 1 ,1 0 6 ,5 0 0 – ( 0 .0 8  S a l e s ) = ( 0 .1 0  S a l e s )
S a l e s – ( 0 .0 8  S a l e s ) – ( 0 .1 0  S a l e s ) = $ 1 ,1 0 6 ,5 0 0
0 .8 2 S a l e s = $ 1 ,1 0 6 ,5 0 0
S a l e s = $ 1 ,3 4 9 ,3 9 0 ( r o u n d e d )
S e l l i n g p r i c e p e r u n i t = $ 1 ,3 4 9 ,3 9 0 ÷ 1 2 5 ,0 0 0 = $ 1 0 .8 0 ( r o u n d e d )
S a l e s ( 1 2 5 ,0 0 0  $ 1 0 .8 0 ) $ 1 ,3 5 0 ,0 0 0
C o st o f g o o d s so ld
D ire c t m a te ria l $ 5 5 0 ,0 0 0
D ire c t la b o r 2 7 5 ,0 0 0
O v erh ead 1 3 7 ,5 0 0 ( 9 6 2 ,5 0 0 )
G ro ss p ro fit $ 3 8 7 ,5 0 0
E xpenses
S e l l i n g * ( $ 2 4 ,0 0 0 + $ 1 0 8 ,0 0 0 ) $ 1 3 2 ,0 0 0
A d m in istra tiv e 1 2 0 ,0 0 0 ( 2 5 2 ,0 0 0 )
N e t in c o m e b e fo re ta x e s $ 1 3 5 ,5 0 0
*
V a r i a b l e s e l l i n g e x p e n s e s = ( 0 .0 8  $ 1 ,3 5 0 ,0 0 0 ) = $ 1 0 8 ,0 0 0
P r o o f : $ 1 3 5 ,5 0 0 ÷ $ 1 ,3 5 0 ,0 0 0 = 1 0 .0 4 % (o ff d u e to ro u n d in g )
236 C h ap ter 8
38. R evenue:
H a r d w a r e ( $ 4 ,8 0 0 ,0 0 0  1 .1  1 .0 5 ) $ 5 ,5 4 4 ,0 0 0
S o f t w a r e ( 2 ,0 0 0 ,0 0 0  1 .0 8 ) 2 ,1 6 0 ,0 0 0
M a i n t e n a n c e ( 1 ,2 0 0 ,0 0 0  1 .0 5 ) 1 ,2 6 0 ,0 0 0
T o ta l R e v e n u e $ 8 ,9 6 4 ,0 0 0
C o sts a n d E x p e n se s:
H a r d w a r e ( $ 3 ,3 6 0 ,0 0 0  1 .0 4  1 .0 5 ) $ 3 ,6 6 9 ,1 2 0
S o f t w a r e ( $ 1 ,2 0 0 ,0 0 0  1 .0 4  1 .0 8 ) 1 ,3 4 7 ,8 4 0
M a r k e t i n g ( $ 6 0 0 ,0 0 0  1 .0 5 ) 6 3 0 ,0 0 0
M a i n t e n a n c e ( $ 6 4 0 ,0 0 0 + $ 1 2 0 ,0 0 0 ) 7 6 0 ,0 0 0
A d m in istra tio n 1 ,1 2 0 ,0 0 0
T o ta l E x p e n se s ( 7 ,5 2 6 ,9 6 0 )
B u d g e te d O p e ra tin g In c o m e $ 1 ,4 3 7 ,0 4 0
(C IA a d a p te d )
39. a. B e g in n in g b a la n c e o f A /R $ 7 5 0 ,0 0 0
Ju ly c re d it sa le s 9 0 0 ,0 0 0
C a sh c o lle c tio n s in Ju ly ( 6 6 0 ,0 0 0 )
W rite -o ffs o f A /R in Ju ly ( 2 7 ,0 0 0 )
E n d in g b a la n c e o f A /R $ 9 6 3 ,0 0 0
b. C a s h c o l l e c t i o n s , $ 6 6 0 ,0 0 0
c. C r e d i t s a l e s , $ 9 0 0 ,0 0 0 , a n d t h e p r o v i s i o n f o r u n c o l l e c t i b l e a c c o u n t s ,
$ 2 0 ,0 0 0 .
(C P A a d a p te d )
40. S lu y te r C o rp .
B u d g e te d In c o m e S ta te m e n t
F o r th e M o n th E n d e d M a y 3 1 , 2 0 1 4
S a le s $ 4 0 0 ,0 0 0
C o s t o f g o o d s s o l d ( $ 4 0 0 ,0 0 0 ÷ 1 .6 0 ) ( 2 5 0 ,0 0 0 )
G ro ss m a rg in $ 1 5 0 ,0 0 0
S e l l i n g a n d a d m i n i s t r a ti v e e x p e n s e s $ 5 5 ,0 0 0
D e p re c ia tio n e x p e n se 8 ,0 0 0
B a d d e b t s e x p e n s e ( $ 4 0 0 ,0 0 0  0 .0 3 ) 1 2 ,0 0 0 ( 7 5 ,0 0 0 )
N e t in c o m e $ 7 5 ,0 0 0
41. a. S a l e s ( 2 4 0 ,0 0 0  $ 2 5 ) $ 6 ,0 0 0 ,0 0 0
V a r i a b l e c o s t s ( 0 .6 5  $ 6 ,0 0 0 ,0 0 0 ) ( 3 ,9 0 0 ,0 0 0 )
F ix e d c o sts ( 1 ,4 0 0 ,0 0 0 )
N e t in c o m e $ 7 0 0 ,0 0 0
b . C u r r e n t v a r i a b l e c o s t p e r u n i t = 0 .6 5  $ 2 5 = $ 1 6 .2 5
N e w v a r i a b l e c o s t p e r u n i t = $ 1 6 .2 5  0 .8 0 = $ 1 3 .0 0
C h ap ter 8 237
c . S a l e s ( 2 4 0 ,0 0 0  $ 2 5 ) $ 6 ,0 0 0 ,0 0 0
V a r i a b l e c o s t s ( 2 4 0 ,0 0 0  $ 1 3 ) ( 3 ,1 2 0 ,0 0 0 )
F i x e d c o s t s ( $ 1 ,4 0 0 ,0 0 0 + $ 7 0 0 ,0 0 0 ) ( 2 ,1 0 0 ,0 0 0 )
N e t in c o m e $ 7 8 0 ,0 0 0
d . A ssu m in g a ll c o sts re la te d to th e m a c h in e h a v e b e e n c o n sid e re d in th e a n a l-

y sis, th e e q u ip m e n t sh o u ld b e a c q u ire d b e c a u se in c o m e w ill in c re a se . T h e
c o m p a n y d o e s, h o w e v e r, n e e d to m a k e c e rta in th a t c o sts su c h a s tra i n in g fo r
e m p lo y e e s to u se th e e q u ip m e n t a n d a n y in c re a se d fu tu re m a in te n a n c e c o sts
fo r th e e q u ip m e n t h a v e b e e n a c c u ra te ly fo re c a st.
42. Each stu d e n t w ill have a d iffe re n t a n sw e r. H o w e v e r, th e fo llo w in g ite m s

w o u ld be re p re se n ta tiv e of th e ir an sw ers; th e se ite m s w ere in c lu d e d in J.
M agee and A . A d a m s, “ B u d g e tin g B e s t P r a c t i c e s ,” C PA P ra c tic e M a n a g e -
m e n t F o ru m (Ju ly 2 0 1 0 ), p p . 5 , 9 – 1 1 .
a. H u m a n re so u rc e s: H e a d c o u n ts, sa la rie s, b e n e fits, tu rn o v e r, re c ru itin g , re te n -

t i o n , p r o f e s s i o n a l t r a i n i n g ( i .e ., C P E ) , a n d c h a r g e a b l e - h o u r g o a l s
b. In fo rm a tio n te c h n o lo g y : C a p ita l e x p e n d itu re s a n d o p e ra tin g e x p e n se s, su c h

a s te le p h o n e , in te rn e t, c e ll p h o n e s, le a se s, so ftw a re , su p p lie s, m a in te n a n c e ,
n e tw o rk in g , a n d c o p ie rs
c. M a rk e tin g /b u sin e ss d e v e lo p m e n t: A d v e rtisin g , b ra n d in g , p u b lic re la tio n s,

m a r k e t i n g c a m p a i g n s , e v e n t s ( i n c l u d i n g w e b i n a r s , s e m i n a r s , e t c .) , b e n c h -
m a rk in g su rv e y s , a n d re se a rc h m a te ria ls ( su c h a s th o se p ro v id e d b y c o m p a -
n ie s lik e F irstR e se a rc h )
d. A c c o u n ts re c e iv a b le : R e stru c tu re d fe e sc h e d u le s, d e lin q u e n t a c c o u n ts, b a d

d e b ts (a n d re la te d in -h o u se o r e x te rn a l c o lle c tio n c o sts)
4 3 . T h e sp e n d -it-o r-lo se -it a ttitu d e is in d u c e d b y th e in c e n tiv e s in th e b u d g e t a n d

e v a lu a tio n c y c le . It is m o re lik e ly th a t a m a n a g e r w ill b e c a lle d to ta sk fo r o v e r-
sp e n d in g ra th e r th a n u n d e rsp e n d in g th e b u d g e t. T h is p e rc e p tio n e n c o u ra g e s a
m a n a g e r to b u ild sla c k in to th e b u d g e t. In p a rt b e c a u se o f b u d g e t sla c k , m a n a g -
e rs m a y fin d th e m se lv e s in a n “ u n d e rsp e n t” p o sitio n n e a r th e e n d o f th e fisc a l
y e a r. If th e m a n a g e r e n d s th e y e a r w ith a b ig b u d g e t su rp lu s, th e b u d g e t sla c k
w o u ld b e re v e a le d . N a tu ra lly , th e m a n a g e r w o u ld b e fe a rfu l o f re v e a lin g th e
b u d g e ta ry sla c k b e c a u se a c o n se q u e n c e w o u ld b e th a t a sm a lle r b u d g e t w o u ld
b e a w a rd e d in e n su in g y e a rs.
B o th su p e rio r a n d su b o rd in a te m a n a g e rs h a v e a n e th ic a l o b lig a tio n to o v e rc o m e

t h e s p e n d - i t - o r - l o s e - it a t t i t u d e . H o n e s t c o m m u n i c a t i o n b e t w e e n u p p e r a n d l o w -
e r m a n a g e rs is th e fa ste st a p p ro a c h to c u rin g th is a ttitu d e . F u rth e r, u p p e r m a n -
a g e rs h a v e a n o b lig a tio n to p ro v id e in c e n tiv e s to lo w e r m a n a g e rs th a t d o n o t
e n c o u ra g e th e sp e n d -it-o r-lo se -it a ttitu d e .
4 4 . C o n tin u o u s b u d g e tin g m e a n s th a t a b u d g e t th a t c o v e rs th e c o m in g 1 2 m o n th s o f
o p e ra tio n s is c o n sta n tly m a in ta in e d . A s o n e m o n th e x p ire s, a n o th e r m o n th is
a d d e d to th e b u d g e t. T h e a d v a n ta g e o f a c o n tin u o u s b u d g e t is th a t a c o n sta n t
p la n n in g h o riz o n o f 1 2 m o n th s is m a in ta in e d . If o n ly a n n u a l b u d g e ts a re p r e -
p a re d , th e b u d g e t c o v e rs a fix e d p e rio d , ty p ic a lly o n e y e a r. W ith a c o n tin u o u s
238 C h ap ter 8
b u d g e t, th e p ro c e ss is a n o n g o in g a c tiv ity a n d b u d g e tin g sk ills a re m a in ta in e d

th ro u g h o u t th e y e a r; a lso , th e tim e c ru n c h th a t ty p ic a lly a c c o m p a n ie s a n n u a l
b u d g e tin g is a v o id e d . O n e fu rth e r b e n e fit is th a t a c o n tin u o u s b u d g e t m a y b e
m o re fle x ib le in th a t re v isio n s c a n b e m a d e a s c o n d itio n s w a rra n t. T h e m a in
d isa d v a n ta g e o f th e c o n tin u o u s b u d g e t is th e tim e d e d ic a te d to p la n n in g a c tiv i-
tie s. C o n tin u o u s b u d g e tin g is m o re tim e in te n siv e b e c a u se p la n n in g a c tiv itie s
a re a lw a y s u n d e r w a y .
4 5 . E a c h stu d e n t w ill h a v e a d iffe re n t a n sw e r. N o so lu tio n is p ro v id e d .
C h ap ter 8 239
P R O B LE M S
4 6 . P ro d u c tio n B u d g e t— 2 0 1 4
J a n .– J u n e Ju ly – D e c . T o ta l
S a le s b u d g e t 1 ,1 6 0 ,0 0 0 1 ,4 4 0 ,0 0 0 2 ,6 0 0 ,0 0 0
E n d in g in v e n to ry 7 2 ,0 0 0 1 2 0 ,0 0 0 1 2 0 ,0 0 0
B e g in n in g in v e n to ry ( 5 0 ,0 0 0 ) ( 7 2 ,0 0 0 ) ( 5 0 ,0 0 0 )
P ro d u c tio n 1 ,1 8 2 ,0 0 0 1 ,4 8 8 ,0 0 0 2 ,6 7 0 ,0 0 0
M a te ria l A P u rc h a se s B u d g e t— 2 0 1 4
P ro d u c tio n 1 ,1 8 2 ,0 0 0 1 ,4 8 8 ,0 0 0 2 ,6 7 0 ,0 0 0
N um ber of pounds  3  3  3
P ro d u c tio n b u d g e t 3 ,5 4 6 ,0 0 0 4 ,4 6 4 ,0 0 0 8 ,0 1 0 ,0 0 0
E n d in g in v e n to ry 2 7 0 ,0 0 0 2 8 4 ,0 0 0 2 8 4 ,0 0 0
B e g in n in g In v e n to ry ( 2 4 0 ,0 0 0 ) ( 2 7 0 ,0 0 0 ) ( 2 4 0 ,0 0 0 )
P u rch ases 3 ,5 7 6 ,0 0 0 4 ,4 7 8 ,0 0 0 8 ,0 5 4 ,0 0 0
T im e s c o st p e r p o u n d  $ 2 .5 0  $ 2 .5 0  $ 2 .5 0
T o ta l c o st $ 8 ,9 4 0 ,0 0 0 $ 1 1 ,1 9 5 ,0 0 0 $ 2 0 ,1 3 5 ,0 0 0
M a te ria l B P u rc h a se s B u d g e t— 2 0 1 4
P ro d u c tio n 1 ,1 8 2 ,0 0 0 1 ,4 8 8 ,0 0 0 2 ,6 7 0 ,0 0 0
N u m b e r o f g a llo n s  0 .7 5  0 .7 5  0 .7 5
P ro d u c tio n b u d g e t 8 8 6 ,5 0 0 1 ,1 1 6 ,0 0 0 2 ,0 0 2 ,5 0 0
E n d in g in v e n to ry 7 0 ,0 0 0 7 6 ,0 0 0 7 6 ,0 0 0
B e g in n in g In v e n to ry ( 9 0 ,0 0 0 ) ( 7 0 ,0 0 0 ) ( 9 0 ,0 0 0 )
P urchases 8 6 6 ,5 0 0 1 ,1 2 2 ,0 0 0 1 ,9 8 8 ,5 0 0
T im e s c o st p e r g a llo n  $ 1 .8 0  $ 1 .8 0  $ 1 .8 0
T o ta l c o st $ 1 ,5 5 9 ,7 0 0 $ 2 ,0 1 9 ,6 0 0 $ 3 ,5 7 9 ,3 0 0
47. a. P ro d u c tio n Jan u ary F eb ru ary M arch T o ta l

S a le s 7 2 ,0 0 0 6 4 ,0 0 0 6 0 ,0 0 0 1 9 6 ,0 0 0
E n d in g in v e n to ry 1 6 ,0 0 0 1 5 ,0 0 0 1 4 ,0 0 0 1 4 ,0 0 0
B e g in n in g in v e n to ry ( 1 8 ,0 0 0 ) ( 1 6 ,0 0 0 ) ( 1 5 ,0 0 0 ) ( 1 8 ,0 0 0 )
P ro d u c tio n 7 0 ,0 0 0 6 3 ,0 0 0 5 9 ,0 0 0 1 9 2 ,0 0 0
P u rc h a se s — M a te ria l M Jan u ary F eb ru ary M arch T o ta l

P ro d u c tio n 7 0 ,0 0 0 6 3 ,0 0 0 5 9 ,0 0 0 1 9 2 ,0 0 0
Pounds needed  4  4  4  4
N e e d e d fo r p ro d u c tio n 2 8 0 ,0 0 0 2 5 2 ,0 0 0 2 3 6 ,0 0 0 7 6 8 ,0 0 0
E n d in g in v e n to ry 1 2 ,0 0 0 1 1 ,2 5 0 1 0 ,5 0 0 1 0 ,5 0 0
B e g in n in g in v e n to ry ( 1 3 ,5 0 0 ) ( 1 2 ,0 0 0 ) ( 1 1 ,2 5 0 ) ( 1 3 ,5 0 0 )
P u rc h a se s in p o u n d s 2 7 8 ,5 0 0 2 5 1 ,2 5 0 2 3 5 ,2 5 0 7 6 5 ,0 0 0
240 C h ap ter 8
P u rc h a se s — M a te ria l N Jan u ary F eb ru ary M arch T o ta l

P ro d u c tio n 7 0 ,0 0 0 6 3 ,0 0 0 5 9 ,0 0 0 1 9 2 ,0 0 0
Pounds needed  2 .5  2 .5  2 .5  2 .5
E n d in g in v e n to ry 8 ,0 0 0 7 ,5 0 0 7 ,0 0 0 7 ,0 0 0
B e g in n in g in v e n to ry ( 9 ,0 0 0 ) ( 8 ,0 0 0 ) ( 7 ,5 0 0 ) ( 9 ,0 0 0 )
P u rc h a se s — M a te ria l O Jan u ary F eb ru ary M arch T o ta l

P ro d u c tio n 7 0 ,0 0 0 6 3 ,0 0 0 5 9 ,0 0 0 1 9 2 ,0 0 0
Pounds needed  2  2  2  2
E n d in g in v e n to ry 9 ,4 0 0 8 ,2 0 0 8 ,5 0 0 8 ,5 0 0
b. W h ile e a c h stu d e n t’s m e m o w ill d iffe r, th e fo llo w in g p o in ts sh o u ld b e in -

c lu d e d . T h e n a tu re o f th e p ro d u c tio n p ro c e ss a ffe c ts th e e ffic ie n c y o f th e
c o n v e rsio n o f m a te ria ls in to fin ish e d p ro d u c ts. O n e b e n e fit o f u sin g n e w e r
te c h n o lo g y is th e re d u c tio n th a t c a n b e a c h ie v e d in w a ste , sc ra p , a n d d e fe c -
tiv e p ro d u c ts. It m a y b e e x p e c te d th a t th e m a te ria l re q u ire d p e r u n it o f fi n -
ish e d p ro d u ct w ill d ecrease to som e e x te n t if th e new te c h n o lo g y is
a c q u ire d .
c. T h e v e n d o r o f th e n e w te c h n o lo g y , a n in -h o u se e n g in e e rin g d e p a rtm e n t,
a n d k n o w le d g e a b le p ro d u c tio n m a n a g e rs sh o u ld b e a b le to o ffe r v a lu a b le
in sig h ts a s to h o w m a te ria l re q u ire m e n ts m ig h t c h a n g e w ith a c q u isitio n o f
th e n e w te c h n o lo g y . In fa c t, th e c h a n g e in m a te ria l re q u ir e m e n ts is lik e ly to
h a v e b e e n o n e o f th e fa c to rs th a t w a s c o n sid e re d in e v a lu a tin g th e p u rc h a se
o f th e n e w te c h n o lo g y .
48. a. S a le s 6 0 0 ,0 0 0
E n d i n g i n v e n t o r y ( 7 5 0 ,0 0 0  0 .0 5 ) 3 7 ,5 0 0
B e g in n in g in v e n to ry ( 2 4 ,6 0 0 )
P ro d u c tio n B u d g e t 6 1 2 ,9 0 0 cans
b. P u rch ases— T ea
P r o d u c t i o n b u d g e t [ ( 6 1 2 ,9 0 0  1 4 .5 ) ÷ 1 6 ] 5 5 5 ,4 4 0 .6 2 5
E n d i n g i n v e n t o r y [ ( 3 7 ,5 0 0  1 4 .5 ) ÷ 1 6 ] 3 3 ,9 8 4 .3 7 5
B e g in n in g in v e n to ry ( 7 5 0 .0 0 0 )
P u rch ases (p o u n d s) 5 8 8 ,6 7 5 .0 0 0
c. P u rc h a se s — S u g a r S u b stitu te
P r o d u c t i o n b u d g e t [ ( 6 1 2 ,9 0 0  1 .5 ) ÷ 1 6 ] 5 7 ,4 5 9 .3 7 5
E n d i n g i n v e n t o r y [ ( 3 7 ,5 0 0  1 .5 ) ÷ 1 6 ] 3 ,5 1 5 .6 2 5
B e g in n in g in v e n to ry ( 2 0 0 .0 0 0 )
P u rch ases (p o u n d s) 6 0 ,7 7 5 .0 0 0
d. ( $ 3 .5 0  5 8 8 ,6 7 5 ) + ( $ 0 .4 0  6 0 ,7 7 5 ) = $ 2 ,0 6 0 ,3 6 2 .5 0 + $ 2 4 ,3 1 0 =
$ 2 ,0 8 4 ,6 7 2 .5 0
C h ap ter 8 241
e. $ 2 ,0 8 4 ,6 7 2 .5 0  0 .4 0  0 .9 8 = $ 8 1 7 ,1 9 1 .6 2 c a s h p a i d f o r p u r c h a s e s
$ 2 ,0 8 4 ,6 7 2 .5 0  0 .6 0 = $ 1 ,2 5 0 ,8 0 3 .5 0 r e m a i n i n g A / P b a l a n c e a t 6 / 3 0
49. P ro d u c tio n B u d g e t #587Q #253X

S a le s 8 0 ,0 0 0 3 0 ,0 0 0
E n d in g in v e n to ry 640 900
B e g in n in g in v e n to ry (8 0 0 ) ( 1 ,2 0 0 )
P ro d u c tio n 7 9 ,8 4 0 2 9 ,7 0 0
P u rc h a se s — S te e l T o ta l
P ro d u c tio n 7 9 ,8 4 0 2 9 ,7 0 0
T im e s p o u n d s  3  5
N e e d e d fo r p ro d u c tio n 2 3 9 ,5 2 0 1 4 8 ,5 0 0 3 8 8 ,0 2 0
E n d in g in v e n to ry 1 ,4 0 0
B e g in n in g in v e n to ry ( 2 ,0 0 0 )
P u rch ases (p o u n d s) 3 8 7 ,4 2 0
P u rch ases— W o o d
P ro d u c tio n 7 9 ,8 4 0 2 9 ,7 0 0
T im e s b o a rd fe e t  0 .5  0 .2
N e e d e d fo r p ro d u c tio n 3 9 ,9 2 0 5 ,9 4 0 4 5 ,8 6 0
E n d in g in v e n to ry 600
B e g in n in g in v e n to ry (8 0 0 )
P u rc h a se s (b o a rd fe e t) 4 5 ,6 6 0
D ire c t L a b o r
P ro d u c tio n 7 9 ,8 4 0 2 9 ,7 0 0
T im e s re q u ire d h o u rs  2  3
N e e d e d fo r p ro d u c tio n 1 5 9 ,6 8 0 8 9 ,1 0 0 2 4 8 ,7 8 0
T im e s w a g e ra te  $ 1 0 .5 0  $ 1 0 .5 0  $ 1 0 .5 0
C o st o f d ire c t la b o r $ 1 ,6 7 6 ,6 4 0 $ 9 3 5 ,5 5 0 $ 2 ,6 1 2 ,1 9 0
O v erh ead
P ro d u c tio n 7 9 ,8 4 0 2 9 ,7 0 0
T im e s m a c h in e h o u rs  0 .5  0 .7
N e e d e d fo r p ro d u c tio n 3 9 ,9 2 0 2 0 ,7 9 0 6 0 ,7 1 0
T im e s o v e rh e a d ra te  $15  $15  $15
C o st o f o v erh ead $ 5 9 8 ,8 0 0 $ 3 1 1 ,8 5 0 $ 9 1 0 ,6 5 0
50. a. Jan u ary F eb ru ary M arch T o ta l

S a le s 6 ,4 0 0 5 ,2 0 0 7 ,4 0 0 1 9 ,0 0 0
E n d in g in v e n to ry (2 0 % ) 1 ,0 4 0 1 ,4 8 0 1 ,6 0 0 1 ,6 0 0
P ro d u c tio n 6 ,2 2 0 5 ,6 4 0 7 ,5 2 0 1 9 ,3 8 0
242 C h ap ter 8
b. (S c ra p iro n ) Jan u ary F eb ru ary M arch T o ta l

P ro d u c tio n 6 ,2 2 0 5 ,6 4 0 7 ,5 2 0 1 9 ,3 8 0
P o u n d s p e r u n it  2  2  2  2
Pounds needed 1 2 ,4 4 0 1 1 ,2 8 0 1 5 ,0 4 0 3 8 ,7 6 0
1
E n d . in v e n to ry 2 ,8 2 0 3 ,7 6 0 4 ,0 0 0 4 ,0 0 0
B e g . in v e n to ry ( 1 ,5 8 0 ) ( 2 ,8 2 0 ) ( 3 ,7 6 0 ) ( 1 ,5 8 0 )
P u r c h a s e s ( l b s .) 1 3 ,6 8 0 1 2 ,2 2 0 1 5 ,2 8 0 4 1 ,1 8 0
C ost per pound  $3  $3  $3  $3
P u rch ases $ 4 1 ,0 4 0 $ 3 6 ,6 6 0 $ 4 5 ,8 4 0 $ 1 2 3 ,5 4 0
1
E n d in g in v en to ry = 2 5 % o f th e n ex t m o n th ’s p ro d u ctio n req u irem en ts
J a n u a r y = 0 .2 5  1 1 ,2 8 0 = 2 ,8 2 0
F e b r u a r y = 0 .2 5  1 5 ,0 4 0 = 3 ,7 6 0
M a r c h = 0 .2 5  ( 8 ,0 0 0 + 1 ,6 0 0 – 1 ,6 0 0 ) = 0 .2 5  8 ,0 0 0 = 2 ,0 0 0  2 l b s . = 4 ,0 0 0
(B ases) Jan u ary F eb ru ary M arch T o ta l

P ro d u c tio n 6 ,2 2 0 5 ,6 4 0 7 ,5 2 0 1 9 ,3 8 0
2
E n d . in v e n to ry 1 ,4 1 0 1 ,8 8 0 2 ,0 0 0 2 ,0 0 0
B e g . in v e n to ry ( 1 ,2 0 0 ) ( 1 ,4 1 0 ) ( 1 ,8 8 0 ) ( 1 ,2 0 0 )
P u rch ases (b a ses) 6 ,4 3 0 6 ,1 1 0 7 ,6 4 0 2 0 ,1 8 0
C ost per base  $ 2 .5 0  $ 2 .5 0  $ 2 .5 0  $ 2 .5 0
P u rch ases $ 1 6 ,0 7 5 $ 1 5 ,2 7 5 $ 1 9 ,1 0 0 $ 5 0 ,4 5 0
T o ta l p u rc h a se s $ 5 7 ,1 1 5 $ 5 1 ,9 3 5 $ 6 4 ,9 4 0 $ 1 7 3 ,9 9 0
2
E n d in g in v en to ry = 2 5 % o f th e n ex t m o n th ’s p ro d u ctio n req u irem en ts
J a n u a r y = 0 .2 5  5 ,6 4 0 = 1 ,4 1 0
F e b r u a r y = 0 .2 5  7 ,5 2 0 = 1 ,8 8 0
M a r c h = 0 .2 5  ( 8 ,0 0 0 + 1 ,6 0 0 – 1 ,6 0 0 ) = 0 .2 5  8 ,0 0 0 = 2 ,0 0 0
c. M O N TH O F PA Y M EN T
Jan u ary F eb ru ary M arch T o ta l
T o ta l p u rc h a se s $ 5 7 ,1 1 5 $ 5 1 ,9 3 5 $ 6 4 ,9 4 0 $ 1 7 3 ,9 9 0
% in m o n th  0 .7 5  0 .7 5  0 .7 5  0 .7 5
$ 4 2 ,8 3 6 .2 5 $ 3 8 ,9 5 1 .2 5 $ 4 8 ,7 0 5 $ 1 3 0 ,4 9 2 .5 0
L e ss d isc o u n t  0 .9 9  0 .9 9  0 .9 9  0 .9 9
C a sh p y m t. $ 4 2 ,4 0 7 .8 9 $ 3 8 ,5 6 1 .7 4 $ 4 8 ,2 1 7 .9 5 $ 1 2 9 ,1 8 7 .5 8
T o ta l p u rc h a se $ 5 7 ,1 1 5 .0 0 $ 5 1 ,9 3 5 .0 0 $ 6 4 ,9 4 0 .0 0 $ 1 7 3 ,9 9 0 .0 0
P re -d isc . a m t. ( 4 2 ,8 3 6 .2 5 ) ( 3 8 ,9 5 1 .2 5 ) ( 4 8 ,7 0 5 .0 0 ) ( 1 3 0 ,4 9 2 .5 0 )
R e m a in d e r $ 1 4 ,2 7 8 .7 5 $ 1 2 ,9 8 3 .7 5 $ 1 6 ,2 3 5 .0 0 $ 4 3 ,4 9 7 .5 0

M o . o f p u rch ase
D ecem ber $ 5 ,8 0 0 .0 0 $ 5 ,8 0 0 .0 0
Jan u ary 4 2 ,4 0 7 .8 9 $ 1 4 ,2 7 8 .7 5 5 6 ,6 8 6 .6 4
F eb ru ary 3 8 ,5 6 1 .7 4 $ 1 2 ,9 8 3 .7 5 5 1 ,5 4 5 .4 9
M arch 4 8 ,2 1 7 .9 5 4 8 ,2 1 7 .9 5
T o ta l $ 4 8 ,2 0 7 .8 9 $ 5 2 ,8 4 0 .4 9 $ 6 1 ,2 0 1 .7 0 $ 1 6 2 ,2 5 0 .0 8
C h ap ter 8 243
d. M fg . O H Jan u ary F eb ru ary M arch T o ta l

P ro d u c tio n 6 ,2 2 0 5 ,6 4 0 7 ,5 2 0 1 9 ,3 8 0
V a r. c o st p e r u n it  $ 1 .3 0  $ 1 .3 0  $ 1 .3 0  $ 1 .3 0
T o ta l v a r. m fg . c o st $ 8 ,0 8 6 $ 7 ,3 3 2 $ 9 ,7 7 6 $ 2 5 ,1 9 4
F ix e d m fg . c o st 1 4 ,0 0 0 1 4 ,0 0 0 1 4 ,0 0 0 4 2 ,0 0 0
T o ta l m fg . O H $ 2 2 ,0 8 6 $ 2 1 ,3 3 2 $ 2 3 ,7 7 6 $ 6 7 ,1 9 4
S & A c o sts: Jan u ary F eb ru ary M arch T o ta l

S a le s re v e n u e $ 1 2 8 ,0 0 0 $ 1 0 4 ,0 0 0 $ 1 4 8 ,0 0 0 $ 3 8 0 ,0 0 0
V C (1 0 % o f sa le s)  0 .1 0  0 .1 0  0 .1 0  0 .1 0
T o ta l v a r. S & A c o s t $ 1 2 ,8 0 0 $ 1 0 ,4 0 0 $ 1 4 ,8 0 0 $ 3 8 ,0 0 0
F ix e d S & A c o st 1 3 ,6 0 0 1 3 ,6 0 0 1 3 ,6 0 0 4 0 ,8 0 0
T o ta l S & A O H $ 2 6 ,4 0 0 $ 2 4 ,0 0 0 $ 2 8 ,4 0 0 $ 7 8 ,8 0 0
T o ta l m fg . O H $ 2 2 ,0 8 6 $ 2 1 ,3 3 2 $ 2 3 ,7 7 6 $ 6 7 ,1 9 4
T o ta l S & A O H 2 6 ,4 0 0 2 4 ,0 0 0 2 8 ,4 0 0 7 8 ,8 0 0
T o ta l c a sh O H c o st $ 4 8 ,4 8 6 $ 4 5 ,3 3 2 $ 5 2 ,1 7 6 $ 1 4 5 ,9 9 4
e. Jan u ary F eb ru ary M arch T o ta l

B e g . B a la n c e $ 1 8 ,3 2 0 .0 0 $ 1 0 ,4 7 2 .1 1 $ 1 0 ,6 5 1 .6 2 $ 1 8 ,3 2 0 .0 0
C o lle c tio n s 1 1 6 ,2 0 0 .0 0 8 1 ,3 0 0 .0 0 1 0 1 ,5 0 0 .0 0 2 9 9 ,0 0 0 .0 0
C a s h a v a i l a b le $ 1 3 4 ,5 2 0 .0 0 $ 9 1 ,7 7 2 .1 1 $ 1 1 2 ,1 5 1 .6 2 $ 3 1 7 ,3 2 0 .0 0
C ash needed:
P u rch ases $ 4 8 ,2 0 7 .8 9 $ 5 2 ,8 4 0 .4 9 $ 6 1 ,2 0 1 .7 0 $ 1 6 2 ,2 5 0 .0 8
O v erh ead 4 8 ,4 8 6 .0 0 4 5 ,3 3 2 .0 0 5 2 ,1 7 6 .0 0 1 4 5 ,9 9 4 .0 0
D L* 4 ,3 5 4 .0 0 3 ,9 4 8 .0 0 5 ,2 6 4 .0 0 1 3 ,5 6 6 .0 0
B onuses 3 5 ,0 0 0 .0 0 0 .0 0 0 .0 0 3 5 ,0 0 0 .0 0
T a x p y m t. 0 .0 0 0 .0 0 5 ,0 0 0 .0 0 5 ,0 0 0 .0 0
T o ta l $ 1 3 6 ,0 4 7 .8 9 $ 1 0 2 ,1 2 0 .4 9 $ 1 2 3 ,6 4 1 .7 0 $ 3 6 1 ,8 1 0 .0 8
C a s h e x c . ( d e f .) $ ( 1 ,5 2 7 .8 9 ) $ ( 1 0 ,3 4 8 .3 8 ) $ ( 1 1 ,4 9 0 .0 8 ) $ ( 4 4 ,4 9 0 .0 8 )
M in . b a la n c e ( 1 0 ,0 0 0 .0 0 ) ( 1 0 ,0 0 0 .0 0 ) ( 1 0 ,0 0 0 .0 0 ) ( 1 0 ,0 0 0 .0 0 )
(N e e d e d ) A v a il. $ ( 1 1 ,5 2 7 .8 9 ) $ ( 2 0 ,3 4 8 .3 8 ) $ ( 2 1 ,4 9 0 .0 8 ) $ ( 5 4 ,4 9 0 .0 8 )
F in a n c in g :
B o rro w (rep ay ) 1 2 ,0 0 0 .0 0 2 1 ,0 0 0 .0 0 2 2 ,0 0 0 .0 0 5 5 ,0 0 0 .0 0
S e ll (in v e st)
R e c . (p a y ) in t.
E n d . B a la n c e $ 1 0 ,4 7 2 .1 1 $ 1 0 ,6 5 1 .6 2 $ 1 0 ,5 0 9 .9 2 $ 1 0 ,5 0 9 .9 2
*
D i r e c t l a b o r = $ 0 .7 0 p e r b o o k s t a n d
J a n u a r y : 6 ,2 2 0  $ 0 .7 0 = $ 4 ,3 5 4
F e b r u a r y : 5 ,6 4 0  $ 0 .7 0 = $ 3 ,9 4 8
M a r c h : 7 ,5 2 0  $ 0 .7 0 = $ 5 ,2 6 4
T o t a l : 1 9 ,3 8 0  $ 0 .7 0 = $ 1 3 ,5 6 6
51. a. $ 1 ,5 0 0 ,0 0 0 ÷ 0 .6 0 = $ 2 ,5 0 0 ,0 0 0
b. ( $ 2 ,5 0 0 ,0 0 0  0 .7 0 ) – ( $ 1 ,5 0 0 ,0 0 0 – $ 8 0 ,0 0 0 ) = $ 3 3 0 ,0 0 0
c. T o ta l e x p e n se s = 8 5 % o f sa le s
T o ta l v a ria b le c o sts = 7 0 % o f sa le s
T o ta l fix e d c o sts = 8 5 % – 7 0 % = 1 5 %
F i x e d c o s t s = 0 .1 5  $ 2 ,5 0 0 ,0 0 0 = $ 3 7 5 ,0 0 0
F i x e d S & A e x p e n s e s = $ 3 7 5 ,0 0 0 – $ 8 0 ,0 0 0 = $ 2 9 5 ,0 0 0
244 C h ap ter 8
d. C a s h r e c e i p t s : $ 2 ,5 0 0 ,0 0 0  0 .5 5 = $ 1 ,3 7 5 ,0 0 0
T o t a l e x p e n s e s ( $ 2 ,5 0 0 ,0 0 0  0 .8 5 ) $ 2 ,1 2 5 ,0 0 0
D e p re c ia tio n ( 4 5 ,0 0 0 )
P e n d in g e x p e n se s $ 2 ,0 8 0 ,0 0 0
P e rc e n t p a id in c a sh  0 .6 5
C a sh d isb u rse m e n ts $ 1 ,3 5 2 ,0 0 0
52. a. A p ril M ay June Q u a rte r

S a le s in u n its 6 0 ,0 0 0 1 4 0 ,0 0 0 4 6 ,0 0 0 2 4 6 ,0 0 0
P e r-u n it se llin g p ric e  $12  $12  $12  $12
T o ta l re v e n u e s $ 7 2 0 ,0 0 0 $ 1 ,6 8 0 ,0 0 0 $ 5 5 2 ,0 0 0 $ 2 ,9 5 2 ,0 0 0
b. A p ril M ay June Q u a rte r

C a sh sa le s (2 0 % ) $ 1 4 4 ,0 0 0 $ 3 3 6 ,0 0 0 $ 1 1 0 ,4 0 0 $ 5 9 0 ,4 0 0
C o lle c tio n s fro m
4 /1 /1 3 A /R b a la n c e 3 6 ,0 0 0 2 9 5 ,0 0 0 3 3 1 ,0 0 0
C re d it sa le s
A p r i l ( $ 5 7 6 ,0 0 0 ) 1 4 4 ,0 0 0 3 1 6 ,8 0 0 1 0 3 ,6 8 0 5 6 4 ,4 8 0
M a y ( $ 1 ,3 4 4 ,0 0 0 ) 3 3 6 ,0 0 0 7 3 9 ,2 0 0 1 ,0 7 5 ,2 0 0
J u n e ( $ 4 4 1 ,6 0 0 ) 1 1 0 ,4 0 0 1 1 0 ,4 0 0
T o ta l c o lle c tio n s $ 3 2 4 ,0 0 0 $ 1 ,2 8 3 ,8 0 0 $ 1 ,0 6 3 ,6 8 0 $ 2 ,6 7 1 ,4 8 0
c. B e g in n in g A /R $ 3 4 6 ,0 0 0
C r e d i t s a l e s ( $ 2 ,9 5 2 ,0 0 0  0 .8 0 ) 2 ,3 6 1 ,6 0 0
C o l l e c t i o n s ( $ 2 ,6 7 1 ,4 8 0 – $ 5 9 0 ,4 0 0 ) ( 2 ,0 8 1 ,0 8 0 )
E n d in g A /R $ 6 2 6 ,5 2 0
A lte rn a tiv e :
B e g i n n i n g A / R n o t c o l l e c t e d ( $ 3 4 6 ,0 0 0 – $ 3 3 1 ,0 0 0 ) $ 1 5 ,0 0 0
A p r i l c r e d i t s a l e s n o t c o l l e c t e d ( $ 5 7 6 ,0 0 0  2 % ) 1 1 ,5 2 0
M a y c r e d i t s a l e s n o t c o l l e c t e d ( $ 1 ,3 4 4 ,0 0 0  2 0 % ) 2 6 8 ,8 0 0
J u n e c r e d i t s a l e s n o t c o l l e c t e d ( $ 4 4 1 ,6 0 0  7 5 % ) 3 3 1 ,2 0 0
E n d in g A /R $ 6 2 6 ,5 2 0
d. E s t i m a t e d b a d d e b t s e x p e n s e = $ 2 ,3 6 1 ,6 0 0  2 % = $ 4 7 ,2 3 2
e. A c c o u n ts R e c e iv a b le $ 6 2 6 ,5 2 0
A l l o w a n c e ( $ 3 5 ,0 0 0 – $ 1 5 ,0 0 0 + $ 4 7 ,2 3 2 ) ( 6 7 ,2 3 2 )
N e t re a liz a b le v a lu e $ 5 5 9 ,2 8 8
f. B e g i n n i n g i n v e n t o r y $ ÷ C o s t p e r b e a r = $ 2 0 8 ,0 0 0 ÷ $ 8 = 2 6 ,0 0 0 b e a r s
A p ril M ay June Q u a rte r

S a le s in u n its 6 0 ,0 0 0 1 4 0 ,0 0 0 4 6 ,0 0 0 2 4 6 ,0 0 0
E I (4 0 % ) 5 6 ,0 0 0 1 8 ,4 0 0 1 2 ,0 0 0 1 2 ,0 0 0
B I ( 2 6 ,0 0 0 ) ( 5 6 ,0 0 0 ) ( 1 8 ,4 0 0 ) ( 2 6 ,0 0 0 )
P u rch ases 9 0 ,0 0 0 1 0 2 ,4 0 0 3 9 ,6 0 0 2 3 2 ,0 0 0
P e r-u n it c o st  $8  $8  $8  $8
T o ta l p u rc h a se s $ 7 2 0 ,0 0 0 $ 8 1 9 ,2 0 0 $ 3 1 6 ,8 0 0 $ 1 ,8 5 6 ,0 0 0
C h ap ter 8 245
g. A p ril M ay June Q u a rte r

B e g in n in g A /P $ 4 5 5 ,0 0 0 $ 4 5 5 ,0 0 0
A p r i l ( $ 7 2 0 ,0 0 0 ) 2 1 6 ,0 0 0 $ 5 0 4 ,0 0 0 7 2 0 ,0 0 0
M a y ( $ 8 1 9 ,2 0 0 ) 2 4 5 ,7 6 0 $ 5 7 3 ,4 4 0 8 1 9 ,2 0 0
J u n e ( $ 3 1 6 ,8 0 0 ) 9 5 ,0 4 0 9 5 ,0 4 0
T o ta l p a y m e n ts $ 6 7 1 ,0 0 0 $ 7 4 9 ,7 6 0 $ 6 6 8 ,4 8 0 $ 2 ,0 8 9 ,2 4 0
h. E n d i n g A / P = $ 3 1 6 ,8 0 0  7 0 % = $ 2 2 1 ,7 6 0
53. a. M a r c h s a l e s : ( $ 6 9 ,1 2 0 + $ 2 ,8 8 0 ) = $ 7 2 ,0 0 0 ; $ 7 2 ,0 0 0 ÷ 0 .5 0 = $ 1 4 4 ,0 0 0
b. C o l l e c t i o n s = ( $ 1 4 4 ,0 0 0  0 .4 8 ) + ( $ 2 4 0 ,0 0 0  0 .5 0 )
= $ 6 9 ,1 2 0 + $ 1 2 0 ,0 0 0
= $ 1 8 9 ,1 2 0
c. B I + P – C G S = EI
A p ril 1 b e g in n in g in v e n to ry $ 1 0 4 ,8 0 0
P u rc h a se s d u rin g A p ril: 6 0 % o f A p ril’s C G S + 3 0 % o f
M a y ’ s C G S = ( $ 2 4 0 ,0 0 0  0 .6 5  0 .6 0 ) + ( $ 2 6 0 ,0 0 0
 0 .6 5  0 .3 0 ) = $ 9 3 ,6 0 0 + $ 5 0 ,7 0 0 1 4 4 ,3 0 0
C o s t o f G o o d s S o l d ( $ 2 4 0 ,0 0 0  0 .6 5 ) ( 1 5 6 ,0 0 0 )
E n d in g in v e n to ry $ 9 3 ,1 0 0
d. B e g in n in g b a la n c e o f R E + N I – D iv id e n d s = E n d in g b a la n c e o f R E
S a le s $ 2 4 0 ,0 0 0
C G S ( 1 5 6 ,0 0 0 )
G ro ss m a rg in $ 8 4 ,0 0 0
S e llin g & a d m in istra tiv e e x p e n se s ( 4 3 ,0 0 0 )
E x p e c te d n e t in c o m e $ 4 1 ,0 0 0
B e g in n in g b a la n c e , R E $ 7 9 ,5 2 0
E x p e c te d n e t in c o m e 4 1 ,0 0 0
D iv id e n d s d e c la re d ( 2 0 ,0 0 0 )
E n d in g b a la n c e $ 1 0 0 ,5 2 0
e. B e g in n in g b a la n c e $ 2 4 ,0 0 0
C a sh c o lle c tio n s 1 8 9 ,1 2 0
C a sh a v a ila b le $ 2 1 3 ,1 2 0
C a sh d isb u rse m e n ts:
A c c o u n ts P a y a b le $ 1 4 0 ,4 0 0
S & A e x p e n s e s ( $ 4 3 ,0 0 0 – $ 8 ,0 0 0 ) 3 5 ,0 0 0
D iv id e n d s p a id 2 0 ,0 0 0 ( 1 9 5 ,4 0 0 )
C a sh a v a ila b le $ 1 7 ,7 2 0
S i n c e t h e r e i s $ 1 7 ,7 2 0 o f c a s h a v a i l a b l e a n d t h e m i n i m u m c a sh b a la n c e is
$ 1 6 ,0 0 0 , t h e r e i s $ 1 ,7 2 0 a v a i l a b l e f o r i n v e s t m e n t . O n l y $ 1 ,0 0 0 c a n b e i n -
v e s t e d , s i n c e i n v e s t m e n t s m u s t b e m a d e i n $ 1 ,0 0 0 a m o u n t s .
246 C h ap ter 8
54. a. S c h e d u le A (C o lle c tio n s fro m C u sto m e rs):

2014 2015
S a le s $ 9 0 0 ,0 0 0 $ 1 ,0 8 0 ,0 0 0
B e g . A /R (liq u id a te d in 2 0 1 3 ) 0 7 5 ,0 0 0
T o ta l $ 9 0 0 ,0 0 0 $ 1 ,1 5 5 ,0 0 0
E n d . A /R (1 /1 2 o f sa le s) ( 7 5 ,0 0 0 ) ( 9 0 ,0 0 0 )
C o lle c tio n s $ 8 2 5 ,0 0 0 $ 1 ,0 6 5 ,0 0 0
S c h e d u le B (D isb u rse m e n ts fo r D ire c t M a te ria l):

2014 2015
U n it sa le s 1 0 ,0 0 0 1 2 ,0 0 0
1
R e q u ire d e n d in g in v e n to ry 2 ,0 0 0 2 ,5 0 0
T o ta l n e e d e d 1 2 ,0 0 0 1 4 ,5 0 0
B e g in n in g in v e n to ry (liq . in 2 0 1 3 ) 0 ( 2 ,0 0 0 )
P ro d u c tio n 1 2 ,0 0 0 1 2 ,5 0 0
T im e s D M c o st p e r u n it  $20  $20
T o ta l p u rc h a se s $ 2 4 0 ,0 0 0 $ 2 5 0 ,0 0 0
D e la y e d p a y m e n t (1 /1 2 ) ( 2 0 ,0 0 0 ) ( 2 0 ,8 3 3 )
P a id p re v io u s b a la n c e 0 2 0 ,0 0 0
D isb u rse m e n ts fo r D M $ 2 2 0 ,0 0 0 $ 2 4 9 ,1 6 7
1
E I i s 6 0 d a y s u s a g e . F o r 2 0 1 4 : 1 2 ,0 0 0 u n i t s  2 / 1 2 = 2 ,0 0 0 ; f o r 2 0 1 5 : 1 5 ,0 0 0 u n i t s  2 / 1 2
= 2 ,5 0 0
V assar C o rp .
C ash B udget
F o r Y e a rs E n d in g M a rc h 3 1 , 2 0 1 4 a n d 2 0 1 5
2014 2015
B e g in n in g c a sh b a la n c e $ 0 $ ( 9 5 ,0 0 0 )
C o lle c tio n s — S c h . A 8 2 5 ,0 0 0 1 ,0 6 5 ,0 0 0
T o ta l $ 8 2 5 ,0 0 0 $ 9 7 0 ,0 0 0
D M — Sch. B $ 2 2 0 ,0 0 0 $ 2 4 9 ,1 6 7
D L ($ 3 0 p e r u n it) 3 6 0 ,0 0 0 3 7 5 ,0 0 0
V O H ($ 1 0 p e r u n it) 1 2 0 ,0 0 0 1 2 5 ,0 0 0
F ix e d c o sts 1 3 0 ,0 0 0 1 3 0 ,0 0 0
T o ta l ( 8 3 0 ,0 0 0 ) ( 8 7 9 ,1 6 7 )
C a sh a v a ila b le $ ( 5 ,0 0 0 ) $ 9 0 ,8 3 3
P a y m e n ts to c re d ito rs* ( 9 0 ,0 0 0 ) ( 9 0 ,8 3 3 )
**
E n d in g c a sh b a la n c e $ ( 9 5 ,0 0 0 ) $ 0
*
M ad e fro m th e 2 0 1 3 liq u id atio n o f A /R an d In v en to ries.
**
C an b e p aid to cred ito rs o r carried fo rw ard .
A / P = ( $ 6 0 0 ,0 0 0  6 0 % ) – ( $ 5 0 ,0 0 0 + $ 4 0 ,0 0 0 ) = $ 3 6 0 ,0 0 0 – $ 9 0 ,0 0 0 = $ 2 7 0 ,0 0 0 a t 4 / 1 / 1 3 ;
$ 2 7 0 ,0 0 0 – $ 9 0 ,8 3 3 = $ 1 7 9 ,1 6 7 s t i l l o w e d t o c r e d i t o r s a t 3 / 3 1 / 1 5 .
T h e so lu tio n is n o t fe a sib le , g iv e n th e c re d ito rs ’ c o n d itio n o f fu ll p a y m e n t o n o r

b y 3 /3 1 /1 5 .
C h ap ter 8 247
55. a. & b . (S u p p o rtin g c a lc u la tio n s fo r th e se re q u ire m e n ts are keyed to th e

a m o u n t s a n d f o l l o w t h e c a s h b u d g e t s .)
C M E , IN C .
C a sh B u d g e ts (in th o u sa n d s)
F o r Y e a r E n d in g F o r M o n th E n d in g
D ecem ber 31, 2014 Jan u ary 3 1 , 2 0 1 4
C a s h b a l a n c e , J a n .1 $ 750 $ 750
C a sh re c e ip ts:
c
P ro g ram rev en u e 1 2 ,0 0 0 1 ,4 4 0
a
M e m b e rsh ip in c o m e 1 0 ,0 0 0 0
T o ta l c a sh a v a ila b le $ 2 2 ,7 5 0 $ 2 ,1 9 0
C a sh o u tflo w s:
S e m in a r
b
In stru c tio n fe e s $ 8 ,4 0 0 $ 0
d
F a c ilitie s 5 ,6 0 0 672
e
P ro m o tio n 1 ,0 0 0 100
T o ta l $ 1 5 ,0 0 0 $ 772
f
S a la rie s 960 80
g
B e n e fits, sta ff 240 18
h
O ffic e le a se 240 20
G e n . a d m in . 1 ,5 0 0 125
i
G e n . p ro m o tio n 600 50
R e se a rc h g ra n ts 3 ,0 0 0 500
j
C a p ita l e q u ip m e n t 510 102
T o ta l ( 2 2 ,0 5 0 ) ( 1 ,6 6 7 )
E n d in g c a sh b a la n c e $ 700 $ 523
S u p p o rtin g c a lc u la tio n s:
a
1 0 0 ,0 0 0 m e m b e r s  $ 1 0 0 = $ 1 0 ,0 0 0 ,0 0 0
b
$ 1 2 ,0 0 0 ,0 0 0  70% = $ 8 ,4 0 0 ,0 0 0
c
$ 1 2 ,0 0 0 ,0 0 0  1 2 % = $ 1 ,4 4 0 ,0 0 0
d
$ 5 ,6 0 0 ,0 0 0  12% = $ 6 7 2 ,0 0 0
e
$ 1 ,0 0 0 ,0 0 0 ÷ 1 0 = $ 1 0 0 ,0 0 0
f
$ 9 6 0 ,0 0 0 ÷ 1 2 = $ 8 0 ,0 0 0
g
( $ 2 4 0 ,0 0 0 – $ 2 4 ,0 0 0 ) ÷ 1 2 = $ 1 8 ,0 0 0
h
$ 2 4 0 ,0 0 0 ÷ 1 2 = $ 2 0 ,0 0 0
i
$ 6 0 0 ,0 0 0 ÷ 1 2 = $ 5 0 ,0 0 0
j
$ 5 1 0 ,0 0 0 ÷ 5 = $ 1 0 2 ,0 0 0
c. C M E ’s m o st im p o rta n t o p e ra tin g p ro b le m is sh o rt -te rm liq u id ity . A d d itio n -

a lly , sh o rt-te rm b o rro w in g w ill b e n e c e ssa ry d u rin g th e se c o n d a n d th ird
q u a rte rs , a n d th e in te re st o n su c h h a s n o t b e e n fo re c a st. F in a lly , to ta l fa c il i-
ty a n d fa c u lty c o sts e x c e e d se m in a r re v e n u e in 2 0 1 4 .
56. a. A c c o u n ts R e c e iv a b le C o lle c tio n s (in th o u sa n d s):

A p r. M ay June
P rio r m o n th ’s sa le s (6 0 % ) $ 2 ,1 6 0 $ 2 ,6 4 0 $ 3 ,0 0 0
T w o m o n th s ’ p rio r sa le s (4 0 % ) 1 ,6 0 0 1 ,4 4 0 1 ,7 6 0
T o ta l c o lle c tio n s $ 3 ,7 6 0 $ 4 ,0 8 0 $ 4 ,7 6 0
248 C h ap ter 8
M a te ria l P u rc h a se s (in th o u sa n d s):

Feb. M ar. A p r. M ay June Ju ly
S a le s $ 4 ,0 0 0 $ 3 ,6 0 0 $ 4 ,4 0 0 $ 5 ,0 0 0 $ 5 ,6 0 0 $ 6 ,0 0 0
M a t. c o st (5 0 % ) $ 2 ,0 0 0 $ 1 ,8 0 0 $ 2 ,2 0 0 $ 2 ,5 0 0 $ 2 ,8 0 0 $ 3 ,0 0 0
M a te ria l R e c e ip ts:
T h is m o n th ’s
c o sts (4 0 % ) $ 800 $ 720 $ 880 $ 1 ,0 0 0 $ 1 ,1 2 0
N e x t m o n th ’s
c o sts (6 0 % ) 1 ,0 8 0 1 ,3 2 0 1 ,5 0 0 1 ,6 8 0 1 ,8 0 0
T o ta l re c e ip ts $ 1 ,8 8 0 $ 2 ,0 4 0 $ 2 ,3 8 0 $ 2 ,6 8 0 $ 2 ,9 2 0
M a te ria l P a y m e n ts:
P rio r m o n th ’s
g o o d s (8 0 % ) $ 1 ,6 3 2 $ 1 ,9 0 4 $ 2 ,1 4 4
T w o m o n th s’
p rio r g o o d s (2 0 % ) 376 408 476
T o ta l p a y m e n ts $ 2 ,0 0 8 $ 2 ,3 1 2 $ 2 ,6 2 0
A d m in . E x p e n se s (in th o u sa n d s):
S a la rie s (1 /1 2 o f a n n u a l) $ 80 $ 80 $ 80
P ro m o tio n (1 /1 2 o f a n n u a l) 110 110 110
P ro p . ta x e s (1 /4 o f a n n u a l) 120
In su ra n c e (1 /1 2 o f a n n u a l) 60 60 60
U tilitie s (1 /1 2 o f a n n u a l) 50 50 50
T o ta l e x p e n se $ 300 $ 300 $ 420
In co m e T ax ex p en se:
F irst q u a rte r p re ta x in c o m e = N e t in c o m e ÷ (1 – T a x ra te )
= $ 1 ,2 2 4 ,0 0 0 ÷ 0 .6
= $ 2 ,0 4 0 ,0 0 0
T a x e x p e n s e = 0 .4  $ 2 ,0 4 0 ,0 0 0 = $ 8 1 6 ,0 0 0
B la c k m a n C o rp .
B u d g e te d S c h e d u le o f C a sh R e c e ip ts a n d D isb u rse m e n ts
S e c o n d Q u a rte r 2 0 1 4
(in th o u sa n d s)
A p ril M ay June
B e g in n in g c a sh b a la n c e $ 200 $ 200 $ 200
A /R c o lle c tio n s 3 ,7 6 0 4 ,0 8 0 4 ,7 6 0
C a sh a v a ila b le $ 3 ,9 6 0 $ 4 ,2 8 0 $ 4 ,9 6 0
M a te ria l p u rc h a se s $ 2 ,0 0 8 $ 2 ,3 1 2 $ 2 ,6 2 0
W a g e s (2 0 % o f sa le s) 880 1 ,0 0 0 1 ,1 2 0
A d m in istra tiv e 300 300 420
In c o m e ta x 816
T o ta l d isb u rse m e n ts $ 4 ,0 0 4 $ 3 ,6 1 2 $ 4 ,1 6 0
C a sh e x c e ss (d e fic ie n c y ) $ (4 4 ) $ 668 $ 800
C a sh b o rro w e d (in v e ste d ) 244 (4 6 8 ) (6 0 0 )
E n d in g c a sh b a la n c e $ 200 $ 200 $ 200
C h ap ter 8 249
b. C a sh b u d g e tin g is p a rtic u la rly im p o rta n t fo r a ra p id ly e x p a n d in g c o m p a n y

b e c a u se , a s sa le s in c re a se , so d o e x p e n d itu re s fo r p ro d u c t p u rc h a se s. T h e se
e x p e n d itu re s g e n e ra lly p re c e d e c a sh re c e ip ts, o fte n b y a c o n sid e ra b le tim e
p e rio d , a n d a g ro w in g c o m p a n y m u st b e p re p a re d to fin a n c e th is in c re a sin g
g a p b e tw e e n e x p e n d itu re s a n d r e c e ip ts.
c. M o n th ly c a sh b u d g e ts d o ig n o re th e tim in g o f re c e ip ts a n d d isb u rse m e n ts

w ith in a m o n th . T h u s, w h e n c a sh flo w s a re e x tre m e ly v a ria b le , th is la c k o f
in fo rm a tio n c a n b e a re a so n to p re p a re c a sh b u d g e ts fo r sh o rte r tim e in te r-
v a ls.
57. a. S a le s
B udget
Jan. Feb. M arch T o ta l
U n it sa le s 2 5 ,0 0 0 3 0 ,0 0 0 3 2 ,0 0 0 8 7 ,0 0 0
S e llin g  $18  $18  $18  $18
p ric e
T o ta l sa le s $ 4 5 0 ,0 0 0 $ 5 4 0 ,0 0 0 $ 5 7 6 ,0 0 0 $ 1 ,5 6 6 ,0 0 0
b. P ro d u c tio n B u d g e t
U n it sa le s 2 5 ,0 0 0 3 0 ,0 0 0 3 2 ,0 0 0 8 7 ,0 0 0
EI 7 ,5 0 0 8 ,0 0 0 8 ,7 5 0 8 ,7 5 0
B I (0 ) ( 7 ,5 0 0 ) ( 8 ,0 0 0 ) (0 )
P ro d u c tio n 3 2 ,5 0 0 3 0 ,5 0 0 3 2 ,7 5 0 9 5 ,7 5 0
c. P u rch ases B u d g et
P ro d u c tio n 3 2 ,5 0 0 3 0 ,5 0 0 3 2 ,7 5 0 9 5 ,7 5 0
EI 6 ,1 0 0 6 ,5 5 0 6 ,8 0 0 6 ,8 0 0
B I (0 ) ( 6 ,1 0 0 ) ( 6 ,5 5 0 ) (0 )
U n its 3 8 ,6 0 0 3 0 ,9 5 0 3 3 ,0 0 0 1 0 2 ,5 5 0
Pounds per
u n it  2  2  2  2
T o ta l lb s. 7 7 ,2 0 0 6 1 ,9 0 0 6 6 ,0 0 0 2 0 5 ,1 0 0
P ric e p e r lb .  $ 0 .7 5  $ 0 .7 5  $ 0 .7 5  $ 0 .7 5
P u rch ases $ 5 7 ,9 0 0 $ 4 6 ,4 2 5 $ 4 9 ,5 0 0 $ 1 5 3 ,8 2 5
d. D ire c t L a b o r B u d g e t
P ro d u c tio n 3 2 ,5 0 0 3 0 ,5 0 0 3 2 ,7 5 0 9 5 ,7 5 0
D L tim e
p e r u n it  0 .5  0 .5  0 .5  0 .5
D LH s 1 6 ,2 5 0 1 5 ,2 5 0 1 6 ,3 7 5 4 7 ,8 7 5
D L ra te  $15  $15  $15  $15

D L cost $ 2 4 3 ,7 5 0 $ 2 2 8 ,7 5 0 $ 2 4 5 ,6 2 5 $ 7 1 8 ,1 2 5
250 C h ap ter 8
e. O v erh ead B u d g et

P ro d u c tio n 3 2 ,5 0 0 3 0 ,5 0 0 3 2 ,7 5 0 9 5 ,7 5 0
V O H u n it  $2  $2  $2  $2
ra te
T o ta l $ 6 5 ,0 0 0 $ 6 1 ,0 0 0 $ 6 5 ,5 0 0 $ 1 9 1 ,5 0 0
V O H
FO H cost 2 5 ,0 0 0 2 5 ,0 0 0 2 5 ,0 0 0 7 5 ,0 0 0
T o ta l O H $ 9 0 ,0 0 0 $ 8 6 ,0 0 0 $ 9 0 ,5 0 0 $ 2 6 6 ,5 0 0
f. C a sh R e c e ip ts S c h e d u le
Jan. $ 1 0 9 ,1 2 5 $ 3 1 5 ,0 0 0 $ 4 2 4 ,1 2 5
Feb. 1 3 0 ,9 5 0 $ 3 7 8 ,0 0 0 5 0 8 ,9 5 0
M arch 1 3 9 ,6 8 0 1 3 9 ,6 8 0
T o ta l $ 1 0 9 ,1 2 5 $ 4 4 5 ,9 5 0 $ 5 1 7 ,6 8 0 $ 1 ,0 7 2 ,7 5 5
C a sh P a y m e n ts S c h e d u le
Jan. $ 3 4 ,7 4 0 $ 2 3 ,1 6 0 $ 5 7 ,9 0 0
Feb. 2 7 ,8 5 5 $ 1 8 ,5 7 0 4 6 ,4 2 5
M arch 2 9 ,7 0 0 2 9 ,7 0 0
T o ta l $ 3 4 ,7 4 0 $ 5 1 ,0 1 5 $ 4 8 ,2 7 0 $ 1 3 4 ,0 2 5
58. a. A c c o u n ts re c e iv a b le a t Ju ly 3 1 :
J u l y s a l e s ( 0 .7 5  $ 1 8 4 ,0 0 0 ) $ 1 3 8 ,0 0 0
J u n e s a l e s ( 0 .1 5  $ 2 0 4 ,0 0 0 ) 3 0 ,6 0 0
B a la n c e $ 1 6 8 ,6 0 0
A c c o u n t s p a y a b l e a t J u l y 3 1 = 0 .4 0 o f m o n t h ’ s p u r c h a s e s = 0 .4 0 
$ 1 1 6 ,0 0 0 = $ 4 6 ,4 0 0
b. A u g u st c a sh c o lle c tio n s:
F r o m J u n e s a l e s ( 0 .1 5  $ 2 0 4 ,0 0 0 ) $ 3 0 ,6 0 0
F r o m J u l y s a l e s ( 0 .6 0  $ 1 8 4 ,0 0 0 ) 1 1 0 ,4 0 0
F r o m A u g u s t s a l e s ( 0 .2 5  $ 2 3 2 ,0 0 0 ) 5 8 ,0 0 0
T o ta l A u g u st c o lle c tio n s $ 1 9 9 ,0 0 0
c. A u g u st c a sh d isb u rse m e n ts:
J u l y p u r c h a s e s ( 0 .4 0  $ 1 1 6 ,0 0 0 ) $ 4 6 ,4 0 0
A u g u s t p u r c h a s e s ( 0 .9 8  0 .6 0  $ 1 6 0 ,0 0 0 ) 9 4 ,0 8 0
M o n t h l y e x p e n s e s [ $ 4 8 ,0 0 0 + ( 0 .1 2  $ 2 3 2 ,0 0 0 ) ] 7 5 ,8 4 0
T o ta l A u g u st d isb u rse m e n ts $ 2 1 6 ,3 2 0
C h ap ter 8 251
d. D a v id e ’s A rra n g e m e n ts
C ash B udget
F o r M o n th E n d in g A u g u st 3 1 , 2 0 1 4
B e g in n in g b a la n c e $ 2 8 ,4 7 0
C a sh c o lle c tio n s in A u g u st 1 9 9 ,0 0 0
T o ta l c a sh a v a ila b le e x c lu siv e o f fin a n c in g $ 2 2 7 ,4 7 0
D isb u rse m e n ts ( 2 1 6 ,3 2 0 )
C ash excess $ 1 1 ,1 5 0
M in im u m c a sh b a la n c e d e sire d ( 2 8 ,0 0 0 )
C ash needed $ ( 1 6 ,8 5 0 )
B o rro w in g s 1 7 ,0 0 0
E n d in g c a sh b a la n c e $ 2 8 ,1 5 0
e. D a v id e ’s A rra n g e m e n ts
In c o m e S ta te m e n t
F o r M o n th E n d in g A u g u st 3 1 , 2 0 1 4
S a le s $ 2 3 2 ,0 0 0
C o s t o f g o o d s s o l d ( 0 .5 5  $ 2 3 2 ,0 0 0 ) ( 1 2 7 ,6 0 0 )
G ro ss p ro fit $ 1 0 4 ,4 0 0
O p e ra tin g e x p e n se s:
M o n th ly e x p e n se s [fro m (c )] $ 7 5 ,8 4 0
D e p re c ia tio n 8 ,0 0 0 ( 8 3 ,8 4 0 )
N e t in c o m e b e fo re ta x e s $ 2 0 ,5 6 0
f. P e rish a b le s c a n sp o il; th u s, th e re is n e e d fo r a c lo se r m a tc h b e tw e e n p ro -
d u c tio n a n d sa le s th a n fo r n o n p e rish a b le s— a lm o st m a n d a tin g th e u se o f JIT
to m a n a g e in v e n to ry le v e ls.
59. a. F i x e d p r o d u c t i o n c o s t [ ( $ 2 ,6 0 0 ,0 0 0  1 .0 7 5 )  0 .8 0 ] $ 2 ,2 3 6 ,0 0 0
E stim a te d p ro d u c tio n ÷ 4 0 0 ,0 0 0
E stim a te d fix e d p ro d u c tio n c o st p e r u n it $ 5 .5 9
V a r i a b l e p r o d u c t i o n c o s t ( $ 5 5  1 .1 5 ) 6 3 .2 5
T o ta l p ro d u c tio n c o st p e r u n it $ 6 8 .8 4
b. S e l l i n g p r i c e = $ 6 8 .8 4  1 .2 5 = $ 8 6 .0 5 ; s e l l i n g p r i c e = $ 8 6
c. S a l e s ( $ 8 6  4 0 0 ,0 0 0 ) $ 3 4 ,4 0 0 ,0 0 0
C G S ( $ 6 8 .8 4  4 0 0 ,0 0 0 ) ( 2 7 ,5 3 6 ,0 0 0 )
G ro ss m a rg in $ 6 ,8 6 4 ,0 0 0
V a r i a b l e S & A ( $ 3 4 ,4 0 0 ,0 0 0  0 .0 8 ) ( 2 ,7 5 2 ,0 0 0 )
F i x e d S & A ( $ 2 ,6 0 0 ,0 0 0  1 .0 7 5  0 .2 0 ) ( 5 5 9 ,0 0 0 )
In c o m e b e fo re ta x e s $ 3 ,5 5 3 ,0 0 0
d. X = u n it se llin g p ric e th a t g iv e s p re -ta x in c o m e o f 2 5 % o f sa le s

4 0 0 ,0 0 0 X – $ 2 7 ,5 3 6 ,0 0 0 – 0 .0 8 ( 4 0 0 ,0 0 0 X ) – $ 5 5 9 ,0 0 0 = 0 .2 5 ( 4 0 0 ,0 0 0 X )
4 0 0 ,0 0 0 X – 0 .0 8 ( 4 0 0 ,0 0 0 X ) – $ 2 8 ,0 9 5 ,0 0 0 = 1 0 0 ,0 0 0 X
4 0 0 ,0 0 0 X – 1 3 2 ,0 0 0 X = $ 2 8 ,0 9 5 ,0 0 0
2 6 8 ,0 0 0 X = $ 2 8 ,0 9 5 ,0 0 0
X = $ 1 0 4 .8 3
252 C h ap ter 8
P ro o f:
S a le s ($ 1 0 4 .8 3  4 0 0 ,0 0 0 ) $ 4 1 ,9 3 2 ,0 0 0
C G S ($ 6 8 .8 4  4 0 0 ,0 0 0 ) (2 7 ,5 3 6 ,0 0 0 )
G ro s s m a rg in $ 1 4 ,3 9 6 ,0 0 0
V a ria b le S & A ($ 4 1 ,9 3 2 ,0 0 0  0 .0 8 ) (3 ,3 5 4 ,5 6 0 )
F ix e d S & A ($ 2 ,6 0 0 ,0 0 0  1 .0 7 5  0 .2 0 ) (5 5 9 ,0 0 0 )
In c o m e b e fo re ta x e s $ 1 0 ,4 8 2 ,4 4 0
($ 4 1 ,9 3 2 ,0 0 0  0 .2 5 = $ 1 0 ,4 8 3 ,0 0 0 o ff d u e to ro u n d in g )
60. a. B la n c o C o .
F o r M o n th E n d e d N o v e m b e r 3 0 , 2 0 1 4
S a le s $ 3 3 0 ,0 0 0 ,0 0 0
C o st o f G o o d s S o ld (7 0 % o f sa le s) 2 3 1 ,0 0 0 ,0 0 0
G ro ss P ro fit (3 0 % o f sa le s) $ 9 9 ,0 0 0 ,0 0 0
O th e r E x p e n se s
C ash expense $ 4 6 ,5 0 0 ,0 0 0
D e p re c ia tio n 1 5 ,0 0 0 ,0 0 0
U n c o lle c tib le a c c o u n ts 6 ,6 0 0 ,0 0 0 ( 6 8 ,1 0 0 ,0 0 0 )
N et In co m e b efo re T ax es $ 3 0 ,9 0 0 ,0 0 0
b. B e g in n in g C a sh b a la n c e $ 2 8 ,0 0 0 ,0 0 0
C o lle c tio n s fro m p rio r m o n th s ’ sa le s 5 7 ,0 0 0 ,0 0 0
C o l l e c t i o n s f r o m c u r r e n t s a l e s ( 0 .7 0  $ 3 3 0 ,0 0 0 ,0 0 0 ) 2 3 1 ,0 0 0 ,0 0 0
P a y m e n ts o n a c c o u n t ( 1 6 5 ,0 0 0 ,0 0 0 )
M o n th ly c a sh e x p e n d itu re s ( 4 6 ,5 0 0 ,0 0 0 )
E n d in g C a sh b a la n c e $ 1 0 4 ,5 0 0 ,0 0 0
B e g in n in g A c c o u n ts R e c e iv a b le b a la n c e $ 6 0 ,0 0 0 ,0 0 0
S a le s 3 3 0 ,0 0 0 ,0 0 0
C o lle c tio n s fro m O c to b e r sa le s ( 5 7 ,0 0 0 ,0 0 0 )
C o lle c tio n s fro m N o v e m b e r sa le s ( 2 3 1 ,0 0 0 ,0 0 0 )
E n d in g A c c o u n ts R e c e iv a b le b a la n c e $ 1 0 2 ,0 0 0 ,0 0 0
A l l o w a n c e f o r U n c o l l e c t i b l e s = $ 3 ,0 0 0 ,0 0 0 + ( 0 .0 2  $ 3 3 0 ,0 0 0 ,0 0 0 ) =
$ 9 ,6 0 0 ,0 0 0
B e g in n in g In v e n to ry b a la n c e $ 5 2 ,5 0 0 ,0 0 0
P u r c h a s e s ( 0 .7 0  $ 3 6 0 ,0 0 0 ,0 0 0 ) 2 5 2 ,0 0 0 ,0 0 0
C o st o f G o o d s S o ld ( 2 3 1 ,0 0 0 ,0 0 0 )
E n d in g In v e n to ry b a la n c e $ 7 3 ,5 0 0 ,0 0 0
P P & E = $ 1 5 0 ,0 0 0 ,0 0 0 – ( $ 3 7 ,5 0 0 ,0 0 0 + $ 1 5 ,0 0 0 ,0 0 0 ) = $ 9 7 ,5 0 0 ,0 0 0
A c c o u n t s P a y a b l e = 0 .7 0  $ 3 6 0 ,0 0 0 ,0 0 0 = $ 2 5 2 ,0 0 0 ,0 0 0
R e t a i n e d E a r n i n g s = ( $ 3 5 ,0 0 0 ,0 0 0 ) + $ 3 0 ,9 0 0 ,0 0 0 = ( $ 4 ,1 0 0 ,0 0 0 )
C h ap ter 8 253
B la n c o C o .
B u d g e te d B a la n c e S h e e t
N ovem ber 30, 2014
A sse ts
C ash $ 1 0 4 ,5 0 0 ,0 0 0
A c c o u n ts R e c e iv a b le (n e t o f A llo w a n c e ) 9 2 ,4 0 0 ,0 0 0
In v e n to ry 7 3 ,5 0 0 ,0 0 0
P r o p e r t y , P l a n t & E q u i p m e n t ( n e t o f A c c . D e p r .) 9 7 ,5 0 0 ,0 0 0
T o ta l A sse ts $ 3 6 7 ,9 0 0 ,0 0 0
L ia b ilitie s & S to c k h o ld e rs’ E q u ity

A c c o u n ts P a y a b le $ 2 5 2 ,0 0 0 ,0 0 0
C o m m o n S to c k 1 2 0 ,0 0 0 ,0 0 0
R e ta in e d E a rn in g s (d e fic it) ( 4 ,1 0 0 ,0 0 0 )
T o ta l L ia b ilitie s & S to c k h o ld e rs’ E q u ity $ 3 6 7 ,9 0 0 ,0 0 0
c. B e c a u se B la n c o C o . h a s a R E d e fic it, it w ill b e v e ry d iffic u lt fo r th e c o m -

p a n y to b o rro w fu n d s n e e d e d fo r o p e ra tio n s. If a b le to o b ta in fin a n c in g ,
B la n c o w ill h a v e to p a y v e ry h ig h in te re st ra te s a n d p le d g e sp e c ific a sse ts
fo r c o lla te ra l. O n e th in g B la n c o c o u ld d o is se ll its A c c o u n ts R e c e iv a b le
a n d u se th a t c a sh to fin a n c e o p e ra tio n s a n d re d u c e A c c o u n ts P a y a b le . B la n -
c o sh o u ld a lso e x a m in e its a sse ts to se e if a n y e x ist th a t h a v e m a rk e t v a lu e s
c o n sid e ra b ly a b o v e b o o k v a lu e s. If so , th e a sse ts c o u ld b e so ld to in c re a se
in c o m e , re d u c e th e R E d e fic it, a n d in c re a se c a sh . H o w e v e r, B la n c o m u st b e
c a re fu l to a v o id se llin g a sse ts th a t a re c ritic a l to its a b ility to re m a in a g o in g
c o n c e rn — u n le ss sim ila r a s se ts a re a v a ila b le a t re a so n a b le ra te s to le a se .
B la n c o sh o u ld try to re d u c e its in v e n to ry to g e n e ra te c a sh , in c re a se in c o m e ,
a n d re d u c e th e R E d e fic it. B la n c o sh o u ld a lso a sse ss w h y C G S is so h ig h
re la tiv e to sa le s. P o ssib ly a c tiv ity -b a se d c o stin g c o u ld b e u se d to e lim in a te
so m e N V A a c tiv itie s a n d , th u s, d e c re a se c o sts.
61. a. S a le s B u d g e t:
M i x e r s ( $ 9 0  6 0 ,0 0 0 ) $ 5 ,4 0 0 ,0 0 0
B r e a d m a k e r s ( $ 1 4 0  4 0 ,0 0 0 ) 5 ,6 0 0 ,0 0 0
T o ta l b u d g e te d sa le s $ 1 1 ,0 0 0 ,0 0 0
b. P ro d u c tio n B u d g e t: M ix e rs B read m ak ers

B u d g e te d sa le s 6 0 ,0 0 0 4 0 ,0 0 0
E n d in g in v e n to ry 2 0 ,0 0 0 5 ,0 0 0
B e g in n in g in v e n to ry ( 1 5 ,0 0 0 ) ( 4 ,0 0 0 )
B u d g e te d p ro d u c tio n 6 5 ,0 0 0 4 1 ,0 0 0
c. P u rc h a sin g B u d g e t: M o to rs B e a te rs Fuses
M ix e r p ro d u c tio n 6 5 ,0 0 0 1 3 0 ,0 0 0 1 3 0 ,0 0 0
B re a d m a k e r p ro d u c tio n 4 1 ,0 0 0 1 6 4 ,0 0 0 1 2 3 ,0 0 0
E n d in g in v e n to ry 3 ,6 0 0 2 4 ,0 0 0 7 ,5 0 0
B e g in n in g in v e n to ry ( 2 ,0 0 0 ) ( 2 1 ,0 0 0 ) ( 6 ,0 0 0 )
U n its to b e p u rc h a se d 1 0 7 ,6 0 0 2 9 7 ,0 0 0 2 5 4 ,5 0 0
T im e s p ric e p e r u n it  $18  $ 1 .7 5  $ 2 .4 0
B u d g e te d p u rc h a se s $ 1 ,9 3 6 ,8 0 0 $ 5 1 9 ,7 5 0 $ 6 1 0 ,8 0 0
254 C h ap ter 8
d. D ire c t L a b o r B u d g e t:
M i x e r s ( $ 8  2  6 5 ,0 0 0 ) $ 1 ,0 4 0 ,0 0 0
B r e a d m a k e r s ( $ 1 0  3  4 1 ,0 0 0 ) 1 ,2 3 0 ,0 0 0
B u d g e te d la b o r c o st $ 2 ,2 7 0 ,0 0 0
e. M i x e r = $ 1 8 .0 0 + ( 2  $ 1 .7 5 ) + ( 2  $ 2 .4 0 ) + ( 2  $ 8 .0 0 ) + ( 2  $ 7 .5 0 )
= $ 1 8 .0 0 + $ 3 .5 0 + $ 4 .8 0 + $ 1 6 .0 0 + $ 1 5 .0 0
= $ 5 7 .3 0
B r e a d m a k e r = $ 1 8 .0 0 + ( 4  $ 1 .7 5 ) + ( 3  $ 2 .4 0 ) + ( 3  $ 1 0 .0 0 ) +
( 3  $ 7 .5 0 )
= $ 1 8 .0 0 + $ 7 .0 0 + $ 7 .2 0 + $ 3 0 .0 0 + $ 2 2 .5 0
= $ 8 4 .7 0
62. S a le s B u d g e t:
Jan u ary F eb ru ary M arch A p ril
8 ,0 0 0 1 0 ,0 0 0 1 5 ,0 0 0 1 2 ,0 0 0
 $12  $12  $12  $12

$ 9 6 ,0 0 0 $ 1 2 0 ,0 0 0 $ 1 8 0 ,0 0 0 $ 1 4 4 ,0 0 0
A c c o u n ts R e c e iv a b le c o lle c tio n s (7 0 % , 2 0 % , 1 0 % ):
N ovem ber $ 7 ,0 0 0 $ 7 ,0 0 0
D ecem ber 1 3 ,0 0 0 $ 6 ,5 0 0 1 9 ,5 0 0
Jan u ary 6 7 ,2 0 0 1 9 ,2 0 0 $ 9 ,6 0 0 9 6 ,0 0 0
F eb ru ary 0 8 4 ,0 0 0 2 4 ,0 0 0 1 0 8 ,0 0 0
M arch 0 0 1 2 6 ,0 0 0 1 2 6 ,0 0 0
T o ta l $ 8 7 ,2 0 0 $ 1 0 9 ,7 0 0 $ 1 5 9 ,6 0 0 $ 3 5 6 ,5 0 0
A c c t s . R e c . e n d i n g b a l a n c e = $ 2 6 ,5 0 0 + $ 3 9 6 ,0 0 0 – $ 3 5 6 ,5 0 0 = $ 6 6 ,0 0 0
P ro d u c tio n B u d g e t:
Jan u ary F eb ru ary M arch T o ta l A p ril
S a le s 8 ,0 0 0 1 0 ,0 0 0 1 5 ,0 0 0 3 3 ,0 0 0 1 2 ,0 0 0
E n d in g in v . 500 750 600 600 550
B e g in n in g In v . (4 0 0 ) (5 0 0 ) (7 5 0 ) (4 0 0 ) (6 0 0 )
P ro d u c tio n 8 ,1 0 0 1 0 ,2 5 0 1 4 ,8 5 0 3 3 ,2 0 0 1 1 ,9 5 0
P u rc h a se s B u d g e t:
Jan u ary F eb ru ary M arch T o ta l A p ril
P ro d u c tio n 8 ,1 0 0 1 0 ,2 5 0 1 4 ,8 5 0 3 3 ,2 0 0 1 1 ,9 5 0
G a llo n s  1 .2  1 .2  1 .2  1 .2  1 .2
P ro d . n eed s 9 ,7 2 0 1 2 ,3 0 0 1 7 ,8 2 0 3 9 ,8 4 0 1 4 ,3 4 0
E n d in g in v . 615 891 717 717
B e g in n in g In v . ( 1 ,0 0 0 ) (6 1 5 ) (8 9 1 ) ( 1 ,0 0 0 )
P u rch ases 9 ,3 3 5 1 2 ,5 7 6 1 7 ,6 4 6 3 9 ,5 5 7
P e r g a llo n  $ 0 .8 0  $ 0 .8 0  $ 0 .8 0  $ 0 .8 0
C ost $ 7 ,4 6 8 $ 1 0 ,0 6 1 $ 1 4 ,1 1 7 $ 3 1 ,6 4 6
C h ap ter 8 255
P a y m e n t o f A c c o u n ts P a y a b le (6 0 % , 4 0 % ):
D ecem ber $ 2 ,1 4 8 $ 2 ,1 4 8
Jan u ary 4 ,4 8 1 $ 2 ,9 8 7 7 ,4 6 8
F eb ru ary 6 ,0 3 7 $ 4 ,0 2 4 1 0 ,0 6 1
M arch 8 ,4 7 0 8 ,4 7 0
T o ta l $ 6 ,6 2 9 $ 9 ,0 2 4 $ 1 2 ,4 9 4 $ 2 8 ,1 4 7
A / P e n d i n g b a l a n c e = $ 2 ,1 4 8 + $ 3 1 ,6 4 6 – $ 2 8 ,1 4 7 = $ 5 ,6 4 7
D ire c t L a b o r B u d g e t:
P ro d u c tio n 8 ,1 0 0 1 0 ,2 5 0 1 4 ,8 5 0 3 3 ,2 0 0
D L H p e r u n it  0 .5  0 .5  0 .5  0 .5
T o ta l D L H s 4 ,0 5 0 5 ,1 2 5 7 ,4 2 5 1 6 ,6 0 0
D L ra te  $6  $6  $6  $6
D L cost $ 2 4 ,3 0 0 $ 3 0 ,7 5 0 $ 4 4 ,5 5 0 $ 9 9 ,6 0 0
V a ria b le O H B u d g e t:
P ro d u c tio n 8 ,1 0 0 1 0 ,2 5 0 1 4 ,8 5 0 3 3 ,2 0 0
M H p e r u n it  5  5  5  5
T o ta l M H s 4 0 ,5 0 0 5 1 ,2 5 0 7 4 ,2 5 0 1 6 6 ,0 0 0
V O H ra te  $ 0 .0 6  $ 0 .0 6  $ 0 .0 6  $ 0 .0 6
V O H cost $ 2 ,4 3 0 $ 3 ,0 7 5 $ 4 ,4 5 5 $ 9 ,9 6 0
F ix e d O H B u d g e t
Jan u ary F eb ru ary M arch T o ta l C o m m e n ts
S a la rie s $ 6 ,5 0 0 $ 6 ,5 0 0 $ 6 ,5 0 0 $ 1 9 ,5 0 0 (c a sh )
U tilitie s 1 ,0 0 0 1 ,0 0 0 1 ,0 0 0 3 ,0 0 0 (c a sh )
In su ran ce 200 200 200 600 (d e c r. in p p d . in s .)
D ep r. 2 ,3 0 0 2 ,3 0 0 2 ,5 5 0 7 ,1 5 0 (in c r. in a c c . d e p r.)
FO H cost $ 1 0 ,0 0 0 $ 1 0 ,0 0 0 $ 1 0 ,2 5 0 $ 3 0 ,2 5 0
O th e r P a y m e n ts, C o lle c tio n s, a n d C o st A d ju stm e n ts:

Jan u ary F eb ru ary M arch T o ta l C o m m e n ts
D iv id e n d s $ 1 0 ,0 0 0 $ 1 0 ,0 0 0 (c a sh )
E q u ip m e n t $ 7 ,2 0 0 7 ,2 0 0 (c a s h ; in c r. in
e q u ip .; w ill
c a u s e $ 2 5 0 in c r.
in d e p r. e x p . a n d
a c c . d e p r.)
*
In t. e x p e n se 250 $ 217 467 (c a sh )
**
In t. re c e iv e d 16 16 (c a sh )
S & A c o sts 3 2 ,8 0 0 3 2 ,8 0 0 3 2 ,8 0 0 9 8 ,4 0 0 (c a sh )
*
J a n u a ry : $ 2 5 ,0 0 0 N o te P a y a b le  0 .1 2  1 /1 2 = $ 2 5 0
F e b ru a ry : $ 2 5 ,0 0 0 N /P – $ 3 ,3 0 0 re p a y m e n t = $ 2 1 ,7 0 0  0 .1 2  1 /1 2 = $ 2 1 7
**
M a rc h : $ 4 ,7 0 0 In v t.  0 .0 4  1 /1 2 = $ 1 6 (ro u n d e d )
256 C h ap ter 8
K a lo g rid is C o rp .
C ash B udget
F o r th e F irst Q u a rte r o f 2 0 1 4

B e g . b a la n c e $ 5 ,0 8 0 $ 5 ,0 7 1 $ 5 ,0 0 5 $ 5 ,0 8 0
C o lle c tio n s 8 7 ,2 0 0 1 0 9 ,7 0 0 1 5 9 ,6 0 0 3 5 6 ,5 0 0
C a sh a v a ila b le $ 9 2 ,2 8 0 $ 1 1 4 ,7 7 1 $ 1 6 4 ,6 0 5 $ 3 6 1 ,5 8 0
P u rch ases $ 6 ,6 2 9 $ 9 ,0 2 4 $ 1 2 ,4 9 4 $ 2 8 ,1 4 7
D L 2 4 ,3 0 0 3 0 ,7 5 0 4 4 ,5 5 0 9 9 ,6 0 0
V O H 2 ,4 3 0 3 ,0 7 5 4 ,4 5 5 9 ,9 6 0
FO H 7 ,5 0 0 7 ,5 0 0 7 ,5 0 0 2 2 ,5 0 0
S& A 3 2 ,8 0 0 3 2 ,8 0 0 3 2 ,8 0 0 9 8 ,4 0 0
E q u ip . 7 ,2 0 0 7 ,2 0 0
T o ta l $ 7 3 ,6 5 9 $ 8 3 ,1 4 9 $ 1 0 8 ,9 9 9 $ 2 6 5 ,8 0 7
C ash excess $ 1 8 ,6 2 1 $ 3 1 ,6 2 2 $ 5 5 ,6 0 6 $ 9 5 ,7 7 3
M in . b a l. ( 5 ,0 0 0 ) ( 5 ,0 0 0 ) ( 5 ,0 0 0 ) ( 5 ,0 0 0 )
C a sh a v a il. $ 1 3 ,6 2 1 $ 2 6 ,6 2 2 $ 5 0 ,6 0 6 $ 9 0 ,7 7 3
F in a n c in g :
R epay $ ( 3 ,3 0 0 ) $ ( 2 1 ,7 0 0 ) $ ( 2 5 ,0 0 0 )
In v e stm e n t ( 4 ,7 0 0 ) $ ( 5 0 ,6 0 0 ) ( 5 5 ,3 0 0 )
P a y d iv . ( 1 0 ,0 0 0 ) ( 1 0 ,0 0 0 )
R e c e iv e (p a y )
in te re st (2 5 0 ) (2 1 7 ) 16 (4 5 1 )
T o ta l $ ( 1 3 ,5 5 0 ) $ ( 2 6 ,6 1 7 ) $ ( 5 0 ,5 8 4 ) $ ( 9 0 ,7 5 1 )
E n d in g b a la n c e $ 5 ,0 7 1 $ 5 ,0 0 5 $ 5 ,0 2 2 $ 5 ,0 2 2
B u d g e te d S c h e d u le o f C o st o f G o o d s M a n u fa c tu re d
B e g in n in g w o rk in p ro c e ss $ 0
R a w m a te ria l u se d :
B e g in n in g ra w m a te ria l $ 800
P u rch ases 3 1 ,6 4 6
A v a ila b le fo r u se $ 3 2 ,4 4 6
E n d i n g i n v e n t o r y ( 7 1 7  $ 0 .8 0 ) (5 7 4 )
C o st o f ra w m a te ria l u se d $ 3 1 ,8 7 2
D ire c t la b o r 9 9 ,6 0 0
V a ria b le fa c to ry o v e rh e a d 9 ,9 6 0
F ix e d fa c to ry o v e rh e a d 3 0 ,2 5 0 1 7 1 ,6 8 2
T o ta l m fg . c o sts in p ro c e ss $ 1 7 1 ,6 8 2
E n d in g w o rk in p ro c e ss 0
C o st o f g o o d s m a n u fa c tu re d $ 1 7 1 ,6 8 2
C h ap ter 8 257
S a le s $ 3 9 6 ,0 0 0
C o st o f G o o d s S o ld
B e g in n in g in v e n to ry — F G $ 2 ,1 0 4
C o st o f g o o d s m a n u fa c tu re d 1 7 1 ,6 8 2
C o st o f g o o d s a v a il. fo r sa le $ 1 7 3 ,7 8 6
E n d i n g i n v .— F G ( 6 0 0  $ 5 .2 6 ) ( 3 ,1 5 6 ) ( 1 7 0 ,6 3 0 )
G ro ss m a rg in $ 2 2 5 ,3 7 0
S e llin g & a d m in istra tiv e e x p e n se s ( 9 8 ,4 0 0 )
O p e ra tin g in c o m e $ 1 2 6 ,9 7 0
O th e r in c o m e a n d e x p e n se s
In te re st e x p e n se $ (4 6 7 )
In te re st re v e n u e 16 (4 5 1 )
In c o m e b e fo re ta x e s $ 1 2 6 ,5 1 9
In c o m e ta x (3 5 % ) ( 4 4 ,2 8 2 )
N e t in c o m e $ 8 2 ,2 3 7
B u d g e te d B a la n c e S h e e t
M arch 3 1 , 2 0 1 4
A sse ts:
C ash $ 5 ,0 2 2
A c c o u n ts re c e iv a b le 6 6 ,0 0 0
R a w m a te ria l in v e n to ry 574
F in ish e d g o o d s in v e n to ry 3 ,1 5 6
P re p a id in su ra n c e 600
In v e stm e n ts 5 5 ,3 0 0
B u ild in g a n d m a c h in e ry $ 3 0 9 ,0 0 0
*
A c c u m u la te d d e p re c ia tio n ( 2 7 ,1 5 0 ) 2 8 1 ,8 5 0
T o ta l A sse ts $ 4 1 2 ,5 0 2
L ia b ilitie s a n d S to c k h o ld e rs ’ E q u ity
L ia b ilitie s:
A c c o u n ts p a y a b le $ 5 ,6 4 7
In c o m e ta x p a y a b le 4 4 ,2 8 2
N o te p a y a b le — e q u ip m e n t 1 ,8 0 0 $ 5 1 ,7 2 9
S to c k h o ld e rs ’ E q u ity :
C o m m o n sto c k $ 1 0 0 ,0 0 0
P a id -in c a p ita l 5 0 ,0 0 0
**
R e ta in e d e a rn in g s 2 1 0 ,7 7 3 3 6 0 ,7 7 3
T o ta l L ia b ilitie s & S to c k h o ld e rs ’ E q u ity $ 4 1 2 ,5 0 2
*
$ 2 0 ,0 0 0 + $ 7 ,1 5 0 = $ 2 7 ,1 5 0
** $ 1 2 8 ,5 3 6 + $ 8 2 ,2 3 7 = $ 2 1 0 ,7 7 3
258 C h ap ter 8
63. a. X = g ro ss b illin g s to m e e t re q u ire d re tu rn o b je c tiv e
X – $ 4 2 5 ,0 0 0 – 0 .2 0 X = $ 7 0 0 ,0 0 0 + $ 2 4 0 ,7 8 0
0 .8 0 X = $ 1 ,3 6 5 ,7 8 0
X = $ 1 ,7 0 7 ,2 2 5
B u d g e t:
G ro ss b illin g s $ 1 ,7 0 7 ,2 2 5
V a ria b le e x p e n se s
O v erh ead $ 2 5 6 ,0 8 4
C lie n t se rv ic e 8 5 ,3 6 1 ( 3 4 1 ,4 4 5 )
C o n trib u tio n m a rg in $ 1 ,3 6 5 ,7 8 0
F ix e d c o sts
S a la rie s $ 3 0 0 ,0 0 0
O v erh ead 1 2 5 ,0 0 0 ( 4 2 5 ,0 0 0 )
N e t o p e ra tin g e a rn in g s $ 9 4 0 ,7 8 0
b. A n u m b e r o f a c tio n s a re p o ssib le d e p e n d in g la rg e ly o n th e o p e ra tin g c l i-

m a te o f th e firm . M a n y o f th e a c tio n s th a t c o u ld b e ta k e n c a n fit w ith in o n e
o f th e th re e g ro u p in g s th a t fo llo w :
1. In c re a se th e sta ffin g le v e l. A la rg e r sta ff is a re a so n a b le a lte rn a tiv e o n ly

if th e re is a n e x p e c ta tio n th a t b illin g s c a n b e in c re a se d w e ll a b o v e th e
b u d g e te d le v e l if th e firm w a s a llo w e d to g ro w .
2. R e d u c e th e b u d g e te d b illin g s le v e l a n d try to m a in ta in th e b u d g e te d le v -
e l o f e a rn in g s b y c u ttin g c o sts. In se le c tin g a c tiv itie s to c u t, th e firm
w o u ld try to id e n tify th o se a c tiv itie s th a t a re n o n -v a lu e -a d d e d .
3. T ry to se le c tiv e ly c u t d o w n th e siz e o f th e b u sin e ss b y d ro p p in g th o se

c lie n ts th a t c o n trib u te th e le a st to th e b o tto m lin e . T h is a c tio n re q u ire s
t h e f i r m t o h a v e k n o w l e d g e a b o u t t h e r e l a t i v e p r o f i t a b i l i ty o f t h e v a r i o u s
se rv ic e s it o ffe rs a n d th e re la tiv e a m o u n ts o f p ro fits g e n e ra te d b y v a r i-
o u s c la sse s o f c lie n ts (la rg e , sm a ll, in d u stry g ro u p , ta x se rv ic e , a u d it,
e t c .) .
64. a. A tta la C o .
R e v ise d O p e ra tin g B u d g e t
F o u rth Q u a rte r 2 0 1 4
R evenues:
C o n su ltin g fe e s:
M a n a g e m e n t c o n su ltin g $ 4 6 8 ,0 0 0
E D P c o n su ltin g 4 7 8 ,1 2 5
T o ta l c o n su ltin g re v e n u e $ 9 4 6 ,1 2 5
O th e r re v e n u e 1 0 ,0 0 0
T o ta l re v e n u e $ 9 5 6 ,1 2 5
C h ap ter 8 259
E xpenses:
C o n su ltin g sa la ry e x p e n se $ 5 1 0 ,6 5 0
T ra v e l a n d re la te d e x p e n se 5 7 ,8 7 5
G e n e ra l a n d a d m in . e x p e n se 9 3 ,0 0 0
D e p re c ia tio n e x p e n se 4 0 ,0 0 0
C o rp o ra te a llo c a tio n 7 5 ,0 0 0
T o ta l e x p e n se s ( 7 7 6 ,5 2 5 )
O p e ra tin g in c o m e $ 1 7 9 ,6 0 0
S u p p o rtin g c o m p u ta tio n s:
S c h e d u le o f P ro je c te d R e v e n u e s fo r F o u rth Q u a rte r 2 0 1 4
M g m t. C o n su ltin g E D P C o n su ltin g
T h ird Q u a rte r
R evenues $ 3 1 5 ,0 0 0 $ 4 2 1 ,8 7 5
D iv id e d b y b illin g ra te ÷ $90 ÷ $75
B illa b le h o u rs 3 ,5 0 0 5 ,6 2 5
D iv id e d b y # o f c o n su lta n ts ÷ 10 ÷ 15
H o u rs p e r c o n su lta n t 350 375
F o u rth Q u a rte r
P la n n e d in c re a se + 50 + 50
B illa b le h rs . p e r c o n su lta n t 400 425
# o f c o n su lta n ts  13  15
B illa b le h rs. 5 ,2 0 0 6 ,3 7 5
B illin g ra te  $90  $75
P ro je c te d re v e n u e $ 4 6 8 ,0 0 0 $ 4 7 8 ,1 2 5
S c h e d u le s o f P ro je c te d S a la rie s, T ra v e l, G e n e ra l a n d A d m in istra tiv e , a n d

A llo c a te d C o rp o ra te E x p e n se s
M g m t. C o n su ltin g E D P C o n su ltin g
C o m p e n sa tio n :
E x istin g c o n su lta n ts:
A n n u a l sa la ry
( $ 5 0 ,0 0 0  9 2 % ) $ 5 0 ,0 0 0 $ 4 6 ,0 0 0
Q u a rte rly sa la ry $ 1 2 ,5 0 0 $ 1 1 ,5 0 0
P la n n e d in c re a se (1 0 % ) 1 ,2 5 0 1 ,1 5 0
T o ta l $ 1 3 ,7 5 0 $ 1 2 ,6 5 0
# o f c o n su lta n ts  10  15
T o ta l $ 1 3 7 ,5 0 0 $ 1 8 9 ,7 5 0
N e w c o n su lta n ts (3 ) a t o ld
s a l a r y ( 3  $ 1 2 ,5 0 0 ) 3 7 ,5 0 0 0
T o ta l $ 1 7 5 ,0 0 0 $ 1 8 9 ,7 5 0
B e n e fits (4 0 % ) 7 0 ,0 0 0 7 5 ,9 0 0
T o ta l $ 2 4 5 ,0 0 0 $ 2 6 5 ,6 5 0
T o t a l c o m p e n s a t i o n = $ 2 4 5 ,0 0 0 + $ 2 6 5 ,6 5 0 = $ 5 1 0 ,6 5 0
260 C h ap ter 8
T rav el ex p en se:
M a n a g e m e n t c o n su lta n ts (4 0 0 h rs.  1 3 ) 5 ,2 0 0
E D P c o n su lta n ts (4 2 5 h rs.  1 5 ) 6 ,3 7 5
T o ta l h o u rs 1 1 ,5 7 5
R a te p e r h o u r*  $5
T o ta l tra v e l e x p e n se $ 5 7 ,8 7 5
*
T h i r d q u a r t e r t r a v e l e x p e n s e d i v i d e d b y h o u r s = r a t e p e r h o u r ( $ 4 5 ,6 2 5 ÷ 9 ,1 2 5 = $ 5 ) .
G e n e r a l a n d a d m i n i s t r a t i v e ( $ 1 0 0 ,0 0 0  9 3 % ) $ 9 3 ,0 0 0
C o r p o r a t e a l l o c a t i o n ( $ 5 0 ,0 0 0  1 5 0 % ) $ 7 5 ,0 0 0
b. A n o rg a n iz a tio n w o u ld p re p a re a re v ise d fo re c a st w h e n th e a ssu m p tio n s

u n d e rly in g th e o rig in a l fo re c a st a r e n o lo n g e r v a lid . T h e a ssu m p tio n s m a y
in v o lv e e x te rn a l o r in te rn a l fa c to rs. E x te rn a l fa c to rs m a y in c lu d e c h a n g e s in
d e m a n d fo r th e c o m p a n y ’s p ro d u c ts o r se rv ic e s, in c o sts o f v a rio u s o rg a n i-
z a tio n a l in p u ts, o r in th e e c o n o m ic o r p o litic a l e n v iro n m e n t in w h ic h th e
c o m p a n y o p e ra te s. In te rn a l fa c to rs m a y in c lu d e c h a n g e s in o rg a n iz a tio n a l
g o a ls a n d o b je c tiv e s o r n e w p ro d u c ts b e in g o ffe re d o r o ld p ro d u c ts b e in g
d isc o n tin u e d .
c. A lth o u g h JI’s m a n a g e m e n t c a n a llo c a te c o sts u sin g a n “ a b ility -to -b e a r” b a -

sis, th e in c re a se c a n b e d e m o ra liz in g to A tta la C o .’s p e rso n n e l u n le ss th e
in c re a se d a c tiv ity c a n b e sh o w n to h a v e c a u se d a n in c re a se in c o rp o ra te e x -
penses.
6 5 . E a c h stu d e n t w ill h a v e a d iffe re n t a n sw e r. B u t tw o im p o rta n t c o sts th a t a re o f-

te n seen in b u d g e tin g fo r in te rn a tio n a l o p e ra tio n s at sig n ific a n tly h ig h e r
a m o u n ts th a n in d o m e stic b u d g e ts a re c o sts o f se c u rity a n d in su ra n c e . In le sse r -
d e v e lo p e d c o u n trie s, g a n g s o fte n lo o t tru c k s o r ra ilro a d c a rs o f c o m m e rc ia l
m e rc h a n d ise a n d k id n a p p in g is a n o n g o in g p o ssib ility . A n e x c e lle n t d isc u ssio n
o f th is to p ic is fo u n d in Jo e l M illm a n ’s “ G a n g s P la g u e C e n tra l A m e ric a ; S e c u -
r i t y E x p e n s e s B e c o m e B i g F a c t o r i n B u s i n e s s B u d g e t i n g ,” W a l l S t r e e t J o u r n a l
(D ecem b er 1 1 , 2 0 0 3 ), p . A 1 4 .

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C H A P TE R 8

1. B u d g e tin g tra n sla te s g o a ls a n d o b je c tiv e s in to th e re so u rc e s, a c tiv itie s, a n d a r-

2. T h e stra te g ic p la n d e fin e s a n o rg a n iz a tio n ’s b a sic p u rp o se s a n d g o a ls. A s su c h ,

3. L o n g e r te rm (stra te g ic ) p la n s c o n ta in in su ffic ie n t d e ta il to d ire c t a b u sin e ss.

n e e d e d b e c a u se th e u n its c o n ta in e d in o p e ra tin g b u d g e ts h a v e to b e “ tr a n sla te d ”

6. T h e m a ste r b u d g e t b e g in s w ith a “ d e m a n d d riv e n ” e stim a te o f sa le s. It is, h o w -

T h e p ro d u c tio n b u d g e t is p re p a re d n e x t a s it fo llo w s d ire c tly fro m th e sa le s

T o p re p a re th e o v e rh e a d b u d g e t fo r a sp e c ific p ro d u c tio n v o lu m e , c o sts m u st b e

S e llin g a n d a d m in istra tiv e b u d g e ts fo llo w , a n d th e n th e c a sh b u d g e t is p r e -

C a sh c o lle c tio n s a re im p o rta n t in th e b u d g e tin g p ro c e ss b e c a u se o f th e ir im p a c t

A fte r a ll o f th e se b u d g e ts a re p re p a re d , a se t o f b u d g e te d fin a n c ia l sta te m e n ts is

T h is se q u e n c e is n e c e ssa ry b e c a u se th e in fo rm a tio n fro m o n e b u d g e t is o fte n a

7. A firm ’s p ro d u c tio n b u d g e t is in flu e n c e d b y th e fin ish e d g o o d s in v e n to ry p o l i-

flu e n c e s th e q u a n tity o f p ro d u c tio n n e e d e d in th e fo llo w in g p e rio d . T h e c o m p u -

9. T h e c a sh b u d g e t a n d b u d g e te d sta te m e n t o f c a sh flo w s a re sim ila r in th a t th e y

1 0 . C o n tin u o u s b u d g e tin g is b e c o m in g m o re p o p u la r b e c a u se o f th e ra p id ity o f

1 2 . B u d g e ta ry sla c k re su lts fro m a n o v e re stim a tio n o f e x p e c te d e x p e n se s o r a n u n -

14. Each stu d e n t w ill h a v e a d iffe re n t a n sw e r; h o w e v e r, th e fo llo w in g ty p e s o f

a. W h a t in fla tio n ra te s a re e x p e c te d fo r th e c o u n trie s in w h ic h th e c o m p a n y

15. a. A S W O T a n a ly sis is a n in te rn a l a n d e x te rn a l e n v iro n m e n ta l sc a n th a t d e -

b. E a c h stu d e n t w ill h a v e a d iffe re n t a n sw e r. H o w e v e r, th e fo llo w in g site s p ro -

1 6 . E a c h stu d e n t w ill h a v e a d iffe re n t a n sw e r. H o w e v e r, so m e p o ssib ilitie s a re :

 G e t p e rm issio n fro m th e o th e r p e rso n b e fo re sp e n d in g a m o u n ts o v e r a sp e -

17. a. C o m p e tito rs ’ a c tio n s a re e x tre m e ly im p o rta n t to b u sin e ss p la n n in g b e c a u se

b. C o m p e tito rs ’ a c tio n s m a y a ffe c t in te rn a l p la n n in g a c tiv itie s b e c a u se o f th e

c. O th e r in te rn a l fa c to rs th a t w ill a ffe c t th e b u d g e tin g p ro c e ss a re m a rk e tin g

O th e r e x te rn a l fa c to rs th a t w ill a ffe c t th e b u d g e tin g p ro c e ss a re in te re st ra te

19. 1 st Q u a rte r 2 n d Q u a rte r 3 rd Q u a rte r 4 th Q u a rte r T o ta l

 $17  $16  $14  $12

 $17  $16  $14  $12

T h e m o st fin a n c ia lly b e n e fic ia l sc e n a rio w o u ld b e C ; h o w e v e r, g iv e n th e la rg e

S c e n a rio A m ig h t a c tu a lly b e a b e tte r situ a tio n b e c a u se o f th e le ss d ra m a tic a d -

20. Jan u ary F eb ru ary M arch

22. a. Jan u ary F eb ru ary M arch A p ril

b. F eb ru ary M arch A p ril

c. F eb ru ary M arch A p ril

24. a. and b. S a le s (fe e t) 1 9 0 ,0 0 0

25. a. B oxes T ray s

28. a. Jan u ary F eb ru ary M arch

29. a. O c to b e r c o lle c tio n s:

c. If Irb y p a y s fo r th e trip a n d if e v e ry th in g w o rk s o u t e x a c tly a s p la n n e d , sh e

c. Ju n e c o lle c tio n s o f A p ril c re d it sa le s (re m a in d e r) $ 2 9 ,6 0 0

32. a. Jan u ary F eb ru ary M arch T o ta l

b. Jan u ary F eb ru ary M arch T o ta l

d . A ssu m in g a ll c o sts re la te d to th e m a c h in e h a v e b e e n c o n sid e re d in th e a n a l-

42. Each stu d e n t w ill have a d iffe re n t a n sw e r. H o w e v e r, th e fo llo w in g ite m s

a. H u m a n re so u rc e s: H e a d c o u n ts, sa la rie s, b e n e fits, tu rn o v e r, re c ru itin g , re te n -

b. In fo rm a tio n te c h n o lo g y : C a p ita l e x p e n d itu re s a n d o p e ra tin g e x p e n se s, su c h

c. M a rk e tin g /b u sin e ss d e v e lo p m e n t: A d v e rtisin g , b ra n d in g , p u b lic re la tio n s,

d. A c c o u n ts re c e iv a b le : R e stru c tu re d fe e sc h e d u le s, d e lin q u e n t a c c o u n ts, b a d

4 3 . T h e sp e n d -it-o r-lo se -it a ttitu d e is in d u c e d b y th e in c e n tiv e s in th e b u d g e t a n d

B o th su p e rio r a n d su b o rd in a te m a n a g e rs h a v e a n e th ic a l o b lig a tio n to o v e rc o m e

b u d g e t, th e p ro c e ss is a n o n g o in g a c tiv ity a n d b u d g e tin g sk ills a re m a in ta in e d

4 5 . E a c h stu d e n t w ill h a v e a d iffe re n t a n sw e r. N o so lu tio n is p ro v id e d .

47. a. P ro d u c tio n Jan u ary F eb ru ary M arch T o ta l

P u rc h a se s — M a te ria l M Jan u ary F eb ru ary M arch T o ta l

P u rc h a se s — M a te ria l N Jan u ary F eb ru ary M arch T o ta l

P u rc h a se s — M a te ria l O Jan u ary F eb ru ary M arch T o ta l

b. W h ile e a c h stu d e n t’s m e m o w ill d iffe r, th e fo llo w in g p o in ts sh o u ld b e in -

49. P ro d u c tio n B u d g e t #587Q #253X

50. a. Jan u ary F eb ru ary M arch T o ta l

b. (S c ra p iro n ) Jan u ary F eb ru ary M arch T o ta l

(B ases) Jan u ary F eb ru ary M arch T o ta l

Jan u ary F eb ru ary M arch T o ta l