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E9-2 E9-6 E9-17 E9-19 P9-2

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E9-2 E9-6 E9-17 E9-19 P9-2 P9-4A

E9-2 Edington Electronics Inc. produces and sells two models of pocket calculators, XQ-
103 and XQ-104. The calculators sell for $15 and $25, respectively. Because of the intense
competition Edington faces, management budgets sales semiannually. Its projections for
the first 2 quarters of 2014 are as follows.

Unit Sales
Product Quarter 1 Quarter 2
XQ-103 20,000 22,000
XQ-104 12,000 15,000

Prepare a sales budget for the 2 quarters ending June 30, 2014. List the products and show for
each quarter and for the 6 months, units, selling price, and total sales by product and in total.

E9-6 On January 1, 2014, the Hardin Company budget committee has reached agreement
on the following data for the 6 months ending June 30, 2014.
Sales units: First quarter 5,000; second quarter 6,000; third quarter 7,000.
Ending raw materials inventory: 40% of the next quarter’s production requirements.
Ending finished goods inventory: 25% of the next quarter’s expected sales units.
Third-quarter production: 7,200 units.
The ending raw materials and finished goods inventories at December 31, 2013, follow the
same percentage relationships to production and sales that occur in 2014. Three pounds
of raw materials are required to make each unit of finished goods. Raw materials purchased
are expected to cost $4 per pound.

(a) Prepare a production budget by quarters for the 6-month period ended June 30, 2014.
(b) Prepare a direct materials budget by quarters for the 6-month period ended June 30, 2014.

E9-17 LRF Company’s budgeted sales and direct materials purchases are as follows.
Budgeted Sales Budgeted D.M. Purchases

Budgeted Sales  Budgeted D.M. Purchases 
January   200,000  30,000
February   220,000  36,000
March   270,000  40,000

LRF’s sales are 30% cash and 70% credit. Credit sales are collected 10% in the month of
sale, 50% in the month following sale, and 36% in the second month following sale; 4% are
uncollectible. LRF’s purchases are 50% cash and 50% on account. Purchases on account
are paid 40% in the month of purchase, and 60% in the month following purchase.
(a) Prepare a schedule of expected collections from customers for March.

(b) Prepare a schedule of expected payments for direct materials for March.

E9-19 Lager Dental Clinic is a medium-sized dental service specializing in family dental
care. The clinic is currently preparing the master budget for the first 2 quarters of 2014.
All that remains in this process is the cash budget. The following information has been
collected from other portions of the master budget and elsewhere.

Beginning cash balance  $30,000
Required minimum cash balance  25,000
Payment of income taxes (2nd quarter)  4,000
Professional salaries:
 1st quarter  140,000
 2nd quarter  140,000
Interest from investments (2nd quarter)  7,000
Overhead costs:
 1st quarter  75,000
 2nd quarter  100,000
Selling and administrative costs, including 
$2,000 depreciations:
 1st quarter  50,000
 2nd quarter  70,000
Purchase of equipment (2nd quarter)  50,000
Sale of equipment (1st quarter)  12,000
Collections from clients:
 1st quarter  230,000
 2nd quarter  380,000
Interest payments (2nd quarter)  400

Prepare a cash budget for each of the first two quarters of 2014.

P9-2A Deleon Inc. is preparing its annual budgets for the year ending December 31, 2014.
Accounting assistants furnish the data shown below

An accounting assistant has prepared the detailed manufacturing overhead budget
and the selling and administrative expense budget. The latter shows selling expenses of
$560,000 for product JB 50 and $360,000 for product JB 60, and administrative expenses
of $540,000 for product JB 50 and $340,000 for product JB 60. Income taxes are expected
to be 30%.

Prepare the following budgets for the year. Show data for each product. Quarterly budgets
should not be prepared.

(a) Sales (d) Direct labor
(b) Production (e) Income statement (Note: Income taxes are not allocated to the products.)
(c) Direct materials

P9-4A Colter Company prepares monthly cash budgets. Relevant data from operating
budgets for 2014 are:

  January February 
Sales  360,000 400,000
Direct materials purchases  120,000 125,000
Direct labor  90,000 100,000
Manufacturing overhead  70,000 75,000
Selling and administrative expenses  79,000 85,000

All sales are on account. Collections are expected to be 50% in the month of sale, 30% in
the first month following the sale, and 20% in the second month following the sale. Sixty
percent (60%) of direct materials purchases are paid in cash in the month of purchase,
and the balance due is paid in the month following the purchase. All other items above
are paid in the month incurred except for selling and administrative expenses that include
$1,000 of depreciation per month.

Other data:
1. Credit sales: November 2013, $250,000; December 2013, $320,000.
2. Purchases of direct materials: December 2013, $100,000.
3. Other receipts: January—collection of December 31, 2013, notes receivable $15,000;
February—proceeds from sale of securities $6,000.
4. Other disbursements: February—payment of $6,000 cash dividend.
The company’s cash balance on January 1, 2014, is expected to be $60,000. The company
wants to maintain a minimum cash balance of $50,000.

(a) Prepare schedules for (1) expected collections from customers and (2) expected payments
for direct materials purchases for January and February.
(b) Prepare a cash budget for January and February in columnar form.

ACC560 Chapter 9

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