Chapter 9

Budgeting

Solutions to Questions

9-1 A budget is a detailed quantitative plan and administrative expenses, and inventories.
for the acquisition and use of financial and other The master budget generally also contains a
resources over a given time period. Budgetary budgeted income statement, budgeted balance
control involves the use of budgets to control sheet, and cash budget.
the actual activities of a firm.
9-5 The level of sales impacts virtually every
9-2 other aspect of the firm’s activities. It deter-
1. Budgets communicate management’s mines the production budget, cash collections,
plans throughout the organization. cash disbursements, and selling and administra-
2. Budgets force managers to think about tive budget that in turn determine the cash
and plan for the future. budget and budgeted income statement and
3. The budgeting process provides a means balance sheet.
of allocating resources to those parts of the or-
ganization where they can be used most effec- 9-6 A budget committee is a group of key
tively. personnel responsible for policy matters related
4. The budgeting process can uncover po- to the budget program, coordination of the
tential bottlenecks before they occur. budget preparation, handling budget-related
5. Budgets coordinate the activities of the disputes and approval of the final budget. Com-
entire organization by integrating the plans of its panies use a budget committee to make the en-
various parts. Budgeting helps to ensure that tire process more efficient and effective.
everyone in the organization is pulling in the
same direction. 9-7 A perpetual budget is a 12-month
6. Budgets define goals and objectives that budget that rolls forward one month as the cur-
can serve as benchmarks for evaluating subse- rent month is completed. The purpose of per-
quent performance. petual or continuous budgets is to always keep
managers focused one year ahead.
9-3 Responsibility accounting is a system in
which a manager is held responsible for those 9-8 A participative budget is one in which
items of revenues and costs—and only those persons with responsibility over cost control
items—that the manager can control to a signifi- prepare their own budgets. This is in contrast to
cant extent. Each line item in the budget is a budget that is imposed from above. The major
made the responsibility of a manager who is advantages of a participative budget are: (1)
then held responsible for differences between Individuals at all levels of the organization are
budgeted and actual results. recognized as members of the team whose
views and judgments are valued. (2) Budget
9-4 A master budget represents a summary estimates prepared by front-line managers are
of management’s plans and goals for the future, often more accurate and reliable than estimates
and outlines the way in which these plans are to prepared by top managers who have less inti-
be accomplished. The master budget is com- mate knowledge of markets and day-to-day op-
posed of a number of smaller, specific budgets erations. (3) Motivation is generally higher when
encompassing sales, production, raw materials, individuals participate in setting their own goals
direct labour, manufacturing overhead, selling than when the goals are imposed from above.

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Solutions Manual, Chapter 9 1
Participative budgets create commitment. (4) A profit. With not-for-profit and government agen-
manager who is not able to meet a budget that cies this is generally not the case. Often, no re-
has been imposed from above can always say lationship exists between those who provide
that the budget was unrealistic and impossible funds and the uses to which these funds are put.
to meet. With a self-imposed budget, this ex-
cuse is not available. 9-16 A static budget is prepared only for the
Participative budgets do carry with them planned or budgeted level of activity. A flexible
the risk of budgetary slack. The budgets pre- budget provides estimates for revenues and ex-
pared by lower-level managers should be care- penses for any level of activity within a specified
fully reviewed to prevent too much slack. range. A flexible budget can be prepared after a
reporting period is over to show managers what
9-9 Budget slack is the difference between revenues and expenses should have been, given
the revenues and expenses a manager believes the actual level of activity for that period.
can be achieved and the amounts included in
the budget. Managers create slack in an attempt 9-17 A flexible budget variance is the differ-
to increase the likelihood of receiving bonuses ence between actual and budgeted amounts for
contingent upon meeting or beating budget. revenues and expenses. For revenues, the flexi-
They may also create slack so that they do not ble budget variance is caused by a difference
have to work as hard to attain their budget. between the budgeted and actual selling price
per unit. For expenses, the variance is caused
9-10 Zero-base budgeting requires that man- either by differences between the budgeted and
agers start their expense budgets at zero levels actual unit cost of the item, or by differences
and justify all costs as if all programs were being between the budgeted and actual quantity of
proposed for the first time. In traditional budge- the item used.
ting, by contrast, budget data are usually gen-
erated on an incremental basis, with last year’s
budget being the starting point.

9-11 No, although this is clearly one of the

purposes of the cash budget. The principal pur-
pose is to provide information on probable cash
needs during the budget period, so that bank
loans and other sources of financing can be an-
ticipated and arranged well in advance.

9-12 For a merchandising company (such as

Zellers or Sport Chek) the merchandise pur-
chases budget replaces the production budget.

9-13 Activity-based budgeting can help iden-

tify the need for additional production capacity
and it can lead to more accurate budgets.

9-14 Some of the unique budgeting problems

faced by multinational companies include foreign
exchange fluctuations, hyperinflation, and gov-
ernmental restrictions affecting a variety of fac-
tors including labour practices, advertising, and
so on.

9-15 With profit-oriented entities, there is an

intricate relationship between expenses and
revenues. Expenditures are made for the pur-
pose of generating sufficient revenue to earn a
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2 Managerial Accounting, 9th Canadian Edition
Exercise 9-1 (20 minutes)

1. October November December Total

August sales:
$70,000 × 5% $ 3,500 $ 3,500
September sales:
$180,000 × 70%, 5% 126,000 $ 9,000 135,000
October sales:
$400,000 × 25%, 70%,
5% 100,000 280,000 $ 20,000 400,000
November sales:
$800,000 × 25%, 70% 200,000 560,000 760,000
December sales:
$700,000 × 25% 175,000 175,000
Total cash collections $229,500 $489,000 $755,000 $1,473,500

Notice that even though sales peak in November, cash collections peak
in December. This occurs because the bulk of the company’s customers
pay in the month following sale. The lag in collections that this creates is
even more pronounced in some companies. Indeed, it is not unusual for
a company to have the least cash available in the months when sales
are greatest.

2. Accounts receivable at December 31:

From November sales: $800,000 × 5%................. $ 40,000

From December sales:
$700,000 × (70% + 5%) .................................. 525,000
Total accounts receivable ..................................... $565,000

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Solutions Manual, Chapter 9 3
Exercise 9-2 (10 minutes)

July August Septem- Quarter

ber
Budgeted sales in units ............ 30,000 45,000 60,000 135,000
Add desired ending inven- 4,500 6,000 5,000 5,000
tory* ....................................
Total needs.............................. 34,500 51,000 65,000 140,000
Less beginning inventory .......... 3,000 4,500 6,000 3,000
Required production ................. 31,500 46,500 59,000 137,000
*10% of the following month’s sales

For September the desired E.I. = October sales of 50,000 x 10%.

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4 Managerial Accounting, 9th Canadian Edition
Exercise 9-3 (15 minutes)

Quarter—Year 2 Year 3
First Second Third Fourth First
Required production of calculators ........... 120,000 190,000 300,000 200,000 160,000
Number of chips per calculator ................ × 3 × 3 × 3 × 3 × 3
Total production needs—chips ................. 360,000 570,000 900,000 600,000 480,000

Year 2
First Second Third Fourth Year
Production needs—chips.......................... 360,000 570,000 900,000 600,000 2,430,000
Add desired ending inventory—chips ........ 114,000 180,000 120,000 96,000 96,000
Total needs—chips .................................. 474,000 750,000 1,020,000 696,000 2,526,000
Less beginning inventory—chips .............. 72,000 114,000 180,000 120,000 72,000
Required purchases—chips ...................... 402,000 636,000 840,000 576,000 2,454,000
Cost of purchases at $2 per chip .............. $804,000 $1,272,000 $1,680,000 $1,152,000 $4,908,000

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Solutions Manual, Chapter 9 5
Exercise 9-4 (20 minutes)
1. Assuming that the direct labour workforce is adjusted each quarter, the direct labour budget would be:
1st 2nd 3rd 4th
Quarter Quarter Quarter Quarter Year
Units to be produced ................... 5,000 4,400 4,500 4,900 18,800
Direct labour time per unit (hours) ×0.40 ×0.40 ×0.40 ×0.40 ×0.40
Total direct labour hours needed .. 2,000 1,760 1,800 1,960 7,520
Direct labour cost per hour .......... ×$11.00 ×$11.00 ×$11.00 ×$11.00 ×$11.00
Total direct labour cost ................ $22,000 $19,360 $19,800 $21,560 $82,720

2. Assuming that the direct labour workforce is not adjusted each quarter and that overtime wages are
paid, the direct labour budget would be:
1st 2nd 3rd 4th
Quarter Quarter Quarter Quarter Year
Units to be produced ................... 5,000 4,400 4,500 4,900 18,800
Direct labour time per unit (hours) ×0.40 ×0.40 ×0.40 ×0.40 ×0.40
Total direct labour hours needed .. 2,000 1,760 1,800 1,960 7,520
Regular hours paid ...................... 1,800 1,800 1,800 1,800 7,200
Overtime hours paid .................... 200 0 0 160 360
Wages for regular hours
(@ $11.00 per hour) ................. $19,800 $19,800 $19,800 $19,800 $79,200
Overtime wages (@ $11.00 per
hour × 1.5 hours) ..................... 3,300 0 0 2,640 5,940
Total direct labour cost ................ $23,100 $19,800 $19,800 $22,440 $85,140

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6 Managerial Accounting, 9th Canadian Edition
Exercise 9-5 (15 minutes)

1. Small Corporation
Manufacturing Overhead Budget
1st 2nd 3rd 4th
Quarter Quarter Quarter Quarter Year
Budgeted direct labour-hours ....... 5,000 4,800 5,200 5,400 20,400
Variable overhead rate ................ × $1.75 × $1.75 × $1.75 × $1.75 × $1.75
Variable manufacturing overhead . $ 8,750 $ 8,400 $ 9,100 $ 9,450 $ 35,700
Fixed manufacturing overhead ..... 35,000 35,000 35,000 35,000 140,000
Total manufacturing overhead ..... 43,750 43,400 44,100 44,450 175,700
Less depreciation ........................ 15,000 15,000 15,000 15,000 60,000
Cash disbursements for manufac-
turing overhead ........................ $28,750 $28,400 $29,100 $29,450 $115,700

2. Total budgeted manufacturing overhead for the year (a) ...................................... $175,700
Total budgeted direct labour-hours for the year (b) .............................................. 20,400
Predetermined overhead rate for the year (a) ÷ (b) ............................................. $8.61

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Solutions Manual, Chapter 9 7
Exercise 9-6 (15 minutes)

Hirst Company
Selling and Administrative Expense Budget
1st 2nd 3rd 4th
Quarter Quarter Quarter Quarter Year
Budgeted unit sales .................................. 12,000 14,000 11,000 10,000 47,000
Variable selling and administrative expense
per unit ................................................. x $2.75 x $2.75 x $2.75 x $2.75 x $2.75
Variable expense ...................................... $ 33,000 $ 38,500 $ 30,250 $ 27,500 $129,250
Fixed selling and administrative expenses:
Advertising............................................. 12,000 12,000 12,000 12,000 48,000
Executive salaries ................................... 40,000 40,000 40,000 40,000 160,000
Insurance .............................................. 6,000 6,000 12,000
Property taxes........................................ 6,000 6,000
Depreciation .......................................... 16,000 16,000 16,000 16,000 64,000
Total fixed selling and administrative ex-
penses................................................... 68,000 74,000 74,000 74,000 290,000
Total selling and administrative expenses ... 101,000 112,500 104,250 101,500 419,250
Less depreciation ...................................... 16,000 16,000 16,000 16,000 64,000
Cash disbursements for selling and admin-
istrative expenses................................... $ 85,000 $ 96,500 $ 88,250 $ 85,500 $355,250

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8 Managerial Accounting, 9th Canadian Edition
Exercise 9-7 (20 minutes)

Quarter (000 omitted)

1 2 3 4 Year
Cash balance, beginning .......... $ 6 * $ 5 $ 5 $ 5 $ 6
Add collections from customers 65 70 96 * 92 323 *
Total cash available .................. 71 * 75 101 97 329
Less disbursements:
Purchase of inventory ............ 35 * 45 * 48 35 * 163
Operating expenses ............... 28 30 * 30 * 25 113 *
Equipment purchases ............ 8 * 8 * 10 * 10 36 *
Dividends ............................. 2 * 2 * 2 * 2 * 8
Total disbursements ................. 73 85 * 90 72 320
Excess (deficiency) of cash
available over disbursements . (2) * (10) 11 * 25 9
Financing:
Borrowings ........................... 7 15 * 0 0 22
Repayments (including inter-
est).................................... 0 0 (6) (17) * (23)
Total financing ......................... 7 15 (6) (17) (1)
Cash balance, ending ............... $5 $ 5 $ 5 $ 8 $ 8

*Given.

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Solutions Manual, Chapter 9 9
Exercise 9-8 (15 minutes)

AutoLav Inc.
Flexible Budget
Cost For-
mula Activity (cars)
Overhead Costs (per car) 7,000 8,000 9,000
Sales $10.00 $70,000 $80,000 $90,000
Variable expenses:
Cleaning supplies ......................... 0.75 5,250 6,000 6,750
Utilities ....................................... 0.60 4,200 4,800 5,400
Maintenance ................................ 0.15 1,050 1,200 1,350
Total variable expenses ................... 1.50 10,500 12,000 13,500
Contribution margin…………………. $8.50 59,500 68,000 76,500
Fixed expenses:
Operator wages ........................... 10,000 10,000 10,000
Depreciation ................................ 20,000 20,000 20,000
Rent...................... ...................... 8,000 8,000 8,000
Insurance....................………… 1,000 1,000 1,000
Selling and administrative.......... 4,000 4,000 4,000
Total fixed expenses ....................... 43,000 43,000 43,000
Operating income ........................... $16,500 $25,000 $33,500

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10 Managerial Accounting, 9th Canadian Edition
Exercise 9-9 (30 minutes)

1.
AutoLav Inc.
Flexible Budget Performance Report
For the Month Ended August 31
Actual number of cars .................. 7,800

Cost
Formula Flexible
(per Flexible Budget
Overhead Costs car) Actual Budget Variance
Sales $10.00 $78,000 $78,000 $0
Variable expenses:
Cleaning supplies ......................... 0.75 5,725 5,850 (125) F
Utilities ........................................
0.60 4,795 4,680 115 U
Maintenance ................................ 0.15 1,400 1,170 230 U
Total variable expenses ................... 1.50 11,920 11,700 220 U

Contribution margin ........................

8.50 66,080 66,300 220 U
Fixed expenses:
Operator wages ........................... 10,270 10,000 270 U
Depreciation ................................ 20,100 20,000 100 U
Rent ............................................ 8,000 8,000 0
Insurance .................................... 1,090 1,000 90 U
Selling and administrative ............. 3,750 4,000 (250) F
Total fixed expenses ....................... 43,210 43,000 210 U
Operating income ........................... $22,870 $23,300 $430 U

Students may question the variances for fixed costs. Operator wages can
differ from what was budgeted for a variety of reasons including an unan-
ticipated increase in the wage rate; changes in the mix of workers between
those earning lower and higher wages; changes in the number of operators
on duty; and overtime. Depreciation may have increased because of the
acquisition of new equipment or because of a loss on equipment that must
be scrapped—perhaps due to poor maintenance. (This assumes that the
loss flows through the depreciation account on the performance report.)

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Solutions Manual, Chapter 9 11
Exercise 9-9 Part 2.

Overhead Costs Actual Flexible Flexible Sales Static

(7,800 Budget Budget Volume Budget
cars) Variance (7,800 cars) Variance (8,000 cars)
Sales $78,000 $0 $78,000 $2,000 U $80,000
Variable expenses:
Cleaning supplies 5,725 (125) F 5,850 150 F 6,000
Utilities 4,795 115 U 4,680 120 F 4,800
Maintenance 1,400 230 U 1,170 30 F 1,200
Total variable expenses 11,920 220 U 11,700 300 F 12,000
Contribution margin…… 66,080 220 U 66,300 1,700 U 68,000

Fixed expenses:
Operator wages 10,270 270 U 10,000 0 10,000
Depreciation 20,100 100 U 20,000 0 20,000
Rent 8,000 0 8,000 0 8,000
Insurance 1,090 90 U 1,000 0 1,000
Selling and administrative 3,750 (250) F 4,000 0 4,000
Total fixed expenses 43,210 210 U 43,000 0 43,000
Operating income $22,870 $430 U $23,300 1,700 U $25,000

Total static-budget variance: $2,130 U

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12 Managerial Accounting, 9th Canadian Edition
Exercise 9-10 (30 minutes)

1.

(a) (b) (c) (b x c)

Budgeted Activity Budgeted
Activity Cost Pool Rate Activity Activity Cost
Direct labour support $3 per DLH 45,000 hoursa $135,000
Batch setups $500 per setup 22 setupsb 11,000
Materials handling $200 per setup 22 setupsb 4,400
Purchasing $150 per order 36 ordersc 5,400
Quality inspections $50 per inspection 2,100 inspectionsd 105,000
Customer orders $25 per order 1,750 orderse 43,750
Product design $2,000 per modification 8 modificationsf 16,000
Total $320,550
a
(6,000 x 2.5) + (15,000 x 2)
b
(6,000 ÷ 500) + (15,000 ÷ 1,500)
c
16 + 20
d
(6,000 x .1) + (15,000 x .1)
e
1,000 + 750
f
5+3

2. Total overhead budget:

Budgeted activity costs per part 1. $320,550
Organization sustaining costs 250,000
Total overhead costs $570,550

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Solutions Manual, Chapter 9 13
Exercise 9-10 (continued)

3. Total budgeted production costs (including direct costs):

Budgeted
Item Amount
Direct material costs:
R-192: $45 x 6,000 $ 270,000
T-295: $30 x 15,000 450,000
Direct labour costs:
R-192: $20 x 15,000 300,000
T-295: $20 x 30,000 600,000
Activity costs (part 1) 320,550
Organization sustaining costs 250,000
Total production costs $2,190,550

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14 Managerial Accounting, 9th Canadian Edition
Problem 9-11 (30 minutes)
1. Davis and Smith used a top-down approach to prepare the budget. That
is, they prepared the budget with little or no input from the individuals
who would have to implement the budget. In contrast, the recom-
mended approach is a participative budget in which the individuals who
have cost control responsibility initiate and fully participate in the budg-
eting process. Participatory budgets have a number of advantages in-
cluding: 1) those who are closest to the action are likely to have better
information; 2) managers are likely to be more committed to and under-
stand a budget they participated in preparing than a budget that is im-
posed from above; and 3) participative budgets help to foster a sense
that everyone’s input is valued.

2. While Davis and Smith are undoubtedly pleased with their work, the dis-
satisfaction expressed by some employees with the budget process is a
sign that there may be storm clouds ahead. If employees feel that the
budget is unrealistic, the fact that it was imposed can lead to resent-
ment, anger, and a sense of helplessness. Employees may, as a conse-
quence, spend their time and energy complaining about the budget
rather than creatively solving problems. And if the budget is indeed un-
realistic and managers are held responsible for meeting the budget, un-
productive finger-pointing is likely to result as reality fails to live up to
expectations.

CMA Solution, adapted

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Solutions Manual, Chapter 9 15
Problem 9-12 (30 minutes)
1. September cash sales .............................................. $ 7,400
September collections on account:
July sales: $20,000 × 18% .................................... 3,600
August sales: $30,000 × 70% ............................... 21,000
September sales: $40,000 × 10% ......................... 4,000
Total cash collections ............................................... $36,000

2. Payments to suppliers:
August purchases (accounts payable) .................... $16,000
September purchases: $25,000 × 20% .................. 5,000
Total cash payments ................................................ $21,000

3. Calgon Products
Cash Budget
For the Month of September

Cash balance, September 1.................................. $ 9,000

Add cash receipts:
Collections from customers................................ 36,000
Total cash available before current financing ......... 45,000
Less disbursements:
Payments to suppliers for inventory ................... $21,000
Selling and administrative expenses ................... 9,000 *
Equipment purchases ........................................ 18,000
Dividends paid .................................................. 3,000
Total disbursements ............................................ 51,000
Excess (deficiency) of cash available over dis-
bursements ...................................................... (6,000)
Financing:
Borrowings ....................................................... 11,000
Repayments ..................................................... 0
Interest ............................................................ 0
Total financing .................................................... 11,000
Cash balance, September 30 ................................ $ 5,000
*$13,000 – $4,000 = $9,000.

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16 Managerial Accounting, 9th Canadian Edition
Problem 9-13 (45 minutes)
1. Black is using the budget as a club to pressure employees and as a way
to find someone to blame rather than as a legitimate planning and con-
trol tool. His planning seems to consist of telling everyone to increase
sales volume by 40%. This kind of “planning” requires no analysis, no
intelligence, no business insight, and is very likely viewed with contempt
by the employees of the company.

2. The way in which the budget is being used is likely to breed hostility,
tension, mistrust, lack of respect, and actions designed to meet targets
using any means available. Unreasonable targets imposed from the top,
coupled with a “no excuses” policy and the threat of being fired, create
an ideal breeding ground for questionable business practices. Managers
who would not, under ordinary circumstances, cheat or cut corners may
do so if put under this kind of pressure.

3. As the old saying goes, Kelly Cantano is “between a rock and a hard
place.” The Code of Ethical Conduct for Management Accountants states
that management accountants have a responsibility to “disclose fully all
relevant information that could reasonably be expected to influence an
intended user’s understanding of the reports, comments, and recom-
mendations presented.” Assuming that Kelly helps prepare the Produc-
tion Department’s reports to top management, collaborating with her
boss in hiding losses due to defective disk drives would clearly violate
this standard. Apart from the misrepresentation on the accounting re-
ports, the policy of shipping defective returned units to customers is
bound to have a negative effect on the company’s reputation. If this
policy were to become widely known, it would very likely have a devas-
tating effect on the company’s future sales. Moreover, this practice may
be illegal under statutes designed to protect consumers.
Having confronted her boss with no satisfactory resolution of the prob-
lem, Kelly must now decide what to do. The Code of Ethical Conduct for
Management Accountants suggests that Kelly go to the next higher level
in management to present her case. Unfortunately, in the prevailing
moral climate at CompuDrive, she is unlikely to win any blue ribbons for
blowing the whistle on her boss. All of the managers below Black are
likely to be in fear of losing their own jobs and many of them may have
taken actions to meet Black’s targets that they are not proud

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Solutions Manual, Chapter 9 17
Problem 9-13 (continued)
of either. It would take tremendous courage for Kelly to take the prob-
lem all the way up to Black himself—particularly in view of his less-than-
humane treatment of subordinates. And going to the Board of Directors
is unlikely to work either since Black and his venture capital firm appar-
ently controls the Board. Resigning, with a letter of memorandum to the
individual who is most likely to be concerned and to be able to take ac-
tion, may be the only ethical course of action that is left open to Kelly in
this situation. Of course, she must pay her rent, so hopefully she has
good alternative employment opportunities.

Note: This problem is very loosely based on the MiniScribe scandal re-
ported in the December, 1992 issue of Management Accounting as well
as in other business publications. After going bankrupt, it was discov-
ered that managers at MiniScribe had perpetrated massive fraud as a
result of the unrelenting pressure to meet unrealistic targets. Q. T.
Wiles, the real chairman of MiniScribe, was reported to have behaved
much as described in this problem. Kelly Cantano is, alas, a fabrication.
Hopefully, there were people like Kelly at MiniScribe who tried to do
something to stop the fraud.

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18 Managerial Accounting, 9th Canadian Edition
Problem 9-14 (45 minutes)
1. Production budget:
July August September October
Budgeted sales (units) ........... 60,000 75,000 105,000 53,000
Add desired ending inventory . 23,000 29,000 18,600 14,000
Total needs ........................... 83,000 104,000 123,600 67,000
Less beginning inventory ....... 22,000 23,000 29,000 18,600
Required production .............. 61,000 81,000 94,600 48,400
Note: July E.I. = 8,000 units + 75,000 (next months sales) x 20%
October E.I. = 8,000 units + 30,000 (Nov. Sales) x 20%

2. During July and August the company is building inventories in anticipa-

tion of peak sales in September. Therefore, production exceeds sales
during these months. In September and October inventories are being
reduced in anticipation of a decrease in sales during the last months of
the year. Therefore, production is less than sales during these months
to cut back on inventory levels.

3. Direct materials budget:

Third
July August September Quarter
Required production (units) .. 61,000 81,000 94,600 236,600
Material D236 needed per
unit .................................. x 4 kgs. x 4 kgs. x 4 kgs. x 4 kgs.
Production needs (kgs.) ....... 244,000 324,000 378,400 946,400
Add desired ending inven-
tory (kgs.) ........................ 129,600 151,360 77,440 * 77,440
Total Material D236 needs .... 373,600 475,360 455840 1,023,840
Less beginning inventory
(kgs.) ............................... 129,000 129,600 151,360 129,000
Material D236 purchases
(kgs.) ............................... 244,600 345,760 304,480 894,840
* 48,400 units (October production) × 4 kgs. per unit = 193,600
kgs.; 193,600 kgs. × 0.4 = 77,440 kgs.
As shown in part (1), production is greatest in September. However, as
shown in the raw material purchases budget, the purchases of materials
is greatest a month earlier because materials must be on hand to sup-
port the heavy production scheduled for September.

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Solutions Manual, Chapter 9 19
Problem 9-15 (30 minutes)

1. Taylor Company
Direct Materials Purchases Budget
1st 2nd 3rd 4th
Quarter Quarter Quarter Quarter Year
Required production ............................. 6,000 7,000 8,000 5,000 26,000
Raw materials per unit .......................... x3 x3 x3 x3 x3
Production needs ................................. 18,000 21,000 24,000 15,000 78,000
Add desired ending inventory ................ 4,200 4,800 3,000 3,700 3,700
Total needs .......................................... 22,200 25,800 27,000 18,700 81,700
Less beginning inventory ...................... 3,600 4,200 4,800 3,000 3,600
Raw materials to be purchased ............. 18,600 21,600 22,200 15,700 78,100
Cost of raw materials to be purchased at
$2.50 per kilogram ............................ $46,500 $54,000 $55,500 $39,250 $195,250

Schedule of Expected Cash Disbursements for Materials

Accounts payable, beginning balance .... $11,775 $ 11,775
1st Quarter purchases .......................... 32,550 $13,950 46,500
2nd Quarter purchases ......................... 37,800 $16,200 54,000
3rd Quarter purchases .......................... 38,850 $16,650 55,500
4th Quarter purchases .......................... 27,475 27,475
Total cash disbursements for materials .. $44,325 $51,750 $55,050 $44,125 $195,250

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20 Managerial Accounting, 9th Canadian Edition
Problem 9-15 (continued)

2. Taylor Company
Direct Labour Budget
1st 2nd 3rd 4th
Quarter Quarter Quarter Quarter Year
Units to be produced .......................... 6,000 7,000 8,000 5,000 26,000
Direct labour time per unit (hours) ...... x 0.50 x 0.50 x 0.50 x 0.50 x 0.50
Total direct labour-hours needed ......... 3,000 3,500 4,000 2,500 13,000
Direct labour cost per hour ................. x $12.00 x $12.00 x $12.00 x $12.00 x $12.00
Total direct labour cost ....................... $ 36,000 $ 42,000 $ 48,000 $ 30,000 $156,000

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Solutions Manual, Chapter 9 21
Problem 9-16 (30 minutes)

1. Culbert Dessert Corporation

1.1. Direct Labour Budget
1st 2nd 3rd 4th
Quarter Quarter Quarter Quarter Year
Units to be produced ................... 8,000 11,000 9,000 13,000 41,000
Direct labour time per unit (hours) 0.30 0.30 0.30 0.30 0.30
Total direct labour-hours needed .. 2,400 3,300 2,700 3,900 12,300
Direct labour cost per hour .......... $10.50 $10.50 $10.50 $10.50 $10.50
Total direct labour cost ................ $25,200 $34,650 $28,350 $40,950 $129,150

2. Culbert Dessert Corporation

1.1. Manufacturing Overhead Budget
1st 2nd 3rd 4th
Quarter Quarter Quarter Quarter Year
Budgeted direct labour-hours ....... 2,400 3,300 2,700 3,900 12,300
Variable overhead rate ................ $1.50 $1.50 $1.50 $1.50 $1.50
Variable manufacturing overhead . $ 3,600 $ 4,950 $ 4,050 $ 5,850 $18,450
Fixed manufacturing overhead ..... 23,000 23,000 23,000 23,000 92,000
Total manufacturing overhead ..... 26,600 27,950 27,050 28,850 110,450
Less depreciation ........................ 7,000 7,000 7,000 7,000 28,000
Cash disbursements for manufac-
turing overhead ........................ $19,600 $20,950 $20,050 $21,850 $82,450

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22 Managerial Accounting, 9th Canadian Edition
Problem 9-17 (45 minutes)
1. Schedule of expected cash collections:
Month
April May June Quarter
From accounts receivable. $141,000 $ 7,200 $148,200
From April sales:
20% × 200,000 ............ 40,000 40,000
75% × 200,000 ............ 150,000 150,000
4% × 200,000 .............. $ 8,000 8,000
From May sales:
20% × 300,000 ............ 60,000 60,000
75% × 300,000 ............ 225,000 225,000
From June sales:
20% × 250,000 ............ 50,000 50,000
Total cash collections ....... $181,000 $217,200 $283,000 $681,200

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Solutions Manual, Chapter 9 23
Problem 9-17 (continued)
2. Cash budget:
Month
April May June Quarter
Cash balance, begin-
ning .......................... $ 26,000 $ 27,000 $ 20,200 $ 26,000
Add receipts:
Collections from cus-
tomers.................... 181,000 217,200 283,000 681,200
Total available .............. 207,000 244,200 303,200 707,200
Less disbursements:
Merchandise pur-
chases .................... 108,000 120,000 180,000 408,000
Payroll....................... 9,000 9,000 8,000 26,000
Lease payments......... 15,000 15,000 15,000 45,000
Advertising ................ 70,000 80,000 60,000 210,000
Equipment purchases . 8,000 — — 8,000
Total disbursements ..... 210,000 224,000 263,000 697,000
Excess (deficiency) of
receipts over dis-
bursements ............... (3,000) 20,200 40,200 10,200
Financing:
Borrowings ................ 30,000 — — 30,000
Repayments .............. — — (30,000) (30,000)
Interest ..................... — — (1,200) (1,200)
Total financing ............. 30,000 — (31,200) (1,200)
Cash balance, ending ... $ 27,000 $ 20,200 $ 9,000 $ 9,000

3. If the company needs a minimum cash balance of $20,000 to start each

month, the loan cannot be repaid in full by June 30. If the loan is repaid
in full, the cash balance will drop to only $9,000 on June 30, as shown
above. Some portion of the loan balance will have to be carried over to
July, at which time the cash inflow should be sufficient to complete re-
payment.

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24 Managerial Accounting, 9th Canadian Edition
Problem 9-18 (60 minutes)
1. Schedule of cash receipts:
Cash sales—June ............................................... $ 60,000
Collections on accounts receivable:
May 31 balance .............................................. 72,000
June (50% × 190,000) .................................... 95,000
Total cash receipts ............................................. $227,000

Schedule of cash payments for purchases:

May 31 accounts payable balance ....................... $ 90,000
June purchases (40% × 200,000) ...................... 80,000
Total cash payments .......................................... $170,000

Pixelize, Inc.
Cash Budget
For the Month of June
Cash balance, beginning .................................... $ 8,000
Add receipts from customers (above) ................. 227,000
Total cash available............................................ 235,000
Less disbursements:
Purchase of inventory (above) ......................... 170,000
Selling and administrative expenses ................. 51,000
Purchases of equipment .................................. 9,000
Total cash disbursements ................................... 230,000
Excess of receipts over disbursements ................ 5,000
Financing:
Borrowings—note ........................................... 18,000
Repayments—note .......................................... (15,000)
Interest .......................................................... (500)
Total financing .................................................. 2,500
Cash balance, ending ......................................... $ 7,500

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Solutions Manual, Chapter 9 25
Problem 9-18 (continued)

2. Pixelize, Inc.
Budgeted Income Statement
For the Month of June
Sales ..................................................... $250,000
Cost of goods sold:
Beginning inventory ............................. $ 30,000
Add purchases ..................................... 200,000
Goods available for sale ....................... 230,000
Ending inventory.................................. 40,000
Cost of goods sold ............................... 190,000
Gross margin ......................................... 60,000
Selling and administrative expenses
($51,000 + $2,000) ............................. 53,000
Operating income ................................... 7,000
Interest expense .................................... 500
Net income ............................................ $ 6,500

3. Pixelize, Inc.
Budgeted Balance Sheet
June 30
Assets
Cash ....................................................................... $ 7,500
Accounts receivable (50% × 190,000) ...................... 95,000
Inventory ................................................................ 40,000
Buildings and equipment, net of depreciation
($500,000 + $9,000 – $2,000) .............................. 507,000
Total assets ............................................................. $649,500

Liabilities and Shareholders’ Equity

Accounts payable (60% × 200,000) ......................... $120,000
Note payable........................................................... 18,000
Common stock ........................................................ 420,000
Retained earnings ($85,000 + $6,500) ..................... 91,500
Total liabilities and equity ......................................... $649,500

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26 Managerial Accounting, 9th Canadian Edition
Problem 9-19 (60 minutes)
1. The sales budget for the third quarter:
July Aug. Sept. Quarter
Budgeted sales (units) ..... 6,500 5,000 4,000 15,500
Selling price per unit ........ x $60 x $60 x $60 x $60
Total budgeted sales ........ $390,000 $300,000 $240,000 $930,000

The schedule of expected cash collections from sales:

July Aug. Sept. Quarter
Accounts receivable, be-
ginning balance ............ $160,000 $160,000
July sales:
$390,000 × 50%, 45% . 195,000 $175,500 370,500
August sales:
$300,000 × 50%, 45% . 150,000 $135,000 285,000
September sales:
$240,000 × 50% .......... 120,000 120,000
Total cash collections ....... $355,000 $325,500 $255,000 $935,500

2. The production budget for July through October:

July Aug. Sept. Oct.
Budgeted sales (units) ...................... 6,500 5,000 4,000 3,000
Add desired ending inventory ............ 1,000 800 600 500
Total needs ...................................... 7,500 5,800 4,600 3,500
Less beginning inventory................... 1,300 1,000 800 600
Required production (units)............... 6,200 4,800 3,800 2,900

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Solutions Manual, Chapter 9 27
Problem 9-19 (continued)
3. The direct materials purchases budget for the third quarter:
July Aug. Sept. Quarter
Required production—units
(above) ............................ 6,200 4,800 3,800 14,800
Raw materials needs per
unit .................................. x 3 kgs. x 3 kgs. x 3 kgs. x 3 kgs.
Production needs (kgs.) ....... 18,600 14,400 11,400 44,400
Add desired ending inven-
tory .................................. 2,880 2,280 1,740 * 1,740
Total needs ......................... 21,480 16,680 13,140 46,140
Less beginning inventory 3,720 2,880 2,280 3,720
Raw materials to be pur-
chased ............................. 17,760 13,800 10,860 42,420
Cost of raw materials to be
purchased at $3.50 per
kg. ................................... $62,160 $48,300 $38,010 $148,470
*2,900 units (October) × 3 kgs. per unit = 8,700 kgs.;
8,700 kgs. × 20% = 1,740 kgs.

The schedule of expected cash disbursements:

July Aug. Sept. Quarter
Accounts payable, beginning
balance ................................ $11,400 $11,400
July purchases:
$62,160 × 70%, 30% ........... 43,512 $18,648 62,160
August purchases:
$48,300 × 70%, 30% ........... 33,810 $14,490 48,300
September purchases:
$38,010 × 70% .................... 26,607 26,607
Total cash disbursements ......... $54,912 $52,458 $41,097 $148,467

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28 Managerial Accounting, 9th Canadian Edition
Problem 9-20 (120 minutes)

It may be helpful to see the Sales Budget Summary first.

Sales Budget
March (actual) April May June July
Total Sales $60,000 $70,000 $85,000 $90,000 $50,000
Cash (20%) $12,000 $14,000 $17,000 $18,000 $10,000
Credit (80%) 48,000 56,000 68,000 72,000 40,000
All credit sales are collected in the month following the sale.
1. Schedule of expected cash collections:
April May June Total
Cash sales............................. $14,000 $17,000 $18,000 $ 49,000
Credit sales ........................... 48,000 56,000 68,000 172,000
Total collections ..................... $62,000 $73,000 $86,000 $221,000

2. a. Merchandise purchases budget:

April May June Total
Budgeted cost of goods sold .... $42,000 $51,000 $54,000 $147,000
Add desired ending inventory* . 15,300 16,200 9,000 9,000
Total needs ............................. 57,300 67,200 63,000 156,000
Less beginning inventory ......... 12,600 15,300 16,200 12,600
Required purchases ................. $44,700 $51,900 $46,800 $143,400
*
At April 30: $51,000 × 30% = $15,300.
At June 30: $50,000 July sales × 60% × 30% = $9,000.

b. Schedule of cash disbursements for purchases:

April May June Total
For March purchases ............. $18,300 $18,300
For April purchases ................ 22,350 $22,350 44,700
For May purchases ................ 25,950 $25,950 51,900
For June purchases ............... 23,400 23,400
Total cash disbursements ....... $40,650 $48,300 $49,350 $138,300

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Solutions Manual, Chapter 9 29
Problem 9-20 (continued)
3. Schedule of cash disbursements for selling and administrative expenses:
April May June Total
Salaries and wages .................... $ 7,500 $ 7,500 $ 7,500 $22,500
Shipping ................................... 4,200 5,100 5,400 14,700
Advertising................................ 6,000 6,000 6,000 18,000
Other expenses ......................... 2,800 3,400 3,600 9,800
Total cash disbursements for
operating expenses ................. $20,500 $22,000 $22,500 $65,000

4. Cash budget:
April May June Total
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:
For inventory purchases .......... 40,650 48,300 49,350 138,300
For selling and administrative
expenses ............................. 20,500 22,000 22,500 65,000
For equipment purchases ........ 11,500 3,000 0 14,500
For dividends .......................... 0 0 3,500 3,500
Total disbursements................... 72,650 73,300 75,350 221,300
Excess (deficiency) of cash ........ (1,650) 8,050 18,700 8,700
Financing:
Borrowings ............................. 10,000 0 0 10,000
Repayments ........................... 0 0 (10,000) (10,000)
Interest ($10,000 × 1% × 3) .. 0 0 (300) (300)
Total financing .......................... 10,000 0 (10,300) (300)
Cash balance, ending................. $ 8,350 $ 8,050 $ 8,400 $ 8,400

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30 Managerial Accounting, 9th Canadian Edition
Problem 9-20 (continued)
5. Income Statement:
Neotec Company
Income Statement
For the Quarter Ended June 30
Sales ....................................................... $245,000
Cost of goods sold:
Beginning inventory (given) .................... $ 12,600
Add purchases (Part 2) ........................... 143,400
Goods available for sale .......................... 156,000
Ending inventory (Part 2) ....................... 9,000 147,000
Gross margin............................................ 98,000
Selling and administrative expenses:
Salaries and wages (Part 3) .................... 22,500
Shipping (Part 3).................................... 14,700
Advertising (Part 3) ................................ 18,000
Depreciation .......................................... 6,000
Other expenses (Part 3) ......................... 9,800 71,000
Operating income ..................................... 27,000
Less interest expense (Part 4) ................... 300
Net income .............................................. $ 26,700
Note: CGS can also be computed as follows:

Sales of $245,000 x 60% = $147,000

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Solutions Manual, Chapter 9 31
Problem 9-20 (continued)
6. Balance sheet:
Neotec Company
Balance Sheet
June 30

Assets
Current assets:
Cash (Part 4) ................................................................. $ 8,400
Accounts receivable (80% × $90,000)............................. 72,000
Inventory (Part 2) .......................................................... 9,000
Total current assets .......................................................... 89,400
Buildings and equipment, net
($214,100 + $14,500 – $6,000) ...................................... 222,600
Total assets ...................................................................... $312,000

Liabilities and Shareholders’ Equity

Current liabilities:
Accounts payable (Part 2: 50% × $46,800) .. $ 23,400
Shareholders’ equity:
Common stock ............................................ $190,000
Retained earnings* ..................................... 98,600 288,600
Total liabilities and equity ............................... $312,000

* Retained earnings, beginning ................... $ 75,400

Add net income....................................... 26,700
Total....................................................... 102,100
Less dividends ........................................ 3,500
Retained earnings, ending ....................... $ 98,600

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32 Managerial Accounting, 9th Canadian Edition
Problem 9-21 (60 minutes)
1. a. Schedule of expected cash collections:
Year 2 Quarter
First Second Third Fourth Total
Year 1—Fourth quarter sales:
$300,000 × 65% ....................... $195,000 $ 195,000
Year 2—First quarter sales:
$400,000 × 33% ....................... 132,000 132,000
$400,000 × 65% ....................... $260,000 260,000
Year 2—Second quarter sales:
$500,000 × 33% ....................... 165,000 165,000
$500,000 × 65% ....................... $325,000 325,000
Year 2—Third quarter sales:
$600,000 × 33% ....................... 198,000 198,000
$600,000 × 65% ....................... $390,000 390,000
Year 2—Fourth quarter sales:
$480,000 × 33% ....................... 158,400 158,400
Total cash collections .................... $327,000 $425,000 $523,000 $548,400 $1,823,400

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Solutions Manual, Chapter 9 33
Problem 9-21 (continued)
b. Schedule of budgeted cash disbursements for merchandise purchases:
Year 2 Quarter
First Second Third Fourth Total
Year 1—Fourth quarter purchases:
$180,000 × 80% ....................... $144,000 $ 144,000
Year 2—First quarter purchases:
$260,000 × 20% ....................... 52,000 52,000
$260,000 × 80% ....................... $208,000 208,000
Year 2—Second quarter purchases:
$310,000 × 20% ....................... 62,000 62,000
$310,000 × 80% ....................... $248,000 248,000
Year 2—Third quarter purchases:
$370,000 × 20% ....................... 74,000 74,000
$370,000 × 80% ....................... $296,000 296,000
Year 2—Fourth quarter purchases:
$240,000 × 20% ....................... 48,000 48,000
Total cash disbursements .............. $196,000 $270,000 $322,000 $344,000 $1,132,000

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34 Managerial Accounting, 9th Canadian Edition
Problem 9-21 (continued)

2. Year 2 Quarter
First Second Third Fourth Year
Budgeted sales.................. $400,000 $500,000 $600,000 $480,000 $1,980,000
Variable expense rate ........ x 12% x 12% x 12% x 12% x 12%
Variable expenses.............. 48,000 60,000 72,000 57,600 237,600
Fixed expenses ................. 90,000 90,000 90,000 90,000 360,000
Total expenses .................. 138,000 150,000 162,000 147,600 597,600
Less depreciation .............. 20,000 20,000 20,000 20,000 80,000
Cash disbursements .......... $118,000 $130,000 $142,000 $127,600 $ 517,600

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Solutions Manual, Chapter 9 35
Problem 9-21 (continued)
3. Cash budget for Year 2:
Year 2 Quarter
First Second Third Fourth Year
Cash balance, beginning .................... $ 20,000 $ 23,000 $ 18,000 $ 18,500 $ 20,000
Add collections from sales .................. 327,000 425,000 523,000 548,400 1,823,400
Total cash available ............................ 347,000 448,000 541,000 566,900 1,843,400
Less disbursements:
Merchandise purchases ................... 196,000 270,000 322,000 344,000 1,132,000
Operating expenses ........................ 118,000 130,000 142,000 127,600 517,600
Dividends ....................................... 10,000 10,000 10,000 10,000 40,000
Land............................................... 0 80,000 48,500 0 128,500
Total disbursements ........................... 324,000 490,000 522,500 481,600 1,818,100
Excess (deficiency) of receipts over
disbursements ............................... 23,000 (42,000) 18,500 85,300 25,300
Financing:
Borrowings ..................................... 0 60,000 0 0 60,000
Repayments.................................... 0 0 0 (60,000) (60,000)
Interest ($60,000 × 1% × 9) .......... 0 0 0 (5,400) (5,400)
Total financing ................................... 0 60,000 0 (65,400) (5,400)
Cash balance, ending ......................... $ 23,000 $ 18,000 $ 18,500 $ 19,900 $ 19,900

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36 Managerial Accounting, 9th Canadian Edition
Problem 9-22 (60 minutes)

1. Collections on sales: July August Sept. Quarter

Cash sales .............................. $ 8,000 $14,000 $10,000 $ 32,000
Credit sales:
May: $30,000 × 80% × 20% .. 4,800 4,800
June: $36,000 × 80% × 70%,
20% .................................. 20,160 5,760 25,920
July: $40,000 × 80% × 10%,
70%, 20% ......................... 3,200 22,400 6,400 32,000
Aug.: $70,000 × 80% × 10%,
70% .................................. 5,600 39,200 44,800
Sept.: $50,000 × 80% × 10% 4,000 4,000
Total cash collections ............... $36,160 $47,760 $59,600 $143,520

2. a. Merchandise purchases budget:

July August Sept. Oct.
Budgeted cost of goods sold* .. $24,000 $42,000 $30,000 $27,000
Add desired ending inventory** 31,500 22,500 20,250
Total needs ............................. 55,500 64,500 50,250
Less beginning inventory ......... 18,000 31,500 22,500
Required inventory purchases .. $37,500 $33,000 $27,750
*Cost of goods sold is 60% of sales, based on income statements provided
in the problem.
*75% of the next month’s budgeted cost of goods sold.

b. Schedule of expected cash disbursements for merchandise purchases:

July August Sept. Quarter
Accounts payable, June 30 ....... $11,700 $11,700
July purchases ........................ 18,750 $18,750 37,500
August purchases .................... 16,500 $16,500 33,000
September purchases .............. 13,875 13,875
Total cash disbursements ......... $30,450 $35,250 $30,375 $96,075

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Solutions Manual, Chapter 9 37
Problem 9-22 (continued)

3. Scott Products, Inc.

Cash Budget
For the Quarter Ended September 30
July August Sept. Quarter
Cash balance, beginning ........ $ 8,000 $ 8,410 $ 8,020 $ 8,000
Add collections from sales 36,160 47,760 59,600 143,520
Total cash available ............. 44,160 56,170 67,620 151,520
Less disbursements:
For inventory purchases ...... 30,450 35,250 30,375 96,075
For selling expenses ............ 7,200 11,700 8,500 27,400
For administrative expenses 3,600 5,200 4,100 12,900
For land ............................. 4,500 0 0 4,500
For dividends ...................... 0 0 1,000 1,000
Total disbursements .............. 45,750 52,150 43,975 141,875
Excess (deficiency) of cash
available over disburse-
ments ................................ (1,590) 4,020 23,645 9,645
Financing:
Borrowings ......................... 10,000 4,000 14,000
Repayment ......................... 0 0 (14,000) (14,000)
Interest* ............................ 0 0 (380) (380)
Total financing ...................... 10,000 4,000 (14,380) (380)
Cash balance, ending ............ $ 8,410 $ 8,020 $ 9,265 $ 9,265
* $10,000 × 1% × 3 = $300
$4,000 × 1% × 2 = 80
$380

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38 Managerial Accounting, 9th Canadian Edition
Problem 9-23 (90 minutes)

1. April May June Quarter

Budgeted sales.................... 30,000 53,000 75,000 158,000
Add desired ending inven-
tory* ................................ 10,600 15,000 13,600 13,600
Total needs ......................... 40,600 68,000 88,600 171,600
Less beginning inventory ..... 6,000 10,600 15,000 6,000
Required production ............ 34,600 57,400 73,600 165,600
*20% of the next month’s sales.

2. Material #226: April May June Quarter

Required production—
units ............................ 34,600 57,400 73,600 165,600
Material #226 per unit ..... × 2 kgs. × 2 kgs. × 2 kgs. × 2 kgs.
Production needs—
kilograms ..................... 69,200 114,800 147,200 331,200
Add desired ending in-
ventory* ...................... 68,880 88,320 76,080 76,080
Total needs—kilograms .... 138,080 203,120 223,280 407,280
Less beginning inventory . 23,000 68,880 88,320 23,000
Required purchases—
kilograms ..................... 115,080 134,240 134,960 384,280
Required purchases at
$4.00 per kilogram........ $460,320 $536,960 $539,840 $1,537,120
* 60% of the following month’s production needs. For June: July
production 68,000 + 9,000 – 13,600 = 63,400 units; 63,400
units × 2 kgs. per unit = 126,800 kgs.; 126,800 kgs. × 60% =
76,080 kgs.

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Solutions Manual, Chapter 9 39
Problem 9-23 (continued)

Material #301: April May June Quarter

Required production—
units ............................ 34,600 57,400 73,600 165,600
Material #301 per unit ..... × 5 mt. × 5 mt. × 5 mt. × 5 mt.
Production needs— 173,000 287,000 368,000 828,000
metres .........................
Add desired ending inven-
tory* ............................ 86,100 110,400 95,100 95,100
Total needs—metres ........ 259,100 397,400 463,100 923,100
Less beginning inventory.. 35,000 86,100 110,400 35,000
Required purchases—
metres ......................... 224,100 311,300 352,700 888,100
Required purchases at
$1.50 per metre ............ $336,150 $466,950 $529,050 $1,332,150
* 30% of the following month’s production needs. For June:
July production 68,000 + 9,000 – 13,600 = 63,400 units;
63,400 units × 5 mt. per unit = 317,000 mt.;
317,000 mt. × 30% = 95,100 mt.

3. Direct labour budget:

Direct Labour
Hours
Units Per Cost per
Produced Unit Total DLH Total Cost
Cutting ....... 165,600 0.15 24,840 $16.00 $ 397,440
Assembly .... 165,600 0.60 99,360 $14.00 1,391,040
Finishing ..... 165,600 0.10 16,560 $18.00 298,080
140,760 $2,086,560

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40 Managerial Accounting, 9th Canadian Edition
Problem 9-23 (continued)
4. Manufacturing overhead budget:
Expected production for the year .............................. 380,000
Actual production through March 31 ......................... 48,000
Expected production, April through December ........... 332,000
Variable manufacturing overhead rate per unit
($124,800 ÷ 48,000 units) .................................... × $2.60
Variable manufacturing overhead ............................. $ 863,200
Fixed manufacturing overhead ($4,166,000 × 9/12) .. 3,124,500
Total manufacturing overhead .................................. 3,987,700
Less depreciation ($2,619,000 × 9/12) ..................... 1,964,250
Cash disbursement for manufacturing overhead ........ $2,023,450

CMA Solution, adapted

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Solutions Manual, Chapter 9 41
Problem 9-24 (120 minutes)
1. Schedule of expected cash collections:
January February March Quarter
Cash sales (40% of this
month’s sales) .................. $28,000 $32,000 $34,000 $ 94,000
Credit sales* ....................... 36,000 42,000 48,000 126,000
Total collections ................... $64,000 $74,000 $82,000 $220,000
*60% of the preceding month’s sales.

2. Merchandise purchases budget:

January February March Quarter
Budgeted cost of goods sold
(70% of sales).................. $49,000 $56,000 $59,500 $164,500
Add desired ending inven-
tory*................................ 11,200 11,900 7,700 7,700
Total needs ......................... 60,200 67,900 67,200 172,200
Less beginning inventory ..... 9,800 11,200 11,900 9,800
Required purchases ............. $50,400 $56,700 $55,300 $162,400
*At March 30: April sales $55,000 × 70% × 20% = $7,700.

Schedule of expected cash disbursements—merchandise purchases

January February March Quarter
December purchases ........... $32,550 $ 32,550
January purchases .............. 12,600 $37,800 50,400
February purchases ............. 14,175 $42,525 56,700
March purchases ................. 13,825 13,825
Total disbursements ............ $45,150 $51,975 $56,350 $153,475

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42 Managerial Accounting, 9th Canadian Edition
Problem 9-24 (continued)
3. Schedule of expected cash disbursements—selling and administrative
expenses
January February March Quarter
Commissions ....................... $12,000 $12,000 $12,000 $36,000
Rent ................................... 1,800 1,800 1,800 5,400
Other expenses ................... 5,600 6,400 6,800 18,800
Total disbursements ............ $19,400 $20,200 $20,600 $60,200

4. Cash budget:
January February March Quarter
Cash balance, beginning .... $ 6,000 $ 5,450 $ 5,275 $ 6,000
Add cash collections .......... 64,000 74,000 82,000 220,000
Total cash available ......... 70,000 79,450 87,275 226,000
Less cash disbursements:
For inventory .................. 45,150 51,975 56,350 153,475
For operating expenses ... 19,400 20,200 20,600 60,200
For equipment ................ 3,000 8,000 0 11,000
Total disbursements .......... 67,550 80,175 76,950 224,675
Excess (deficiency) of cash 2,450 (725) 10,325 1,325
Financing:
Borrowings ..................... 3,000 6,000 0 9,000
Repayments ................... 0 0 (5,000) (5,000)
Interest* ........................ 0 0 (210) (210)
Total financing .................. 3,000 6,000 (5,210) 3,790
Cash balance, ending ........ $ 5,450 $ 5,275 $ 5,115 $ 5,115
* $3,000 × 1% × 3 = $ 90
$6,000 × 1% × 2 = 120
Total interest $210

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Solutions Manual, Chapter 9 43
Problem 9-24 (continued)
5.
Lim Corporation
Income Statement
For the Quarter Ended March 31
Sales ($70,000 + $80,000 + $85,000) ....... $235,000
Cost of goods sold:
Beginning inventory (Given) ................... $ 9,800
Add purchases (Part 2) ........................... 162,400
Goods available for sale .......................... 172,200
Less ending inventory (Part 2) ................ 7,700 164,500
Gross margin............................................ 70,500
Selling and administrative expenses:
Commissions (Part 3) ............................. 36,000
Rent (Part 3) ......................................... 5,400
Depreciation (Given) .............................. 2,400
Other expenses (Part 3) ......................... 18,800 62,600
Operating income ..................................... 7,900
Less interest expense ............................... 210
Net income .............................................. $ 7,690

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44 Managerial Accounting, 9th Canadian Edition
Problem 9-24 (continued)
6.
Lim Corporation
Balance Sheet
March 31

Assets
Current assets:
Cash (Part 4) ............................................................. $ 5,115
Accounts receivable ($85,000 × 60%)......................... 51,000
Inventory (Part 2) ...................................................... 7,700
Total current assets ...................................................... 63,815
Fixed assets—net
($110,885 + $3,000 + $8,000 – $2,400) ..................... 119,485
Total assets .................................................................. $183,300

Liabilities and Shareholders’ Equity

Accounts payable (Part 2: $55,300 × 75%) ..... $ 41,475
Bank loan payable ......................................... 4,000
Shareholders’ equity:
Common stock (Given) ................................ $100,000
Retained earnings* ..................................... 37,825 137,825
Total liabilities and equity ............................... $183,300

* Retained earnings, beginning ................. $30,135

Add net income..................................... 7,690
Retained earnings, ending ..................... $37,825

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Solutions Manual, Chapter 9 45
Problem 9-25 (30 minutes)
1. The cost formulas in the flexible budget performance report below were
obtained by dividing the costs from the static budget in the problem
statement by the budgeted level of activity (700 samples). The fixed
costs are carried over from the static budget.

Centrico Medical Laboratory

Flexible Budget Performance Report
For the Month Ended September 30

Budgeted activity (in samples) ........... 700

Actual activity (in samples) ................ 920

Actual Flexible
Costs Budget
Incurred Based
Cost for 920 on 920 Flexible
Formula Lab Lab sam- Budget
Costs (per unit) samples ples Variance
Variable costs:
Medical supplies ............ $15.20 $14,878 $13,984 $894 U
Lab tests ....................... 18.45 16,173 16,974 801 F
Refreshments for staff
and volunteers ............ 2.05 1,779 1,886 107 F
Administrative supplies .. 0.70 284 644 360 F
Total variable cost ............ $36.40 33,114 33,488 374 F
Fixed costs:
Staff salaries ................. 19,800 19,800 0
Equipment depreciation . 3,150 2,850 300 U
Rent ............................. 2,250 2,250 0
Utilities ......................... 486 450 36 U
Total fixed cost ................ 25,686 25,350 336 U
Total cost ........................ $58,800 $58,838 $ 38 F

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46 Managerial Accounting, 9th Canadian Edition
Problem 9-25 (continued)
2. The overall variance is favourable and none of the unfavourable vari-
ances is particularly large. Nevertheless, the favourable variance for lab
tests is somewhat worrisome. Perhaps the medical laboratory has not
been doing all of the necessary lab tests that it should be doing as a re-
sult of being overworked because of the increase in tests due to the
chemical spill. This may be worth investigating and points out that fa-
vourable variances should warrant attention as much as unfavourable
variances. In addition, there is an unfavourable variance for medical
supplies, which may be explained by the medical laboratory being less
efficient since there were some volunteers assisting at the lab to help
because of the chemical spill.
Some may wonder why there is a variance for depreciation. Fixed costs
can change; they just don’t vary with the level of activity. Depreciation
may have increased because of the acquisition of new equipment or be-
cause of a loss on equipment that must be scrapped. (This assumes that
the loss flows through the depreciation account on the performance re-
port.)

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Solutions Manual, Chapter 9 47
Case 9-26 (45 minutes)
[Link] key problem with the top-down approach used in prior years by
Playco appears to be that very little input other than a one-hour
meeting with the CFO, was sought from the senior product man-
agers, despite the fact that on average, they had been with the
company for many years. Since these managers are closest to the
action in terms of the competitive environment, the distribution
network, the production process, and so on, they are in the best
position to provide key input to the budget process. The fact that
the budgets in the past were developed by the senior manage-
ment team, who are not necessarily close to the day-to-day opera-
tions, likely explains why there have been accuracy problems in
the past.

2. Some of the problems include:

There appears to be very little negotiation. Instead senior
management is simply imposing their budget on the senior
product managers. In a sense, the senior production manag-
ers have been misled into thinking the approach is participa-
tive but in reality the same top-down approach is being
used, albeit in a slightly different way.
The senior management team is seeking input from other
members of the product division as evidenced by the V.P. of
production comments about his conversations with produc-
tion people in the golf equipment division. This may under-
mine the authority of the senior product managers.
There appears to be little trust between senior management
and the product managers as evidenced by the comments
related to the need for “very challenging” budgets given the
link between bonuses and performance versus the budget.
There is no “team” concept in the process being employed.
It seems to be senior management versus the senior product
managers.

Some possible consequences:

The senior product managers may become very de-
motivated since their input on the budget was requested,
and largely ignored.

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48 Managerial Accounting, 9th Canadian Edition
Case 9-26 continued

The senior product managers will not be highly committed to

attaining the budget targets if they think they are unrealistic.
The senior product managers may engage in dysfunctional
activities such as reducing quality, lowering customer service
levels, etc. in an effort to meet the unrealistic budgets.
The budget process may not be taken seriously by the senior
product managers in the coming years if they believe their
ability to influence the budget is minimal. This could lead to
the same problem of inaccurate budgets that caused Playco
to adopt a participative approach.
At the extreme, some senior product managers may leave
the company depending on how serious they believe the
breach of trust to be.

[Link] to the process:

Make the budget negotiations real negotiations. The senior
management team needs to be willing to back-off their posi-
tion and compromise. If not, they should reinstate the top-
down approach.
Involve more key individuals from the product divisions at
the budget review meetings. This would make the setting
feel like more of a team effort and less of a “senior man-
agement versus the senior product manager.”
If senior management is truly concerned about budget slack,
they should do careful reviews of significant variances be-
tween actual results and the budget on an on-going basis. A
consistent pattern of actual performance being better than
budget may be suggestive of slack but explanations should
be sought before assuming the product managers are en-
gaging in slack creation.
Consider delinking the bonuses from budget performance.
Instead, managers could be evaluated on performance ver-
sus last year, or versus the other product lines. This would
create less incentive to game the budgeting process.

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Solutions Manual, Chapter 9 49
Case 9-27 (120+ minutes)
1. a Sales budget: April May June Quarter
.
Budgeted sales in 65,000 100,000 50,000 215,000
units .......................
Selling price per unit ... × $10 × $10 × $10 × $10
Total sales .................. $650,000 $1,000,000 $500,000 $2,150,000

b Schedule of expected cash collections:

.
February sales (10%) . $ 26,000 $ 26,000
March sales 280,000 $ 40,000 320,000
(70%, 10%)............
April sales 130,000 455,000 $ 65,000 650,000
(20%, 70%, 10%)...
May sales 200,000 700,000 900,000
(20%, 70%)............
June sales (20%) ....... 100,000 100,000
Total cash collections .. $436,000 $695,000 $865,000 $1,996,000

c Merchandise purchases budget:

.
Budgeted sales in 65,000 100,000 50,000 215,000
units .......................
Add budgeted ending 40,000 20,000 12,000 12,000
inventory* ...............
Total needs ................ 105,000 120,000 62,000 227,000
Less beginning in- 26,000 40,000 20,000 26,000
ventory ...................
Required unit pur- 79,000 80,000 42,000 201,000
chases.....................
Unit cost .................... × $4 × $4 × $4 × $4
Required dollar pur- $316,000 $320,000 $168,000 $ 804,000
chases.....................
*40% of the next month’s sales in units.

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50 Managerial Accounting, 9th Canadian Edition
Case 9-27 (continued)

d. Budgeted cash disbursements for merchandise purchases:

April May June Quarter
March purchases
(Accounts pay-
able) ................... $100,000 $ 100,000
April purchases ...... 158,000 $158,000 316,000
May purchases ....... 160,000 $160,000 320,000
June purchases ...... 84,000 84,000
Total cash dis-
bursements ......... $258,000 $318,000 $244,000 $ 820,000

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Solutions Manual, Chapter 9 51
Case 9-27 (continued)
2. Knockoffs Unlimited
Cash Budget
For the Three Months Ending June 30
April May June Quarter
Cash balance, beginning.. $ 74,000 $ 50,000 $ 50,000 $ 74,000
Add receipts from cus-
tomers (Part 1 b.) ......... 436,000 695,000 865,000 1,996,000
Total cash available ......... 510,000 745,000 915,000 2,070,000
Less disbursements:
Purchase of inventory
(Part 1 d.) ................. 258,000 318,000 244,000 820,000
Advertising................... 200,000 200,000 200,000 600,000
Rent ............................ 18,000 18,000 18,000 54,000
Salaries and wages ....... 106,000 106,000 106,000 318,000
Sales commissions (4%
of sales) .................... 26,000 40,000 20,000 86,000
Utilities ........................ 7,000 7,000 7,000 21,000
Dividends paid ............. 15,000 0 0 15,000
Equipment purchases ... 0 16,000 40,000 56,000
Total disbursements ........ 630,000 705,000 635,000 1,970,000
Excess (deficiency) of re-
ceipts over disburse-
ments .......................... (120,000) 40,000 280,000 100,000
Financing:
Borrowings .................. 170,000 10,000 0 180,000
Repayments ................. 0 0 (180,000) (180,000)
Interest* ..................... 0 0 (5,300) (5,300)
Total financing ................ 170,000 10,000 (185,300) (5,300)
Cash balance, ending ...... $ 50,000 $ 50,000 $ 94,700 $ 94,700

* $170,000 × 1% × 3 = $5,100
$10,000 × 1% × 2 = 200
Total interest = $5,300

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52 Managerial Accounting, 9th Canadian Edition
Case 9-27 (continued)

3. Knockoffs Unlimited
Budgeted Income Statement
For the Three Months Ended June 30

Sales revenue (Part 1 a.) .................... $2,150,000

Variable expenses:
Cost of goods sold
(215,000 units @ $4 per necklace) . $860,000
Commissions
(215,000 units @ 4% of sales) ....... 86,000 946,000
Contribution margin............................ 1,204,000
Fixed expenses:
Advertising ($200,000 x 3) ............... 600,000
Rent ($18,000 x 3) .......................... 54,000
Wages and salaries ($106,000 x 3) ... 318,000
Utilities ($7,000 x 3)......................... 21,000
Insurance ($3,000 x 3)..................... 9,000
Depreciation ($14,000 x 3) ............... 42,000 1,044,000
Operating income ............................... 160,000
Less interest expense (Part 2) ............. 5,300
Net income ........................................ $ 154,700

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Solutions Manual, Chapter 9 53
Case 9-27 (continued)

4. Knockoffs Unlimited
Budgeted Balance Sheet
June 30

Assets
Cash (Part 2) .......................................................... $ 94,700
Accounts receivable (see below) ............................... 500,000
Inventory (12,000 units @ $4 per unit) ..................... 48,000
Prepaid insurance ($21,000 – $9,000) ...................... 12,000
Fixed assets, net of depreciation
($950,000 + $56,000 – $42,000) ........................... 964,000
Total assets ............................................................. $1,618,700

Liabilities and Shareholders’ Equity

Accounts payable, purchases
(50% × $168,000 from Part 1 c.)........................... $ 84,000
Dividends payable ................................................... 15,000
Common shares ...................................................... 800,000
Retained earnings (see below) ................................. 719,700
Total liabilities and equity ......................................... $1,618,700

Accounts receivable at June 30:

10% × May sales of $1,000,000 ............. $100,000
80% × June sales of $500,000 ............... 400,000
Total ..................................................... $500,000

Retained earnings at June 30:

Balance, March 31 ................................. $580,000
Add net income (Part 3) ......................... 154,700
Total ..................................................... 734,700
Less dividends declared.......................... 15,000
Balance, June 30 ................................... $719,700

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54 Managerial Accounting, 9th Canadian Edition
Case 9-28 (45 minutes)
1. Flexible budgets would allow Anne Gibson to directly compare EdDEV’s
actual selling expenses (based on the current month’s actual activity)
with the budgeted selling expenses. In general, flexible budgets:
• provide management with the tools to evaluate the effects of varying
levels of activity on costs, profits, and cash position.
• enable management to improve planning and decision making.
• improve the analysis of actual results.

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Solutions Manual, Chapter 9 55
Case 9-28 (continued)

2. EdDEV, Inc.
Revised Monthly Selling Expense Report
November

Flexible Sales
Budget Flexible Volume Static
Overhead Costs Actual Variance Budget Variance Budget
Unit sales ....................... 310,000 310,000 280,000
Dollar sales..................... $12,400,000 $0 $12,400,000 $1,200,000 $11,200,000
Orders processed ............ 5,800 5,800 6,500
Salespersons .................. 96 96 90

Advertising expense ........ $ 1,660,000 $10,000 U $ 1,650,000 $0 $1,650,000

Staff salaries expense ..... 125,000 0 125,000 0 125,000
Sales salaries expense1 ... 115,400 200 U 115,200 7,200 U 108,000
Commissions expense2 .... 496,000 0 496,000 48,000 U 448,000
Per diem expense3 .......... 162,600 4,200 U 158,400 9,900 U 148,500
Office expense4 .............. 358,400 7,600 F 366,000 26,000 U 340,000
Shipping expense5 .......... 976,500 16,000 F 992,500 90,000 U 902,500
Total $ 3,893,900 $ 9,200 F $ 3,903,100 $181,100 U $ 3,722,000

Total static-budget variance: $171,900 U

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56 Managerial Accounting, 9th Canadian Edition
Case 9-28 (continued)
Supporting computations for flexible budget:
1
Monthly salary for salesperson:
$108,000 ÷ 90 salespersons = $1,200 per salesperson
or
$1,296,000 ÷ 12 ÷ 90 salespersons = $1,200 per salesperson

Flexible budget amount:

$1,200 per salesperson × 96 salespersons = $115,200
2
Commission rate:
$3,200,000 ÷ $80,000,000 = 0.04
or
$448,000 ÷ $11,200,000 = 0.04

Flexible budget amount for commissions:

$12,400,000 × 0.04 = $496,000
3
($148,500 ÷ 90 salespersons) ÷ 15 days per salesperson =
$110 per day
or
($1,782,000 ÷ 12 ÷ 90 salespersons) ÷ 15 days per salesperson =
$110 per day

Flexible budget amount for per diem:

($110 per day × 15 days per salesperson) × 96 salespersons =
$158,400
4
($4,080,000 – $3,000,000) ÷ 54,000 orders = $20 per order

Flexible budget amount for office expenses:

($3,000,000 ÷ 12) + ($20 per order × 5,800 orders) = $366,000
5
[$6,750,000 – ($3 per unit × 2,000,000 units)] ÷ 12 =
$62,500 monthly fixed expense

Flexible budget amount for shipping expenses:

$62,500 + ($3 per unit × 310,000 units) = $992,500

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Solutions Manual, Chapter 9 57
Case 9-28 (continued)

3. The calculations for part (2) above indicate that the entire $171,900 un-
favourable static budget variance is driven by the actual sales activity level
of 310,000 being 30,000 units higher than the static budget. The flexible
budget, based on actual unit sales of 310,000 shows total selling expenses
of $3,903,100 compared to the static budget of $3,722,000, based on
sales of 280,000 units. This results in a $181,100 unfavourable sales
volume variance. Note that for expenses, selling more units than planned
will always result in an unfavourable sales volume variance, except in the
un-likely event that all expenses are fixed.

The flexible budget variance for EdDEV is actually $9,200 favourable in

November, largely because actual office and shipping expenses were in
total, $23,600 below the flexible budget amount. This case illustrates the
importance and value of using flexible budgets to evaluate managers’ per-
formance. If only the static budget had been prepared, Snowden would
have concluded that managers at EdDEV had done a poor job controlling
selling expenses. However, as the flexible budget shows, in fact, managers
performed well in controlling selling expenses during November, given the
actual level of activity of 310,000 units.

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58 Managerial Accounting, 9th Canadian Edition
Case 9-29 (90 minutes)

1.
a. Sales Budget
Jan Feb. March
Sales in units (storage systems)
11,000 10,000 13,000
Unit sales price
60 60 60
Sales in dollars $660,000 $600,000 $780,000

b. Production Budget
Jan Feb. March
Sales in units (storage systems)
11,000 10,000 13,000

Add: Desired ending finished

goods 2,000 2,600 2,200
inventory
Finished goods
requirements 13,000 12,600 15,200
Less: Beginning finished goods
inventory 2,200 2,000 2,600
Production requirements 10,800 10,600 12,600

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Solutions Manual, Chapter 9 59
Case 9-29 (continued)
c. Raw materials purchases
budget
Jan Feb. March

Units of production required 10,800 10,600 12,600

Units of raw materials required (5 kg
per unit) 54,000 53,000 63,000
Add Desired ending inventory 13,250 15,750 13,750
Total requirements 67,250 68,750 76,750
Less Beginning
inventory 13,500 13,250 15,750
Raw materials to purchase:

In Units (kilograms) 53,750 55,500 61,000

In Dollars ($.60 per kilogram) $ 32,250 $33,300 $36,600

d. Direct labour and

Overhead budget
Jan Feb. March
Units of production required 10,800 10,600 12,600
Direct labour hours
required (1.25 per unit) 13,500 13,250 15,750
Direct labour cost ($16/hr) $216,000 $212,000 $252,000
Manufacturing overhead:
Variable (50% of DL) $108,000 $106,000 $126,000
Fixed* 85,600 85,600 85,600
Total manufacturing
overhead 193,600 191,600 211,600
Total cost of direct labour and
manufacturing overhead $409,600 $403,600 $463,600

*$75,000 + $1,400 + $8,000 + $1,200 = $85,600

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60 Managerial Accounting, 9th Canadian Edition
Case 9-29 (continued)
e. Selling & administrative
budget
Jan Feb. March
Sales in units (storage systems) 11,000 13,000
10,000
Variable:
Shipping ($4 per unit) 44,000 $ 40,000 $ 52,000
Sales commissions (10% of 66,000 78,000
sales) 60,000
Total 110,000 100,000 130,000
Fixed** 34,100 34,100
34,100
Total $144,100 $134,100 $164,100
f. Budgeted income
statement
Jan Feb. March
Sales revenue $660,000 $600,000 $780,000
Less variable expenses:
Cost of goods sold 363,000 330,000 429,000
Selling and administrative 110,000 100,000 130,000
Total variable expenses 473,000 430,000 559,000
Contribution margin 187,000 170,000 221,000
Less fixed expenses:
Manufacturing overhead* 85,600 85,600 85,600
Selling and administrative** 34,100 34,100 34,100
Total fixed expenses 119,700 119,700 119,700
Operating income (loss) 67,300 50,300 101,300
Less interest expense*** 4,500 5,344 4,872
Net income (loss) $ 62,800 $ 44,956 $ 96,428

*$75,000 + $1,400 + $8,000 + $1,200 = $85,600

**$300 + $9,000 + $250 + $4,000 + $14,550 + $6,000 = $34,100
***Loans outstanding at
beginning of month x 6% ÷ 12 $900,000 $1,068,900 $974,414

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Solutions Manual, Chapter 9 61
Case 9-29 (continued)

g. Cash budget
Jan Feb. March
Operating cash receipts:
Cash sales $264,000 $240,000 $312,000
From previous month's sales 216,000 198,000 180,000
From 2nd previous month's
sales 180,000 216,000 198,000
Total 660,000 654,000 690,000
Operating cash
payments:
Raw Materials Purchases:
Current month 12,900 13,320 14,640
Previous month 24,000 19,350 19,980
Direct labour 216,000 212,000 252,000
Variable overhead 108,000 106,000 126,000
Fixed overhead 84,400 84,400 84,400
Variable selling and admin. 110,000 100,000 130,000
Fixed selling and admin. 19,100 19,100 19,100
Purchase of equipment 300,000 ___________ _________
Total 874,400 554,170 646,120
Net operating cash inflows (214,400)
(outflows) 99,830 43,880
Interest (4,500) (5,344) (4,872)
Beginning balance 80,000 30,000 30,000
Available before borrowing
or repayment (138,900) 124,486 69,008
Borrowing 168,900 - -
Repayment - 94,486 39,008
Ending balance $ 30,000 $ 30,000 $ 30,000

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62 Managerial Accounting, 9th Canadian Edition
Case 9-29 (continued)
2.
Budgeted balance sheet
March 31, 2012

Assets
Cash .............................................................................. $ 30,000
Accounts receivable ........................................................ 648,000
Inventory: Raw materials $ 8,250
Finished goods 72,600 80,850
Property and equipment, net
($1,300,000 – $148,600) ............................................. 1,151,400
Total assets.................................................................... $1,910,250

Liabilities and Shareholders’ Equity

Accounts payable, purchases (60% × $36,600)................ $ 21,960
12% Long-term Note payable*........................................ 935,406
Common shares ............................................................. 735,000
Retained earnings (see below) ........................................ 217,884
Total liabilities and Shareholders’ equity ........................... $1,910,250

Retained earnings at March 31:

Balance, January 1 ................................ $13,700
Add net income ..................................... 204,184
Total ..................................................... 217,884
Less dividends declared ......................... 0
Balance, March 31 ................................. $217,884

*Opening balance March 1 less repayment on March 31 ($974,414 -

$39,008)

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Solutions Manual, Chapter 9 63
R9-30

The responses to the questions will depend on the nature of the budgeting
process at the NFP organization interviewed by the groups.

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64 Managerial Accounting, 9th Canadian Edition