Prepare a master budget and a flexible bu
Prepare a master budget and a flexible budget in this two-part assessment.
Introduction
Note: Accounting requires specific steps that need to be executed in a sequence. The assessments in this course are presented in sequence and must be completed in order.
A master budget is a management tool for planning. A flexible budget provides crucial information for differing levels of business activity.
A master budget is a formal planning tool used to chart the organization's future. Compiling a master budget serves to provide the financial information needed to make decisions, choose strategies, and create action plans. A master budget also helps to communicate the organization's expenses to all employees.
Overview
Note: Accounting requires specific steps that need to be executed in a sequence. The assessments in this course are presented in sequence and must be completed in order.
A master budget is a formal planning tool used to chart the organization's future. Compiling a master budget serves to provide the financial information needed to make decisions, choose strategies, and create action plans. A master budget also helps to communicate the organization's expenses to all employees.
Instructions
This assessment has two parts.
Part A
For Part A, use the Master Budget Preparation Template [XLSX]. Based on the data in the template, which represents a company's estimated balance sheet, prepare a complete master budget.
Part B
For Part B, use the Master Budget Preparation Template [XLSX]. Based on the data in the template, complete the problems on flexible budget preparation and computation of materials.
Competencies Measured
By successfully completing this assessment, you will demonstrate your proficiency in the course competencies through the following assessment scoring guide criteria:
- Competency 1: Analyze cost accounting systems.
- Compute the cost for each variable overhead item and its total per-unit costs and the total fixed costs.
- Competency 2: Apply sound budgeting principles.
- Construct a monthly selling expense budget.
- Construct a monthly general and administrative expense budget.
- Construct a monthly capital expenditures budget.
- Construct a monthly cash budget.
- Construct a budgeted income statement for a calendar quarter.
- Construct a budgeted balance sheet for a calendar quarter.
- Calculate the direct materials cost variance, including its price and quantity variances.
- Calculate the direct labor cost variance, including its rate and efficiency variances.
- Construct flexible overhead budgets for a calendar month.
- Competency 4: Analyze financial statements.
- Construct a monthly merchandise purchases budget.
- Construct a monthly sales budget showing both budgeted unit sales and dollar sales.
- Construct a detailed overhead variance report that shows variances for individual items of overhead.
- Competency 5: Communicate in a manner that is professional and consistent with expectations for professionals in the field of accounting.
- Communicate quantitative information accurately and effectively.
Part A
| BUS-FPX4061 – Managerial Accounting Principles | Input values | |||||||||||||||||||||||||||||||||
| Assessment 8: Master Budget and Flexible Budget Preparation Worksheet | Company name | Crouch Corp. | ||||||||||||||||||||||||||||||||
| Part A | Balance sheet date | 12/31/17 | ||||||||||||||||||||||||||||||||
| Ending date of first quarter | 3/31/18 | |||||||||||||||||||||||||||||||||
| Solve the given problem based on the following scenario. | ||||||||||||||||||||||||||||||||||
| The managers of Crouch Corp. need you to create the master budget for the months of January, February, and March of 2018. | Master budget for | January | February | March | April | |||||||||||||||||||||||||||||
| Crouch Corp. Estimated Balance Sheet (as of December 31, 2017) | ||||||||||||||||||||||||||||||||||
| Crouch Corp. Estimated Balance Sheet (as of December 31, 2017) | Assets ($) | |||||||||||||||||||||||||||||||||
| Assets ($) | Cash | 32,400 | ||||||||||||||||||||||||||||||||
| Cash | 32,400 | Accounts receivable | 472,500 | |||||||||||||||||||||||||||||||
| Accounts receivable | 472,500 | Inventory | 135,000 | |||||||||||||||||||||||||||||||
| Inventory | 135,000 | Total current assets | 639,900 | |||||||||||||||||||||||||||||||
| Total current assets | 639,900 | Equipment | 486,000 | |||||||||||||||||||||||||||||||
| Equipment | 486,000 | Less accumulated depreciation | (60,750) | |||||||||||||||||||||||||||||||
| Less accumulated depreciation | (60,750) | Net equipment | 425,250 | |||||||||||||||||||||||||||||||
| Net equipment | 425,250 | Total assets | 1,065,150 | |||||||||||||||||||||||||||||||
| Total assets | 1,065,150 | Liabilities and Equity ($) | ||||||||||||||||||||||||||||||||
| Liabilities and Equity ($) | Accounts payable | 324,000 | ||||||||||||||||||||||||||||||||
| Accounts payable | 324,000 | Bank loan payable | 13,500 | |||||||||||||||||||||||||||||||
| Bank loan payable | 13,500 | Taxes payable (due 3/15/2018) | 81,000 | |||||||||||||||||||||||||||||||
| Taxes payable (due 3/15/2018) | 81,000 | Total liabilities | 418,500 | |||||||||||||||||||||||||||||||
| Total liabilities | 418,500 | Common stock | 425,250 | |||||||||||||||||||||||||||||||
| Common stock | 425,250 | Retained earnings | 221,400 | |||||||||||||||||||||||||||||||
| Retained earnings | 221,400 | Total stockholders’ equity | 646,650 | |||||||||||||||||||||||||||||||
| Total stockholders’ equity | 646,650 | Total liabilities and equity | 1,065,150 | |||||||||||||||||||||||||||||||
| Total liabilities and equity | 1,065,150 | |||||||||||||||||||||||||||||||||
| TRUE | TRUE | TRUE | TRUE | |||||||||||||||||||||||||||||||
| Use the following data to prepare the master budget. | Unit purchase price | $25 | ||||||||||||||||||||||||||||||||
| · | A single product of Crouch Corp. can be purchased for $25 per unit and resold for $50 per unit. | Unit sale price | $50 | |||||||||||||||||||||||||||||||
| The anticipated inventory level on December 31, 2017, is 2,500 units. | Anticipated inventory on December 31, 2017 | 2500 | units | |||||||||||||||||||||||||||||||
| This is actually more than its desired level for 2018, which is 20% of January's | Ratio of inventory to future sales | 20% | of next month's desired sales | |||||||||||||||||||||||||||||||
| projected sales (in units). Projected sales are: | January projected sales | 5250 | units | |||||||||||||||||||||||||||||||
| ▪ | 5,250 units for January | February projected sales | 6750 | units | ||||||||||||||||||||||||||||||
| ▪ | 6,750 units for February | March projected sales | 8250 | units | ||||||||||||||||||||||||||||||
| ▪ | 8,250 units for March | April projected sales | 7500 | units | ||||||||||||||||||||||||||||||
| ▪ | 7,500 units for April | Cash sales (percentage of total sales) | 25% | |||||||||||||||||||||||||||||||
| · | The total sales consists of 25% cash sales and 75% credit sales. | Credit sales (percentage of total sales) | 75% | |||||||||||||||||||||||||||||||
| · | 60% of credit sales is collected in the first month after the sale, and 40% is collected | % of credit sales collected in the first month after sales | 60% | |||||||||||||||||||||||||||||||
| in the second month after the sale. | % of credit sales collected in the second month after sales | 40% | ||||||||||||||||||||||||||||||||
| · | $112,500 of the accounts receivable balance for December 31, 2017, is collected in | Accounts receivable for December 31, 2017 – collected in January | $112,500 | TRUE | ||||||||||||||||||||||||||||||
| January and $360,000 is collected in February. | Accounts receivable for December 31, 2017 – collected in February | $360,000 | ||||||||||||||||||||||||||||||||
| · | 20% of the payment for merchandise purchases is made one month after the | % of purchases paid for one month after the purchase | 20% | |||||||||||||||||||||||||||||||
| purchase, and 80% is made in the second month. | % of purchases paid for two months after the purchase | 80% | ||||||||||||||||||||||||||||||||
| · | $72,000 of the balance of accounts payable for December 31, 2017, is paid in | Accounts payable for December 31, 2017 – paid in January | $72,000 | TRUE | ||||||||||||||||||||||||||||||
| January, and $252,000 is paid in February. | Accounts payable for December 31, 2017 – paid in February | $252,000 | ||||||||||||||||||||||||||||||||
| · | Salaries for salespersons average $45,000 per year. In addition to this, a sales | Average salary of salespersons | $45,000 | |||||||||||||||||||||||||||||||
| commission equal to 20% of each salesperson's sales is paid on a monthly basis. | Sales commission as a percentage of each salesperson's sales | 20% | ||||||||||||||||||||||||||||||||
| · | Salaries for general administrative staff average $108,000 per year. | General administrative staff annual salaries | $108,000 | |||||||||||||||||||||||||||||||
| · | Each month, $1,500 is paid for maintainance expenses. | Monthly maintenance expenses | $1,500 | |||||||||||||||||||||||||||||||
| · | The December 2017 balance sheet reflects an equipment purchase in January 2017. | Month of equipment purchase | January 2017 | |||||||||||||||||||||||||||||||
| Using the straight-line method, depreciation will occur over 8 years, with no | January equipment purchases | $27,000 | ||||||||||||||||||||||||||||||||
| salvage value. A full month's depreciation is recognized in the month in which the | February equipment purchases | $72,000 | ||||||||||||||||||||||||||||||||
| asset is purchased. | March equipment purchases | $21,600 | ||||||||||||||||||||||||||||||||
| · | The following new equipment purchases are projected for the next quarter: | Purchase price of land | $112,500 | |||||||||||||||||||||||||||||||
| ▪ | $27,000 in January | Yearly bank interest | 12% | |||||||||||||||||||||||||||||||
| ▪ | $72,000 in February | Minimum monthly ending cash balance | $18,750 | |||||||||||||||||||||||||||||||
| ▪ | $21,600 in March | Date of payment of first quarter's income tax | 15-Apr | |||||||||||||||||||||||||||||||
| · | The company has negotiated to purchase land for $112,500, which will be paid on | Tax rate | 35% | |||||||||||||||||||||||||||||||
| the last day of March, in cash. | Years over which depreciation occurs | 8 | ||||||||||||||||||||||||||||||||
| · | Crouch Corp. has arranged an agreement with its bank to take additional loans | Period for which master budget is prepared | January, February, and March 2018 | |||||||||||||||||||||||||||||||
| as needed. The bank charges 12% interest per year. Crouch Corp. pays interest on the | ||||||||||||||||||||||||||||||||||
| monthly beginning balance at the end of each month. The company may make | ||||||||||||||||||||||||||||||||||
| full or partial loan payments on the last day of the month. According to this | ||||||||||||||||||||||||||||||||||
| agreement with the bank, the minimum ending cash balance each month must | ||||||||||||||||||||||||||||||||||
| be $18,750. | ||||||||||||||||||||||||||||||||||
| · | The first quarter's income tax is paid on April 15 at a tax rate of 35%. | |||||||||||||||||||||||||||||||||
| Using the data provided, prepare the master budget for the first quarter of 2018, | ||||||||||||||||||||||||||||||||||
| including all the following budgets: | ||||||||||||||||||||||||||||||||||
| 1. | Monthly sales budgets (showing both budgeted unit sales and dollar sales) | |||||||||||||||||||||||||||||||||
| 2. | Monthly merchandise purchases budgets | |||||||||||||||||||||||||||||||||
| 3. | Monthly selling expense budgets | |||||||||||||||||||||||||||||||||
| 4. | Monthly general and administrative expense budgets | |||||||||||||||||||||||||||||||||
| 5. | Monthly capital expenditures budgets | |||||||||||||||||||||||||||||||||
| 6. | Monthly cash budgets | |||||||||||||||||||||||||||||||||
| 7. | Budgeted income statement for the entire first quarter (not for each month) | |||||||||||||||||||||||||||||||||
| 8. | Budgeted balance sheet as of March 31, 2018 | |||||||||||||||||||||||||||||||||
| Note: Round numbers to the nearest dollar and use supporting calculations. | ||||||||||||||||||||||||||||||||||
| Crouch Corp. | ||||||||||||||||||||||||||||||||||
| Sales Budgets | ||||||||||||||||||||||||||||||||||
| January, February, and March 2018 | ||||||||||||||||||||||||||||||||||
| Budgeted Units | Budgeted Unit Price | Budgeted Total Dollars | ||||||||||||||||||||||||||||||||
| Crouch Corp. | ||||||||||||||||||||||||||||||||||
| Merchandise Purchases Budgets | ||||||||||||||||||||||||||||||||||
| January, February, and March 2018 | ||||||||||||||||||||||||||||||||||
| January | February | February | March | Total | ||||||||||||||||||||||||||||||
| -1650 | ||||||||||||||||||||||||||||||||||
| Crouch Corp. | ||||||||||||||||||||||||||||||||||
| Selling Expenses Budget | ||||||||||||||||||||||||||||||||||
| January, February, and March 2018 | ||||||||||||||||||||||||||||||||||
| January | February | March | Total | |||||||||||||||||||||||||||||||
| Crouch Corp. | ||||||||||||||||||||||||||||||||||
| General and Administrative Expenses Budget | ||||||||||||||||||||||||||||||||||
| January, February, and March 2018 | ||||||||||||||||||||||||||||||||||
| January | February | March | Total | |||||||||||||||||||||||||||||||
| * Depreciation expense calculations | ||||||||||||||||||||||||||||||||||
| Annual Depreciation Expense | January | February | March | Total | ||||||||||||||||||||||||||||||
| Crouch Corp. | ||||||||||||||||||||||||||||||||||
| Capital Expenditures Budget | ||||||||||||||||||||||||||||||||||
| January, February, and March 2018 | ||||||||||||||||||||||||||||||||||
| January | February | March | ||||||||||||||||||||||||||||||||
| Crouch Corp. | ||||||||||||||||||||||||||||||||||
| Cash Budgets | ||||||||||||||||||||||||||||||||||
| January, February, and March 2018 | ||||||||||||||||||||||||||||||||||
| January | February | March | ||||||||||||||||||||||||||||||||
| Supporting calculations | January | February | March | Total | ||||||||||||||||||||||||||||||
| Note A: Cash receipts from customers | ||||||||||||||||||||||||||||||||||
| $703,875 | ||||||||||||||||||||||||||||||||||
| Note B: Cash payments for merchandise | ||||||||||||||||||||||||||||||||||
| Crouch Corp. | ||||||||||||||||||||||||||||||||||
| Budgeted Income Statement | ||||||||||||||||||||||||||||||||||
| For Three Months Ended March 2018 | ||||||||||||||||||||||||||||||||||
| Crouch Corp. | ||||||||||||||||||||||||||||||||||
| Budgeted Balance Sheet | ||||||||||||||||||||||||||||||||||
| March 31, 2018 | ||||||||||||||||||||||||||||||||||
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