Solution manual accounting 25th edition warren chapter 22

CHAPTER 22
BUDGETING
DISCUSSION QUESTIONS
1.

The three major objectives of budgeting are (1) to establish specific goals for future
operations, (2) to execute plans to achieve the goals, and (3) to periodically compare
actual results with the goals.

2.

If goals set by the budgets are viewed as unrealistic or unachievable, employees and
managers may become discouraged and may not be committed to the achievement of the
goals, resulting in the budget becoming less effective as a planning and control tool.

3.

A budget that is set too loosely may fail to motivate managers and other employees to perform
efficiently. In addition, a loose budget may cause a “spend it or lose it” mentality, where excess
budget resources are spent in order to protect the budget from future reductions.

4.

Conflicting goals can cause employees or department managers to act in their own selfinterests to the detriment of the organization’s objectives.

5.

A static budget is most appropriate in situations where costs are not variable to an underlying
activity level. As a result, it is reasonable to plan spending on the basis of a fixed quantity of
resources for the year. This will occur in some administrative functions, such as human
resources, accounting, or public relations.

6.

Computers not only speed up the budgeting process, but they also reduce the cost of budget
preparation when large quantities of data need to be processed. In addition, by using
computerized simulation models, management can determine the impact of various operating
alternatives on the master budget.

7.

The production requirements must be carefully coordinated with the sales budget to ensure
that production and sales are kept in balance during the period. Ideally, manufacturing
operations should be maintained at 100% of capacity, with no idle time or overtime, and
there should be neither excessive inventories nor inventories insufficient to fill sales orders.

8.

Purchases of direct materials should be closely coordinated with the production budget so
that inventory levels can be maintained within reasonable limits.

9.

a.

The cash budget contributes to effective cash planning. This involves advance planning
so that a cash shortage does not arise and excess cash is not permitted to remain “idle.”

b.

The excess cash can be invested in readily marketable income-producing securities or

used to reduce loans.

10.

The plans for financing the capital expenditures budget may affect the cash budget.

22-1
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CHAPTER 22

Budgeting

PE 21–1A
Variable cost:
Direct labor (7,300 hours × $19.00* per hour)……………………………………… $138,700
Fixed cost:
Property tax………………………………………………………………………………
Total department costs……………………………………………………………………

10,000
$148,700

* $123,500 ÷ 6,500 hours

PE 21–1B
Variable cost:
Direct labor (600 hours × $14.50* per hour)………………………………………… $ 8,700
Fixed cost:

2,300
Equipment depreciation…………………………………………………………………
$11,000
Total department costs……………………………………………………………………
* $9,280 ÷ 640 hours

PE 22–2A
Expected units to be sold…………………………………………………………………
Plus desired ending inventory, December 31, 2014…………………………………
Total……………………………………………………………………………………………
Less estimated beginning inventory, January 1, 2014………………………………
Total units to be produced…………………………………………………………………

190,000
20,300
210,300
18,400
191,900

PE 22–2B
Expected units to be sold…………………………………………………………………
Plus desired ending inventory, December 31, 2014…………………………………
Total……………………………………………………………………………………………
Less estimated beginning inventory, January 1, 2014………………………………
Total units to be produced…………………………………………………………………

75,000
2,700
77,700
3,500

74,200


PE 22–3A
Square yards required for production:
Diaries (191,900 × 7 sq. yd.)…………………………………………………
Plus desired ending inventory, December 31, 2014…………………………
Total…………………………………………………………………………………
Less estimated beginning inventory, January 1, 2014………………………
Total square yards to be purchased……………………………………………
Unit price (per sq. yd.)……………………………………………………………
Total direct materials to be purchased………………………………………

1,343,300
32,900
1,376,200
29,100
1,347,100
$0.80
$1,077,680

PE 22–3B
Pounds of wax required for production:
Candles [(74,200 × 8 oz.) ÷ 16 oz.]…………………………………………
Plus desired ending inventory, December 31, 2014…………………………
Total…………………………………………………………………………………
Less estimated beginning inventory, January 1, 2014………………………
Total pounds to be purchased…………………………………………………
Unit price (per lb.)…………………………………………………………………
Total direct materials to be purchased…………………………………………

37,100
2,100
39,200
2,500
36,700
$4.10
$150,470

PE 22–4A
Hours required for assembly:
Diaries (191,900 × 9 min.)……………………………………………………
Convert minutes to hours……………………………………………………
Assembly hours………………………………………………………………
Hourly rate…………………………………………………………………….……
Total direct labor cost……………………………………………………………

1,727,100 min.
60 min.
÷
28,785 hrs.
×

$16.00
$460,560

PE 22–4B
Hours required for assembly:
Candles (74,200 × 12 min.)…………………………………………………
Convert minutes to hours……………………………………………………

Molding hours…………………………………………………………………
Hourly rate…………………………………………………………………….……
Total direct labor cost……………………………………………………………

890,400 min.
60 min.
÷
14,840 hrs.
×
$14.00
$207,760


PE 22–5A
Finished goods inventory, January 1, 2014
Work in process inventory, January 1, 2014
Direct materials:
Direct materials inventory, January 1, 2014
(29,100 × $0.80)
Direct materials purchases (from PE 22–3A)
Cost of direct materials available for use

$
$

$

28,000

17,000

23,280
1,077,680

$1,100,960

Less direct materials inventory,
December 31, 2014 (32,900 × $0.80)
Cost of direct materials placed in
production

Direct labor (from PE 22–4A)
Factory overhead
Total manufacturing costs

Total work in process during period
Less work in process inventory, December 31, 2014
Cost of goods manufactured

26,320
$1,074,640

460,560
205,800
1,741,000

$1,758,000
19,500

1,738,500

Cost of finished goods available for sale
Less finished goods inventory, December 31, 2014

$1,766,500

Cost of goods sold

$1,742,800

23,700


PE 22–5B
Finished goods inventory, January 1, 2014

$

Work in process inventory, January 1, 2014

$

9,800

3,600

Direct materials:
Direct materials inventory, January 1, 2014
(2,500 × $4.10)
Direct materials purchases (from PE 22–3B)

Cost of direct materials available for use
Less direct materials inventory,
December 31, 2014 (2,100 × $4.10)
Cost of direct materials placed in
production
Direct labor (from PE 22–4B)
Factory overhead
Total manufacturing costs
Total work in process during period
Less work in process inventory, December 31, 2014

$ 10,250
150,470
$160,720
8,610
$152,110
207,760
109,600
469,470
$473,070
3,500

Cost of goods manufactured

469,570

Cost of finished goods available for sale
Less finished goods inventory, December 31, 2014

$479,370

12,900

Cost of goods sold

$466,470

PE 22–6A

July

Collections from June sales (70% × $320,000)………………………………………… $224,000
105,000
Collections from July sales (30% × $350,000)…………………………………………
Total receipts from sales on account…………………………………………………… $329,000

PE 22–6B
Payments for March purchases (90% × $11,900)……………………………………
Payments for April purchases (10% × $12,700)…………………………………………
Total payments for purchases on account………………………………………………

April
$10,710
1,270
$11,980


EXERCISES
Ex. 22–1
a.

JEN LASSITER
Cash Budget
For the Four Months Ending December 31, 2014
September

October

November

December

Estimated cash receipts from:
Part-time job
Deposit

$ 1,450

$1,450

$1,450

Total cash receipts

$ 1,450

$1,450

$1,450

$1,450

500
$1,950

$ 300

$ 300

$ 300

300
180

300
180

300
180

$ 780

$ 780

$ 780

$(4,480)

$ 670

$ 670

$1,170

5,970
$ 1,490

1,490
$2,160

2,160
$2,830

2,830
$4,000

Estimated cash payments for:
Season football tickets
Additional entertainment
Tuition
Rent
Food
Deposit
Total cash payments
Cash increase (decrease)
Cash balance at beginning of
month
Cash balance at end of month

$

150

300
4,500
300
180
500
$ 5,930

b.

The four-month budgets do not change with any identified activity level; thus,
they are static budgets.

c.

While Lassiter’s budget might first appear satisfactory, Lassiter must earn
enough cash in order to pay for the spring semester tuition. Her present budget
shows that she will be $500 short of the tuition amount ($4,500 – $4,000) by the
time she needs to pay her spring tuition. Thus, Lassiter will likely need to
adjust the plan before the fall term even begins. Some possibilities would be to
rent a lower cost apartment or to get a roommate. Other considerations include
increasing her part-time job hours and reducing her monthly entertainment and
food allowance, or making up the income difference with additional hours during
Christmas break. Lassiter might also see about scholarship opportunities to
reduce the tuition payment. The budget gives Lassiter time to adjust her plans
to future events. In this case, Lassiter can see that her present plan will not
provide sufficient cash, thus giving her four months to adjust. If Lassiter did
not budget but went ahead with the original plan, she would be $500 short at the
end of December, with no time left to adjust.

Ex. 22–2
CYBERWARE
Flexible Selling and Administrative Expenses Budget
For the Month Ending March 31, 2014
Total sales
Variable cost:
Sales commissions (12% of sales)
Advertising expense (22% of sales)
Miscellaneous selling expense (15% of sales)
Office supplies expense (4% of sales)
Miscellaneous administrative expense (2% of sales)
Total variable cost
Fixed cost:
Miscellaneous selling expense
Office salaries expense
Miscellaneous administrative expense
Total fixed cost
Total selling and administrative expenses

$80,000

$100,000

$120,000

$ 9,600
17,600
12,000
3,200
1,600

$44,000

$ 12,000
22,000
15,000
4,000
2,000
$ 55,000

$ 14,400
26,400
18,000
4,800
2,400
$ 66,000

$ 4,200
16,000
2,500
$22,700
$66,700

$

$

4,200
16,000
2,500
$ 22,700

$ 77,700

4,200
16,000
2,500
$ 22,700
$ 88,700

22-7
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Ex. 22–3
GILMAN COMPANY—MACHINING DEPARTMENT
Flexible Production Budget
For the Three Months Ending March 31, 2014

a.

January

Units of production
Wages
Utilities
Depreciation
Total
Supporting calculations:
Units of production
Hours per unit

Total wages
Total hours of production
Utility costs per hour
Total utilities

March

90,000

100,000

110,000

$337,500
40,500
60,000
$438,000

$375,000
45,000
60,000
$480,000

$412,500
49,500
60,000
$522,000

×

Total hours of production
Wages per hour

February

90,000
0.25

×

100,000
0.25

×

110,000
0.25

22,500
× $15.00
$337,500

25,000
× $15.00
$375,000

27,500
× $15.00
$412,500

22,500
×
$1.80
$40,500

25,000
× $1.80
$45,000

27,500
× $1.80
$49,500

Depreciation is a fixed cost, so it does not “flex” with changes in production. Since it
is the only fixed cost, the variable and fixed costs are not classified in the budget.
b.

January

Total flexible budget…………………………………… $438,000
450,000
Actual cost………………………………………………
Excess of actual cost over budget…………………… $ (12,000)

February

March

$480,000
492,000

$522,000
540,000

$ (12,000)

$ (18,000)

The excess of actual cost over the flexible budget suggests that the Machining
Department has not performed as well as originally thought. The department is
spending more than would be expected. The flexible budget is a superior budgeting
approach in this situation, since wages and utility costs vary with production. Thus,
the budget for these costs should adjust (flex) to the actual level of production. Actual
costs can rightfully be compared to the flexible budget, because both numbers are
based on actual volumes.

22-8
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Ex. 22–4
STEELCASE INC.—FABRICATION DEPARTMENT
Flexible Production Budget
August 2014
(assumed data)
Units of production

12,000

Variable cost:

Direct labor
Direct materials

1

Total variable cost
Fixed cost:
Supervisor salaries
Depreciation
Total fixed cost
Total department cost
1
2
3
4
5
6

15,000

18,000

2

3

$ 84,000
264,000 4
$348,000

$105,000
330,000 5
$435,000

$126,000
396,000 6
$522,000

$180,000
28,000
$208,000
$556,000

$180,000
28,000
$208,000
$643,000

$180,000
28,000
$208,000
$730,000

12,000 × 20/60 min. × $21
15,000 × 20/60 min. × $21
18,000 × 20/60 min. × $21
12,000 × 55 lbs. × $0.40
15,000 × 55 lbs. × $0.40
18,000 × 55 lbs. × $0.40

Ex. 22–5
ACCUWEIGHT INC.
Production Budget
For the Month Ending July 31, 2015
Units

Small Scale

Large Scale

Expected units to be sold
Plus desired inventory, July 31, 2015

73,000
1,300

121,000
2,300

Total
Less estimated inventory, July 1, 2015

74,300
(2,000)
72,300

123,300
(3,000)
120,300

Total units to be produced


Ex. 22–6
SOUNDLAB INC.
Sales Budget
For the Month Ending November 30, 2014

a.

Product and Area

Unit Sales
Volume

Model DL:
East Region
West Region
Total
Model XL:
East Region
West Region
Total
Total revenue from sales

b.

Unit Selling
Price

Total Sales

2,450
2,170
4,620

$170
170

$ 416,500
368,900

960
880
1,840

$280
280

$ 785,400
$ 268,800
246,400
$ 515,200
$1,300,600

SOUNDLAB INC.
Production Budget
For the Month Ending November 30, 2014
Units
Model DL

Model XL

Expected units to be sold
Plus desired inventory, November 30, 2014

4,620
315

1,840
55

Total
Less estimated inventory, November 1, 2014

4,935
(270)
4,665

1,895
(85)
1,810

Total units to be produced


Ex. 22–7
ROLLINS AND COHEN, CPAs
Professional Fees Earned Budget
For the Year Ending December 31, 2014

Audit Department:
Staff
Partners
Total
Tax Department:
Staff
Partners
Total
Small Business Accounting Department:
Staff
Partners
Total
Total professional fees earned

Billable
Hours

Hourly
Rate

Total
Revenue

22,400
7,900
30,300

$150
320

$ 3,360,000
2,528,000

13,200
5,500
18,700

$150
320

3,000
600
3,600

$150
320

$ 5,888,000
$ 1,980,000
1,760,000
$ 3,740,000
$

450,000
192,000

$ 642,000
$10,270,000

Ex. 22–8
ROLLINS AND COHEN, CPAs
Professional Labor Cost Budget
For the Year Ending December 31, 2014
Staff

Audit Department hours
Tax Department hours
Small Business Accounting Department hours
Total hours
Average compensation per hour
Total professional labor cost

Partners

22,400
13,200
3,000

7,900
5,500
600

38,600
$45
$1,737,000

14,000
$140
$1,960,000

×

×


Ex. 22–9
MORETTI’S FROZEN PIZZA INC.
Direct Materials Purchases Budget
For the Month Ending September 30, 2014
Dough

Units required for production:
12" pizza
16" pizza
Plus desired inventory,
September 30, 2014

Total direct materials to
be purchased
1
2
3
4
5
6

4,700 × 0.80 lb.
4,700 × 0.50 lb.
4,700 × 0.70 lb.

8,100 × 1.40 lbs.
8,100 × 0.90 lb.
8,100 × 1.20 lbs.

×

Cheese
2

3,760 1
4
11,340

Total
Less estimated inventory,
September 1, 2014
Total units to be purchased
Unit price

Tomato

Total
3

2,350
5
7,290

3,290
6

9,720

620

160

345

15,720

9,800

13,355

550

180

315

15,170
$0.90
$13,653

×

9,620
$1.70
$16,354

×

13,040
$2.40
$31,296

$61,303


Ex. 22–10
COCA-COLA ENTERPRISES—WAKEFIELD PLANT
Direct Materials Purchases Budget
For the Month Ending May 31, 2014
(assumed data)
2-Liter
Bottles

Concentrate

Carbonated
Water

Materials required for production:
Coke

®

Sprite

®

Total materials
Direct materials unit price
Total direct materials to be
purchased

×

528 * lbs.

176,000 btls.

352,000 ltrs.

224 *

112,000

224,000

752
$60

lbs.

288,000 btls.
×
$0.12

$45,120

$34,560
Coke®

* Production in liters (bottles × 2 liters/bottle)……………………

$352,000
100

Divide by 100……………………………………………………………

÷

Multiply by concentrate pounds per 100 liters……………………

×

Concentrate pounds required for production……………………

576,000 ltrs.
× $0.05

3,520
0.15
528

$28,800
Sprite®
$224,000
100

÷

×

2,240
0.10
224


Ex. 22–11
SAFETY GRIP COMPANY Direct
Materials Purchases Budget
For the Year Ending December 31, 2014
Rubber

Pounds required for production:
Passenger tires
Truck tires
Plus desired inventory,
December 31, 2014

1,470,000 lbs.1
1,482,000 3

2,992,000 lbs.

Total units purchased
Unit price

2,946,000 lbs.

× $1.20

2
3
4

10,000
372,000 lbs.

46,000

Total direct materials to be
purchased

$3,535,200

Total

210,000 lbs.2
152,000 4

40,000

Total
Less estimated inventory,
January 1, 2014

1

Steel Belts

8,000
364,000 lbs.
× $0.80
$291,200

$3,826,400

Rubber: 42,000 units × 35 lbs. per unit = 1,470,000 lbs.
Steel belts: 42,000 units × 5 lbs. per unit = 210,000 lbs.
Rubber: 19,000 units × 78 lbs. per unit = 1,482,000 lbs.
Steel belts: 19,000 units × 8 lbs. per unit = 152,000 lbs.

Ex. 22–12
ACE RACKET COMPANY
Direct Labor Cost Budget
For the Month Ending July 31, 2014
Forming
Department

Hours required for production:
Junior
Pro Striker
Total
Hourly rate
Total direct labor cost
1
2
3
4

Junior: 0.20 hr. × 1,700 = 340 hrs.
Junior: 0.32 hr. × 1,700 = 544 hrs.
Pro Striker: 0.24 hr. × 7,800 = 1,872 hrs.
Pro Striker: 0.50 hr. × 7,800 = 3,900 hrs.

1

340
1,8723
2,212
× $17.00
$37,604

Assembly
Department
2

544
3,9004
4,444
× $16.00
$71,104


Ex. 22–13
AMBASSADOR SUITES INC.
Direct Labor Cost Budget
For a Weekday or a Weekend Day
Weekday

Room occupancy
Room capacity
Occupied percent (occupancy)

×

Total minutes [(a) × (b)]
Total hours (Total minutes ÷ 60 min.)
Labor rate per hour
(c) Housekeeping daily labor budget
Restaurant staff
Base restaurant staff
Incremental 60 room blocks [(a) ÷ 60 rooms]
Total staff
Hours per day
Total hours
Labor rate per hour
(d) Restaurant staff daily labor budget
Total daily labor budget [(c) + (d)]

300
80%

×

240

(a) Rooms occupied
Housekeeping

(b) Number of minutes to clean a room

Weekend Day

×

30

7,200
120.0
× $14.00
$1,680

+

6
4

×

10
8

300
40%
120

×

30

3,600
60
× $14.00
$840

+

6
2

×

8
8

80
× $12.00
$ 960

64
× $12.00
$ 768

$2,640

$1,608


Ex. 22–14

a.
LEVI STRAUSS & CO.
Production Budget
May 2014
(assumed data)
Dockers®

501 Jeans®

Expected units to be sold
Plus May 31 desired inventory

23,600
420

53,100
1,860

Total units
Less May 1 estimated inventory

24,020
670
23,350

54,960
1,660
53,300

Total units to be produced

b.

LEVI STRAUSS & CO.
Direct Labor Cost Budget
May 2014
(assumed data)
Outerseam

Inseam
1

Dockers®

42,030

501 Jeans®

47,970 5

Total minutes

90,000

1,500
× $13
$19,500

46,700

Pockets

2

74,620 6

14,010

Zipper
3

28,020

Total
4

47,970 7

31,980 8

121,320

61,980

60,000

2,022
× $13
$26,286

1,033
× $15

$15,495

1,000
× $15
$15,000

Total direct labor hours

(÷ 60 minutes)
× Direct labor rate
Total direct labor cost
1
2
3
4
5
6
7
8

(23,350 ÷ 10 pairs) × 18 min. = 42,030 min.
(23,350 ÷ 10 pairs) × 20 min. = 46,700 min.
(23,350 ÷ 10 pairs) × 6 min. = 14,010 min.
(23,350 ÷ 10 pairs) × 12 min. = 28,020 min.
(53,300 ÷ 10 pairs) × 9 min. = 47,970 min.
(53,300 ÷ 10 pairs) × 14 min. = 74,620 min.
(53,300 ÷ 10 pairs) × 9 min. = 47,970 min.
(53,300 ÷ 10 pairs) × 6 min. = 31,980 min.

$76,281

Ex. 22–15
SWEET TOOTH CANDY COMPANY
Factory Overhead Cost Budget
For the Month Ending August 31, 2014
Variable factory overhead costs:
Manufacturing supplies
Power and light
Production supervisor wages
Production control wages
Materials management wages
Total variable factory overhead costs
Fixed factory overhead costs:
Factory insurance
Factory depreciation
Total fixed factory overhead costs
Total factory overhead costs

$ 14,000
48,000
135,000
32,000
39,000
$268,000
$ 30,000
22,000
52,000
$320,000

Note: Advertising expenses, sales commissions, and executive officer salaries are
selling and administrative expenses.


CHAPTER 22

Budgeting

Ex. 22–16
DELAWARE CHEMICAL COMPANY
Cost of Goods Sold Budget
For the Month Ending June 30, 2015
Finished goods inventory, June 1

1

$

Work in process inventory, June 1
Direct materials:

$

Direct materials inventory, June 1
Direct materials purchases

Cost of direct materials available for use
Less direct materials inventory, June 30

$3,165,200

16,100

Cost of direct materials placed in
production

$3,149,100

Direct labor

240,000

Factory overhead

400,000

Total manufacturing costs

3,789,100

Total work in process during the period
Less work in process inventory, June 30
Cost of goods manufactured

1
2
3

$8,300 + $8,600
35,000 barrels × $90 per barrel
$9,400 + $7,900

$3,802,000
13,500
3,788,500

Cost of finished goods available for sale
Cost of goods sold

12,900

$ 15,200
3,150,000

2

Less finished goods inventory, June 30

16,900

3

$3,805,400

17,300
$3,788,100


CHAPTER 22

Budgeting

Ex. 22–17
MINGWARE CERAMICS INC.
Cost of Goods Sold Budget
For the Month Ending September 30, 2014
Finished goods inventory, September 1, 2014

$ 11,500

Work in process inventory, September 1, 2014

$

3,400

Direct materials:
Direct materials inventory, September 1, 2014
Direct materials purchases

$

Cost of direct materials available for use
Less direct materials inventory, September 30, 2014

$194,850
8,830

Cost of direct materials placed in
production

$186,020

Direct labor
Factory overhead
Total manufacturing costs
Total work in process during the period
Less work in process inventory, September 30, 2014
Cost of goods manufactured

6,440
188,410

193,600
105,500
485,120
$488,520
1,990
486,530

Cost of finished goods available for sale
Less finished goods inventory, September 30, 2014

$498,030
9,670

Cost of goods sold

$488,360

Ex. 22–18
PETCARE SUPPLIES INC.
Schedule of Collections from Sales
For the Three Months Ending July 31, 2014
May

Receipts from cash sales:
Cash sales (10% × current month’s sales)

$12,600

June

$ 14,500

July

$ 16,200

1

May sales on account:
Collected in May ($113,400 × 60%)
Collected in June ($113,400 × 35%)
Collected in July ($113,400 × 5%)

68,040
39,690
5,670

2

June sales on account:
Collected in June ($130,500 × 60%)
Collected in July ($130,500 × 35%)

78,300
45,675

3

July sales on account:
Collected in July ($145,800 × 60%)
Total cash collected
1
2
3

$126,000 × 90% = $113,400
$145,000 × 90% = $130,500
$162,000 × 90% = $145,800

$80,640

$132,490

87,480
$155,025

Ex. 22–19
OFFICEMART INC.
Schedule of Collections from Sales
For the Three Months Ending December 31, 2014
October

Receipts from cash sales:
Cash sales (25% × current month’s sales)
September sales on account:
Collected in October (Accounts Receivable
balance)
1
October sales on account:
Collected in October ($43,500 × 30%)
Collected in November ($43,500 × 70%)

$14,500

November

$16,250

December

$18,000

35,000
13,050
30,450

2

November sales on account:
Collected in November ($48,750 × 30%)
Collected in December ($48,750 × 70%)

14,625
34,125

3

December sales on account:
Collected in December ($54,000 × 30%)
$62,550
1
2
3

$58,000 × 75% = $43,500
$65,000 × 75% = $48,750
$72,000 × 75% = $54,000

$61,325

16,200
$68,325


Ex. 22–20
GREEN MOUNTAIN FINANCIAL INC.

Schedule of Cash Payments for Selling and Administrative Expenses
For the Three Months Ending May 31, 2014
March

April

May

1

March expenses:
Paid in March ($37,800 × 60%)
Paid in April ($37,800 × 40%)

$22,680
$15,120

2

April expenses:
Paid in April ($48,900 × 60%)
Paid in May ($48,900 × 40%)

29,340
$19,560

3

May expenses:
Paid in May ($63,000 × 60%)

Total cash payments
1
2
3

$22,680

$44,460

$45,800 – $8,000 = $37,800
$56,900 – $8,000 = $48,900
$71,000 – $8,000 = $63,000

Note: Insurance, property taxes, and depreciation are expenses that do not result
in cash payments in March, April, or May.

37,800
$57,360


Ex. 22–21
EASTGATE PHYSICAL THERAPY INC.
Schedule of Cash Payments for Operations
For the Three Months Ending March 31, 2015
January
1

Payments of prior month’s expense

Payments of current month’s expense

2

Total payment
1

February

March

$15,000

$ 26,430

$ 32,610

61,670

76,090

81,130

$76,670

$102,520

$113,740

$15,000, given as Accrued Expenses Payable, January 1
$26,430 = ($91,600 – $3,000 – $500) × 30%

$32,610 = ($112,200 – $3,000 – $500) × 30%

2

$61,670 = ($91,600 – $3,000 – $500) × 70%
$76,090 = ($112,200 – $3,000 – $500) × 70%
$81,130 = ($119,400 – $3,000 – $500) × 70%

Note: Insurance and depreciation are expenses that do not result in cash payments
in January, February, or March.

Ex. 22–22
OMICRON INC.
Capital Expenditures Budget
For the Four Years Ending December 31, 2014–2017
2014
2015
2016
Building

$6,000,000

Equipment

$4,000,000

1,500,000

Information systems

Total
1
2

$3,500,000

$200,000
450,000

$6,000,000

$10,000,000 × 35% = $3,500,000
$800,000 × 75% × 75% = $450,000

2017

$5,500,000

$650,000

1,000,000
2

$4,500,000

1


PROBLEMS
Prob. 22–1A

Increase/(Decrease)

1.

Unit Sales, Year Ended 2014
Budget
Actual Sales

Actual Over Budget
Amount
Percent

8" × 10" Frame:
East
Central
West

8,500
6,200
12,600

8,755
6,510
12,348

255
310
(252)

3%

5%
–2%

12" × 16" Frame:
East
Central
West

3,800
3,000
5,400

3,686
3,090
5,616

(114)
90
216

–3%
3%
4%
2015

2.
2014
Actual
Units

Percentage
Increase/
(Decrease)

Budgeted
Units
(rounded)

8" × 10" Frame:
East
Central
West

8,755
6,510
12,348

3%
5%
–2%

9,018
6,836
12,101

12" × 16" Frame:
East
Central
West

3,686
3,090
5,616

–3%
3%
4%

3,575
3,183
5,841


Prob. 22–1A (Concluded)
RAPHAEL FRAME COMPANY
Sales Budget
For the Year Ending December 31, 2015

3.

Product and Area

8" × 10" Frame:
East
Central
West
Total
12" × 16" Frame:
East
Central

West
Total
Total revenue from sales

Unit Sales
Volume

Unit Selling
Price

Total Sales

9,018
6,836
12,101
27,955

$17
17
17

$153,306
116,212
205,717
$475,235

3,575
3,183
5,841
12,599

$32
32
32

$114,400
101,856
186,912
$403,168
$878,403