Question

Problem 1

Master Budget The results of operations for the Preston Manufacturing Company for the fourth quarter of 2017 were as follows:

            Sales                                                                                   $550,000

            Less Variable cost of sales                                                  330,000

            Contribution Margin                                                            220,000

            Less fixed production costs                          $120,000

            Less fixed selling and administrative exp       55,000            175,000

            Income before taxes                                                                45,000

            Less taxes on income                                                              18,000

            Net income                                                                              $27,000

The company’s balance sheet as of the end of the fourth quarter of 2017 was as follows:

            Assets:

            Cash                                                                                        $160,000

            Accounts receivable                                                               220,000

            Inventory                                                                                385,000

            Total current assets                                                                 765,000

            Property, plant, and equipment                                               440,000

            Less accumulated depreciation                                               110,000

            Total Assets                                                                           $1,095,000

            Liabilities and owners’ equity

            Accounts Payable                                                                   $66,000

            Common Stock                                                                       540,000

            Retained Stock                                                                        489,000

                        Total liabilities and owners’ equity                          $1,095,000       

            Additional information

1.     Sales and variable costs of sales are expected to increase by 12 percent in the next quarter.

2.     All sales are on credit with 60 percent collected in the quarter of sales and 40 percent collected in the following quarter.

3.     Variable costs of sales consist of 40 percent materials. 40 percent direct labor, and 20 percent variable overhead. Materials are purchased on credit. Fifty percent are paid for in the quarter of purchase, and the remaining amount is paid in the quarter after purchase. The inventory balance is not expected to change. Also, direct labor and variable overhead costs are paid in the quarter the expenses are incurred.

4.     Fixed production costs( other than $9,000 of depreciation expense) are expected to increase by 3 percent. Fixed production costs requiring payment are paid in the quarter they are incurred.

5.     Fixed selling and administrative costs( other than $7,000 of depreciation expense) are expected to increase by 2 percent. Fixed selling and administrative costs requiring payment are paid in the quarter they are incurred.

6.     The tax rate is expected to be 40 percent. All taxes are paid in the quarter they incurred.

7.     No purchase of property, plant, or equipment are expected in the first quarter of 2018.

Required

A.    Prepare a budgeted income statement for the first quarter of 2018

B.    Prepare a cash budget for the first quarter of 2018.

C.    Prepare a budgeted balance sheet as of the end of the first quarter of 2018.

Answer 1

Please hit LIKE button if this helped. For any further explanation, please put your query in comment, will get back to you.
a. Budgeted Income Statement:
Sales	550000+(550000*12%)		$   616,000
Less: Variable Cost	330000+(330000*12%)		$   369,600
Contribution Margin			$   246,400
Less: Fixed Production Cost	9000+(111000*103%)		$   123,330
Less: Fixed Selling and Admin	7000+(48000*102%)		$     55,960
Income before tax			$     67,110
Less: Taxes on Income	40%		$     26,844
Net Income			$     40,266
b. Cash Budget:
Beginning Balance			$   160,000
Add: Cash Receipt from Sale:
Collection from Receivable	Beginning Balance		$   220,000
Current Quarter Sale	60% of 616000		$   369,600
Total Available Cash			$   749,600
Less: Cash Payment for:
Direct Material:
Accounts Payable	Beginning		$     66,000
Purchase in Current Quarter	369600*40%*50%		$     73,920
Direct Labor	369600*40%		$   147,840
Variable Overhead	369600*20%		$     73,920
Fixed Production Overhead	Other than Dep		$   114,330
Fixed Selling and Admin	Other than Dep		$     48,960
Taxes			$     26,844
Total Cash Payment			$   551,814
Ending Cash Balance			$   197,786
c. Balance Sheet:
Cash	From cash budget		$   197,786
Accounts Receivable	40% of 616000		$   246,400
Inventory	Same		$   385,000
Total Current Assets			$   829,186
Property, plant, and equipment	Same	$                        440,000
Less accumulated depreciation	110000+9000+7000	$                        126,000	$   314,000
Total Assets			$1,143,186
Liabilities and owners’ equity
Accounts Payable	369600*40%*50%		$     73,920
Common Stock	Same		$   540,000
Retained Earning	489000+Net Income		$   529,266
Total liabilities and owners’ equity			$1,143,186