Sales and Marketing Department Hierarchy

					Exercise 8-1:       Schedule of Expected Cash Collections

Given:

Peak sales for Midwest Products, a wholesale distributor of leaf rakes, occur in August. The
company's sales budget for the third quarter showing these peak sales is given below:

                                              May        June          July       August September
     Budgeted Sales (All on Account)                                  $600,000    $900,000 $500,000
     Actual Sales (All on Account)          $430,000    $540,000
        Total Sales                         $430,000    $540,000     $600,000     $900,000   $500,000


From past experience, the company has learned that 20% of a month's sales are collected in the
month of sale, another 70% are collected in the month following the sale, and the remaining 10% are
collected in the second month following the sale. Bad debts are negligible and can be ignored.

Required:

1.    Prepare a schedule of expected cash collections from sales, by month and in total, for the third
     quarter.
                                           May         June         July      August      September
     20% collected in month of sale       $86,000 $108,000         $120,000  $180,000       $100,000
     70% collected in month after sale                301,000       378,000   420,000        630,000
     10% collected in 2nd month after                                43,000     54,000         60,000
         Total                            $86,000 $409,000         $541,000  $654,000       $790,000

2. Assume that the company will prepare a budgeted balance sheet as of September 30. Compute
   the A/R as of that date.

     Accounts Receivable -- September 30:                  %
                                                       Uncollected     A/R
         From August Sales:                 $900,000      10%          $90,000
         From September Sales:              $500,000      80%          400,000
            Total A/R                                                 $490,000

     Check:
        Total Sales:                                                 $2,970,000
        Less Total Collections:                                       2,480,000
            Accounts Receivable -- September 30:                       $490,000
                 Total
               $2,000,000

               $2,970,000




ning 10% are




                  Total
                 $400,000
                1,428,000
                  157,000
               $1,985,000
Exercise 8-2:     Production Budget

Given:
Crystal telecom has budgeted the sales of its innovative mobile phone over the next four months as
follows:
                    Unit
                   Sales
    July            30,000
    August          45,000
    September       60,000
    October         50,000

The company is now in the process of preparing a production budget for the third quarter. Past
experience has shown that end-of-month inventories of finished goods must equal 10% of the next
month's sales. The inventory at the end of June was 3,000.

Required:
Prepare a production budget for the third quarter showing the number of units to be produced each
month and for the quarter in total.

                                July      August     September    Quarter    October
   Budgeted Sales               30,000     45,000        60,000    135,000    50,000
   Desired EI**                  4,500      6,000         5,000      5,000
      Total Units Desired       34,500     51,000        65,000    140,000
   Less BI                       3,000      4,500         6,000      3,000
   Production                   31,500     46,500        59,000    137,000
                                                                   137,000
   ** EI is anticipated to be 10% of the next month's sales
Exercise 8-3:     Direct Materials Budget

Given:
Micro Products, Inc. has developed a very powerful electronic calculator. Each calculator requires 3 small
"chips" that cost $2 each and are purchased from an overseas supplier. Micro Products has prepared a
production budget for the calculator by quarters for Year 2 and for the first quarter of Year 3, as shown below:

                                            1st Quarter Y2 2nd Quarter Y2 3rd Quarter Y2 4th Quarter Y2
Budgeted Production (Calculators)                   60,000         90,000       150,000        100,000

The chip used in production of the calculator is sometimes hard to get, so it is necessary to carry large inventories as a
precaution against stockout. For this reason, the inventory of chips at the end of a quarter must be equal to 20% of the
following quarter's production needs. Some 36,000 chips will be on hand to start the first quarter of Year 2.

Required:

Prepare a direct materials budget for chips, by quarter and in total, for Year 2. At the bottom of your budget,
       Break-even point: 400 persons,
show the dollar amount of purchases for each quarter and for the year in total.           Total Expenses
                                                                                        Fixed Expenses
                                                                                      Total Sales
                                            1st Quarter Y2 2nd Quarter Y2 3rd Quarter Y2 4th Quarter Y2
   Budgeted Production (Calculators)                60,000         90,000        150,000        100,000
   # of chips needed per calculator                       3              3              3              3
   Total chips needed for production               180,000        270,000        450,000        300,000
   Desired EI **                                    54,000         90,000         60,000         48,000
   Total direct materials needed                   234,000        360,000        510,000        348,000
   Less: BI of chips                                36,000         54,000         90,000         60,000
   Required purchases of chips (units)             198,000        306,000        420,000        288,000
   Cost per chip                                        $2             $2             $2             $2
   Required purchases of chips (dollars)         $396,000       $612,000       $840,000       $576,000

   ** EI is anticipated to be 20% of the next quarter's production needs.
own below:

         1st Quarter Y3
                 80,000

arge inventories as a
e equal to 20% of the
 f Year 2.



r budget,


             Year 2
                 400,000
                       3
               1,200,000
                  48,000
               1,248,000
                  36,000
               1,212,000
                     $2
             $2,424,000
Exercise 8-4:       Direct Labor Budget

Given:
The Production Department of the Riverside Plant of Junnen Corporation has submitted the following
forecast of units to be produced at the plant for each quarter of the upcoming fiscal year. The plant
produces high-end outdoor barbecue grills.

                                  1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
Units to be produced                    5,000      4,400        4,500       4,900

Each unit requires 0.40 direct labor hours and direct labor workers are paid $11 per hour.

Required:
1. Construct the company's direct labor budget for the upcoming fiscal year, assuming that
   the direct labor workforce is adjusted each quarter to match the number of hours required
   to produce the forecasted number of units produced.

                                               1st Quarter 2nd Quarter 3rd Quarter 4th Quarter           Year
   Units to be produced                              5,000       4,400       4,500       4,900            18,800
   Direct labor hours required per grill                0.4         0.4         0.4         0.4               0.4
   Total DLHs required for production                2,000       1,760       1,800       1,960             7,520
   DL Cost per hour                                   $11         $11         $11         $11               $11
   Total Budgeted DL Costs                        $22,000     $19,360     $19,800     $21,560           $82,720

2. Construct the company's direct labor budget for the upcoming fiscal year, assuming that
   the direct labor workforce is not adjusted each quarter. Instead assume that the company's
   direct labor workforce consists of permanent employees who are guaranteed to be paid for
   at least 1,800 hours of work each quarter. If the number of required direct labor hours is less
   than this number, the workers are paid for 1,800 hours anyway. Any hours worked in excess
    of 1,800 hours in a quarter are paid at the rate of 1.5 times the normal hourly rate for DL.

                                               1st Quarter 2nd Quarter 3rd Quarter 4th Quarter           Year
   Units to be produced                             5,000       4,400       4,500       4,900            18,800
   Direct labor hours required per grill             0.40        0.40        0.40        0.40              0.40
   Total DLHs required for production               2,000       1,760       1,800       1,960             7,520
   Minimum guaranteed hours (@ $11)                 1,800       1,800       1,800       1,800             7,200
   Wage rate for guaranteed hours                     $11         $11         $11         $11               $11
   Wages for guaranteed time                      $19,800     $19,800     $19,800     $19,800           $79,200
   Overtime hours                                     200           0           0         160               360
   Wages rate for overtime hours (1.5X)            $16.50      $16.50      $16.50      $16.50            $16.50
   Wages for overtime                              $3,300          $0          $0      $2,640            $5,940
   Total Budgeted DL Costs                        $23,100     $19,800     $19,800     $22,440           $85,140
Exercise 8-5:        Manufacturing Overhead Budget

Given:
The direct labor budget of Krispin Corporation for the upcoming fiscal year contains the following
details concerning budgeted direct labor hours.

                                  1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
Budgeted DL Hours                       5,000       4,800       5,200       5,400

The company's VMOH rate is $1.75 per DLH and the company's FMOH is $35,000 per quarter.
The only noncash item included in the FMOH is depreciation, which is $15,000 per quarter.

Required:
1. Construct the company's MOH budget for the upcoming fiscal year.

                                                1st Quarter    2nd Quarter    3rd Quarter    4th Quarter
   Budgeted DL Hours                                 5,000          4,800          5,200           5,400
   VMOH rate per DLH                                 $1.75          $1.75          $1.75           $1.75
   Budgeted VMOH Expense                            $8,750         $8,400         $9,100          $9,450
   Budgeted FMOH Expense                            35,000         35,000         35,000          35,000
   Budgeted TMOH Expense                           $43,750        $43,400        $44,100         $44,450

2. Compute the company's TMOH rate for the upcoming fiscal year.                                     $8.61
  Year
  20,400
   $1.75
 $35,700
 140,000
$175,700
Exercise 8-6:        Selling and Administrative Expense Budget

Given:
The budgeted unit sales of Haerve Company for the upcoming fiscal year are provided below:

                                  1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
   Budgeted unit sales                 12,000      14,000      11,000      10,000

The company's variable selling and administrative expense per unit is $2.75. Fixed selling and Administrative
expenses include advertising expenses of $12,000 per quarter, executive salaries of $40,000 per quarter,
and depreciation of $16,000 per quarter. In addition, the company will make insurance payments of $6,000
in the 2nd Quarter and $6,000 in the 4th Quarter. Finally, property taxes of $6,000 will be paid in the 3rd
Quarter.

Required:
Prepare the company's selling and administrative expense budget for the upcoming fiscal year.

                                               1st Quarter   2nd Quarter    3rd Quarter    4th Quarter
   Budgeted units                                  12,000        14,000         11,000          10,000
   Variable S & A rate per unit                     $2.75         $2.75          $2.75           $2.75
   Budgeted Variable S & A Expense                $33,000       $38,500        $30,250         $27,500
   Budgeted Fixed S & A Expenses:
       Advertising                                 $12,000       $12,000       $12,000        $12,000
       Executive salaries                           40,000        40,000        40,000         40,000
       Depreciation                                 16,000        16,000        16,000         16,000
       Insurance Expense                                           6,000                        6,000
       Property Tax Expense                                                      6,000
          Total Fixed S & A Expense               $68,000        $74,000       $74,000        $74,000
   Total Budgeted S&A Expense                    $101,000       $112,500      $104,250       $101,500
 nd Administrative
0 per quarter,
ments of $6,000




                Year
                47,000
                 $2.75
              $129,250

               $48,000
               160,000
                64,000
                12,000
                 6,000
              $290,000
              $419,250
Problem 8-24:

Given:
The president of Univax, Inc., has just approached the company's bank seeking short-term financing
for the coming year, Year 2. Univax is a distributor of commercial vacuum cleaners. The bank has
stated that the loan request must be accompanied by a detailed cash budget that shows the quarters
in which financing will be needed, as well as the amounts that will be needed and the quarters in
which repayments can be made.

To provide this information for the bank, the president has directed that the following data be gathered
from which a cash budget can be prepared:

a. Budgeted sales and merchandise purchases for Year 2, as well as actual sales and purchases for
   the last quarter of Year 1, are as follows:
                                                                                Merchandise
   Year 1:                                             Sales                     Purchases
       Fourth quarter actual                         $300,000                      $180,000
   Year 2:
       First quarter, estimated                      $400,000                      $260,000
       Second quarter, estimated                     $500,000                      $310,000
       Third quarter, estimated                      $600,000                      $370,000
       Fourth quarter estimated                      $480,000                      $240,000

b. The company typically collects 33% of a quarter's sales before the quarter ends and another 65%
   in the following quarter. The remainder is uncollectible. This pattern of collections is now being
   experienced in the actual data for the Year 1 fourth quarter.

c. Some 20% of a quarter's merchandise purchases are paid for within the quarter. The remainder is
   paid in the follow quarter.

d. Selling & Administrative Expenses for Year 2 are budgeted at $90,000 per quarter plus 12% of sales.
   Of the fixed amount, $20,000 each quarter is depreciation.

e. The company will pay $10,000 in cash dividends each quarter.

f. Land purchases will be made as follows during the year: $80,000 in the second quarter and $48,500
   in the third quarter.

g. The Cash account contained $20,000 at the end of Year 1. The company must maintain a minimum
   cash balance of at least $18,000.

h. The company has an agreement with a local bank that allows the company to borrow in increments
   of $10,000 at the beginning of each quarter, up to a total loan balance of $100,000. The interest
   rate on these loans is 1% per month, and for simplicity, we will assume that interest is not compounded.
   The company would, as far as it is able, replay the loan plus accumulated interest at the end of the year.

i.   At present, the company has no loans outstanding.

Required:
1. Prepare the following, by quarter and in total, for Year 2:
   a. A schedule of expected cash collections on sales.
                                     Sales          $300,000    $400,000       $500,000        $600,000      $480,000
                                               4th Q Year 1    1st Q Year 2   2nd Q Year 2   3rd Q Year 2   4th Q Year 2
       Collections in month of sales (33%)                      $132,000       $165,000        $198,000      $158,400
       Collections in month following sales (65%)               $195,000       $260,000        $325,000      $390,000
                                                                $327,000       $425,000        $523,000      $548,400

   b. A schedule of expected cash disbursements for merchandise purchases.

                                   Purchases        $180,000    $260,000       $310,000        $370,000      $240,000
                                               4th Q Year 1    1st Q Year 2   2nd Q Year 2   3rd Q Year 2   4th Q Year 2
   Payments for purchases -- month of purchase (20%)             $52,000        $62,000         $74,000       $48,000
   Payments for purchases -- following quarter (80%)            $144,000       $208,000        $248,000      $296,000
                                                                $196,000       $270,000        $322,000      $344,000

2. Compute the expected cash disbursements for selling and administrative expenses, by quarter and in
   total, for Year 2.
                             Sales    $300,000     $400,000   $500,000       $600,000    $480,000
                                               4th Q Year 1    1st Q Year 2   2nd Q Year 2   3rd Q Year 2   4th Q Year 2
   Payments for var. operating expenses (12% of sales)           $48,000        $60,000         $72,000       $57,600
   Fixed operating expenses less non-cash depreciation           $70,000        $70,000         $70,000       $70,000
       Cash disbursements for operating expenses                $118,000       $130,000        $142,000      $127,600

3. Prepare a cash budget by quarter and in total for Year 2.

   Cash Budget:
                                                               1st Q Year 2   2nd Q Year 2   3rd Q Year 2   4th Q Year 2
       Cash balance, beginning                                   $20,000        $23,000         $18,000       $18,500
       Add cash collections                                      327,000        425,000         523,000       548,400
       Total cash available                                     $347,000       $448,000        $541,000      $566,900
       Less disbursements:
          Merchandise purchases                                 $196,000       $270,000        $322,000      $344,000
          Selling & Administrative                              $118,000       $130,000        $142,000      $127,600
          Land                                                                  $80,000         $48,500
          Dividends (Declared & Paid)                            $10,000        $10,000         $10,000       $10,000
              Total disbursements                               $324,000       $490,000        $522,500      $481,600
       Net Cash Inflow before Financing                          $23,000       ($42,000)        $18,500       $85,300
       Available for repayment                                    $5,000             $0            $500       $67,300
       Financing:
          Borrowings                                                  $0         $60,000             $0             $0
          Repayments           $10,000                                 0               0              0       ($60,000)
          Interest               1%                                    0               0              0         (5,400)
             Total Financing                                          $0         $60,000             $0       ($65,400)
       Cash balance, ending                                      $23,000         $18,000        $18,500        $19,900

       Desired minimum cash balance                              $18,000         $18,000        $18,000        $18,000
       Excess Over Desired Minimum                                $5,000              $0           $500         $1,900
                   Total
                  $653,400
                $1,170,000
                $1,823,400




                   Total
                  $236,000
                  $896,000
                $1,132,000

uarter and in


                  Total
                 $237,600
                 $280,000
                 $517,600




                 Quarter
                   $20,000
                 1,823,400
                $1,843,400

                $1,132,000
                  $517,600
                  $128,500
                   $40,000
                $1,818,100
                   $25,300
                    $7,300

                   $60,000
                  ($60,000)
                   ($5,400)
                   ($5,400)
                   $19,900

                  $18,000
                   $1,900
Exercise 8-27:            Completing a Master Budget

Given:
Nordic Company, a merchandising company, prepares its master budget on a quarterly basis. The
following data have been assembled to assist in preparation of the master budget for the second
quarter.
a. As of March 31 (the end of the prior quarter), the company's balance sheet showed the following
     account balances:

         Cash                                                     $9,000
         Accounts Receivable                                       48,000
         Inventory                                                 12,600
         Building and equipment                                   214,100
         Accounts Payable                                                     $18,300
         Capital Stock                                                         190,000
         Retained Earnings                                                      75,400
            Total                                              $283,700      $283,700

b.   Actual sales for March and budgeted sales for April-July are as follows:

              Actual   Budgeted Budgeted Budgeted              Budgeted
              March      April    May      June                  July                    $245,000
               $60,000 $70,000   $85,000  $90,000               $50,000

c.   Sales are 20% for cash and 80% on credit. All payments on credit sales are collected in the month
     following the sale. The A/R at March 31 are a result of March credit sales.

d.   The company's gross margin % is 40% of sales. (In other words, cost of goods sold is 60% of sales.)

e.   Monthly expenses are budgeted as follows:

     Salaries and wages                                           $7,500    per month
     Shipping                                                         6%    of sales
     Advertising                                                  $6,000    per month
     Other expenses                                                   4%    of sales
     Depreciation, including depreciation on new
      assets acquired during the quarter, will be                 $6,000 for the quarter

f.   Each month's EI should equal                                    30% of the following month's COGS

g.   Half of a month's inventory purchases are paid for in the month of purchase and half in the following
     month.

h.   Equipment purchases during the quarter will be as follows:

     April                             $11,500
     May                                $3,000

i.   Dividends declared and paid in June                          $3,500

j.   Management wants to maintain a minimum cash balance of $8,000.                        $8,000
     The company has an agreement with a local bank that allows the company to borrow in increments
     of $1,000 at the beginning of each month, up to a total loan balance of $20,000. The interest rate
     on these loans is 1% per month, and for simplicity, we will assume that interest is not compounded.
     The company would, as far as it is able, repay the loan plus accumulated interest at the end of the
     quarter.

Required:
Using the data above, complete the following statements and schedules for the second quarter:

1.   Schedule of expected cash collections:
                                    Actual
                                    March           April        May         June        Total
        Total Sales                $60,000         $70,000      $85,000     $90,000    $305,000

         Collections from:                          April        May         June       Quarter
         Cash Sales (20%)                          $14,000      $17,000     $18,000     $49,000
         Credit Sales (80%, 1-month delay)          48,000       56,000      68,000     172,000
            Total Cash Collections                 $62,000      $73,000     $86,000    $221,000

2.   a. Merchandise purchases budget:

                                                   March         April       May         June        July
         Total Sales                               $60,000      $70,000     $85,000     $90,000     $50,000

                                                   March         April       May         June       Quarter
         Budgeted COGS (60% of Sales)              $36,000      $42,000     $51,000     $54,000    $147,000
         Add desired EI (30% next COGS)             12,600       15,300      16,200       9,000       9,000
         Total Needs                               $48,600      $57,300     $67,200     $63,000    $156,000
         Less BI (30% of this month's COGS)         10,800       12,600      15,300      16,200      12,600
         Purchases                                 $37,800      $44,700     $51,900     $46,800    $143,400

     b. Schedule of expected cash disbursement for merchandise purchases:

                                                   March         April       May         June       Quarter
         50% paid in month of purchase             $18,300      $22,350     $25,950     $23,400     $71,700
         50% paid In month after purchase                        18,300      22,350      25,950      66,600
         Total                                                  $40,650     $48,300     $49,350    $138,300

3.   Schedule of expected cash disbursements for selling & administrative

                                                    April        May         June       Quarter
         Salaries and Wages                         $7,500       $7,500      $7,500     $22,500
         Shipping (6% of sales)                     $4,200       $5,100      $5,400     $14,700
         Advertising                                $6,000       $6,000      $6,000     $18,000
         Other Expenses (4% of sales)               $2,800       $3,400      $3,600      $9,800
            Total Selling & Admin.                 $20,500      $22,000     $22,500     $65,000

4.   Cash Budget:
                                                    April        May         June       Quarter
         Cash balance, beginning                    $9,000       $8,350      $8,050      $9,000
        Add cash collections                          62,000      73,000     86,000      221,000
        Total cash available                         $71,000     $81,350    $94,050     $230,000
        Less disbursements:
           Inventory purchases                       $40,650     $48,300    $49,350     $138,300
           Selling & Administrative                  $20,500     $22,000    $22,500      $65,000
           Equipment purchases                       $11,500      $3,000                 $14,500
           Dividends (Declared & Paid)                                       $3,500       $3,500
               Total disbursements                   $72,650     $73,300    $75,350     $221,300
        Net Cash Inflow before Financing             ($1,650)     $8,050    $18,700       $8,700
        Available for repayment                           $0         $50    $10,700         $700
        Financing:
           Borrowings                                $10,000          $0          $0     $10,000
           Repayments                      $1,000          0           0     (10,000)   ($10,000)
           Interest                          1%            0           0        (300)      ($300)
              Total Financing                        $10,000          $0    ($10,300)      ($300)
        Cash balance, ending                          $8,350      $8,050      $8,400      $8,400

        Desired minimum cash balance                  $8,000      $8,000     $8,000       $8,000
        Excess Over Desired Minimum                     $350         $50       $400         $400

5.   Prepare an absorption costing I/S statement for the quarter ending June 30

     Nordic Company
     Absorption Costing Income Statement
     For the Quarter Ended June 30th

     Sales                                                      $245,000
     Cost of Goods Sold:
          Beginning Inventory                        $12,600
          Add purchases                              143,400
          Goods available for sale                  $156,000
          Ending Inventory                             9,000     147,000          0.6
     Gross Margin                                                $98,000          0.4
     Selling & Administrative Expenses                            71,000
     Net Operating Income                                        $27,000
     Less Interest Expense                                          (300)
     Net Income                                                  $26,700

6.   Prepare a balance sheet as of June 30.

        Nordic Company
        Balance Sheet
        6/30/20??

     Assets:
     Current Assets:
         Cash                                         $8,400
         Accounts Receivable                          72,000
         Inventory                                     9,000     $89,400
     Long-Term Assets:
   Net Building and Equipment                222,600
     Total Assets                           $312,000

Equity:
Current Liabilities:
    Accounts Payable                         $23,400
Stockholders' Equity
    Capital Stock               $190,000
    Retained Earnings**           98,600    $288,600
       Total Equity                         $312,000


**Retained Earnings:
    Beginning Balance            $75,400
    Plus: Net Income              26,700
    Less: Dividends Declared      (3,500)
    Ending Balance               $98,600
  Total
$355,000

				
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