Accounting: What the Numbers Mean
Accounting: What the Numbers Mean
11th Edition
ISBN: 9781259535314
Author: David Marshall, Wayne William McManus, Daniel Viele
Publisher: McGraw-Hill Education
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Chapter 14, Problem 14.24P
To determine

Concept Introduction:

Sales Budget-

A sales budget is a budget which is used to estimate the expected units of sales in dollars and also helps to determine the estimated earnings during a period.

Requirement 1-

To prepare:

Sales budget

Expert Solution
Check Mark

Answer to Problem 14.24P

    Freese Inc.
    Sales budget






    OctoberNovemberDecemberQuarter
    Sales in units
    12,000
    14,000
    20,000
    46,000
    Selling price per unit
    $60
    $60
    $60
    $60
    Dollar sales value($)$720,000$840,000$1,200,000$2,760,000

Explanation of Solution

Given,

  • Sales units for October = 12,000
  • Sales units for November = 14,000
  • Sales units for December = 20,000
  • Selling price per unit = $60
  •   Sales units for quarter=October sales+November sales+December salesSales units for quarter=12,000+14,000+20,000Sales units for quarter=46,000

Dollar sales value for each month is calculated as follows-

  Dollar sales value=Sales in units×Selling price per unitDollar sales value for October=12,000×$60Dollar sales value for October=$720,000Dollar sales value for November=14,000×$60Dollar sales value for November=$840,000Dollar sales value for December=20,000×$60Dollar sales value for December=$1,200,000Dollar sales value for Quarter=46,000×$60Dollar sales value for Quarter=$2,760,000

Conclusion:

Thus, the sales budget has been prepared.

To determine

Concept Introduction:

Schedule of expected cash collection-

Schedule of expected cash collection is a schedule which represents all the cash collections from sales during a period. It is a part of master budget. It is prepared after preparing of sales budget but before preparing of cash budget.

Requirement 2-

To prepare:

Schedule of expected cash collection

Expert Solution
Check Mark

Answer to Problem 14.24P

    Freese Inc.
    Schedule of expected cash collection





    Cash collections from-
    OctoberNovemberDecemberTotal
    September sales
    499,200
    499,200
    October sales
    230,400
    460,800
    691,200
    November sales
    268,800
    537,600
    806,400
    December sales
    384,000
    384,000
    Total cash collections$729,600$729,600$921,6002,380,800

Explanation of Solution

Given, Sales (Calculated in requirement 1)

  • October sales = $720,000
  • November sales = $840,000
  • December sales = $1,200,000
  • October-

      Cash collections from September sales = September sales units*Sales price per unit*64%Cash collections from September sales =13,000 units * $60*64%Cash collections from September sales =$499,200Cash collections from October sales = October sales * 32%Cash collections from October sales = $720,000*32%Cash collections from  October sales =$230,400

Total cash collections of October-

  Total cash collections= Cash collections from September sales+ Cash collections from October salesTotal cash collections=$499,200+$230,400Total cash collections=$729,600

November-

  Cash collections from October sales = October sales * 64%

  Cash collections from October sales = $720,000*64%

  Cash collections from October sales = $460,800

  Cash collections from November sales = November sales * 32%Cash collections from November sales = 840,000 * 32%Cash collections from November sales =$268,800

Total cash collections of November-

  Total cash collections= Cash collections from October sales+ Cash collections from November salesTotal cash collections=$460,800+$268,800Total cash collections=$729,600

December-

  Cash collections from November sales = November sales * 64%Cash collections from November sales =$840,000*64%Cash collections from November sales =$537,600Cash collections from December sales = December sales *32%Cash collections from December sales =$1,200,000*32%Cash collections from December sales =$384,000

Total cash collections of December-

  Total cash collections= Cash collections from November sales+ Cash collections from December salesTotal cash collections=$537,600+$384,000Total cash collections=$921,600

Conclusion:

Thus, schedule of cash collections is prepared.

To determine

Concept Introduction:

Production Budget-

Production budget is a budget which shows the number of units to be produced or manufactured during a period of time.

Requirement 3-

To prepare:

Production Budget

Expert Solution
Check Mark

Answer to Problem 14.24P

    Freese Inc..
    Production budget






    OctoberNovemberDecemberTotal





    Quantity to be sold
    12,000
    14,000
    20,000
    46,000
    Desired ending inventory of finished goods
    5,600
    8,000
    3,600
    3,600
    Goods available for sale
    17,600
    22,000
    23,600
    49,600
    Beginning inventory of finished goods
    (4,800)
    (5,600)
    (8,000)
    (4,800)
    Units to be produced
    12,800
    16,400
    15,600
    44,800

Explanation of Solution

Given,

Beginning inventory of October − 4,800 units

Quantity to be sold-

  • October − 12,000 units
  • November − 14,000 units
  • December − 20,000 units
  • January − 9,000 units
  •   Desired ending inventory of finished goods= 40%*Next months sales

October-

  Desired ending inventory of finished goods= 40%*November salesDesired ending inventory of finished goods= 40%*14,000Desired ending inventory of finished goods=5,600

November-

  Desired ending inventory of finished goods= 40%*December salesDesired ending inventory of finished goods= 40%*20,000Desired ending inventory of finished goods= 8,000

December-

  Desired ending inventory of finished goods= 40%*January salesDesired ending inventory of finished goods= 40%*9,000Desired ending inventory of finished goods= 3,600

Beginning inventory of finished goods

  • Ending inventory of finished goods of the previous month shall be the beginning inventory of finished goods
  • October − 4,800 units
  • November − 5,600 units
  • December − 8,000 units
  • Now, we need to calculate units to be produced-

      Units to be produced = Quantity of goods sold+ Ending inventory of finished goods Beginning inventory of finished goods

  October = 12,000+5,6004,800=12,800 unitsNovember = 14,000+8,0005,600=16,400 unitsDecember = 20,000+3,6008,000=15,600 units

Conclusion:

Thus, Production budget is prepared.

To determine

Concept Introduction:

Materials purchase budget-

Material purchase budget is a budget which shows the material to be purchased during a period of time in order to fulfill the requirement of production budget.

Requirement 4-

To prepare:

Material purchase budget

Expert Solution
Check Mark

Answer to Problem 14.24P

    Freese Inc.
    Material purchase budget






    OctoberNovemberDecemberTotal
    Budgeted production (units)
    12,800
    16,400
    15,600
    44,800
    Material requirements per unit (pounds)
    5
    5
    5
    5
    Quantity of raw materials to be used in production
    64,000
    82,000
    78,000
    224,000
    Add: Desired ending inventory of raw materials
    24,600
    23,400
    14,100
    14,100
    Raw materials available for use
    88,600
    105,400
    92,100
    238,100
    Less: Beginning inventory of raw materials
    (19,200)
    (24,600)
    (23,400)
    (19,200)
    Purchase of raw materials
    69,400
    80,800
    68,700
    218,900

Explanation of Solution

Given,

  • Production Budget = Calculated in Req.3
  • Material requirements per unit= 5
  • Beginning inventory of raw materials of October = 19,200 pounds
  • Quantity of raw materials to be used in production-

      Quantity of raw materials to be used in production = Production Budget* Material requirements per unit       October = 12,800*5=64,000       November = 16,400*5=82,000      December = 15,600*5=78,000

Desired ending inventory of raw materials = 30%*Next month's Quantity of raw materials to be used in production

October-

  Desired ending inventory of raw materials = 30%*November raw materials to be used in productionDesired ending inventory of raw materials = 30%*82,000Desired ending inventory of raw materials = 24,600

November-

  Desired ending inventory of raw materials = 30%*December  raw materials to be used in productionDesired ending inventory of raw materials = 30%*78,000Desired ending inventory of raw materials =23,400

December-

  Desired ending inventory of raw materials = 30%*January raw materials to be used in productionDesired ending inventory of raw materials = 30%*(9,400*5)Desired ending inventory of raw materials = 30%*47,000Desired ending inventory of raw materials = 14,100

Beginning inventory of raw materials

  • Ending inventory of raw materials of the previous month shall be the beginning inventory of raw materials
  • October − 19,200
  • November − 24,600
  • December − 23,400
  • Now, we need to calculate units to be purchased-

      Purchase of raw materials=Quantity of raw materials to be used in production+ Desired ending inventory of raw materialsBeginning inventory of raw materials   October = 64,000+24,60019,200 = 69,400   November = 82,000+23,40024,600 = 80,800   December = 78,000+14,10023,400 = 68,700

Conclusion:

Thus, Purchase budget is prepared.

To determine

Concept Introduction:

Schedule of cash payments for material-

Schedule of expected cash payment is a schedule which represents all the cash payments to suppliers for purchases during a period. It is a part of master budget. It is prepared after preparing of purchase budget but before preparing of cash budget.

Requirement 5-

To prepare:

Schedule of expected cash payment

Expert Solution
Check Mark

Answer to Problem 14.24P

    Freese Inc.
    Schedule of expected cash payment





    Cash payments for-
    OctoberNovemberDecemberTotal
    September purchases
    75,960
    75,960
    October purchases
    194,320
    83,280
    277,600
    November purchases
    226,240
    96,960
    323,200
    December purchases
    192,360
    192,360
    Total cash payments270,280309,520289,320869,120

Explanation of Solution

Given,

  • Cash payments for September purchases- $75,960
  • Purchases (Calculated in req.4)
  • October − 69,400

    November − 80,800

    December − 68,700

  • Cost per pound of raw material = $4
  • October-

      Cash payments for October purchases = October purchase units* Cost per pound of raw material*80%Cash payments for October purchases =69,400*$4*70%Cash payments for October purchases =$194,320

Total cash payments for October-

  Total cash payments for October= Cash payments for September purchases+ Cash payments for October purchasesTotal cash payments for October=$75,960+$194,320Total cash payments for October=$270,280

November-

  Cash payments for October purchases = October purchase units* Cost per pound of raw material*30%Cash payments for October purchases =69,400*$4*30%Cash payments for October purchases =$83,280Cash payments for November purchases = November purchase units* Cost per pound of raw material*70%Cash payments for November purchases =80,800*$4*70%Cash payments for November purchases =$226,240

Total cash payments for November-

  Total cash payments for November= Cash payments for October purchases+ Cash payments for November purchasesTotal cash payments for November=$83,280+$226,240Total cash payments for November=$309,520

December-

  Cash payments for November purchases = November purchase units* Cost per pound of raw material*30%Cash payments for November purchases =80,800*$4*30%Cash payments for November purchases =$96,960Cash payments for December purchases = December purchase units* Cost per pound of raw material*70%Cash payments for December purchases =68,700*$4*70%Cash payments for December purchases =$192,360

Total cash payments for December-

  Total cash payments for December= Cash payments for November purchases+ Cash payments for December purchasesTotal cash payments for December=$96,960+$192,360Total cash payments for December=$289,320

Conclusion:

Thus, Schedule of expected cash payment is prepared.

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