Posted: August 3rd, 2022

Assessment 8: Master Budget and Flexible Budget Preparation

 

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

: Master Budget and Flexible Budget Preparation Worksheet

Part A

,

, and

of 201

January February March

Crouch Corp. Estimated Balance Sheet (as of December 31, 2017)

Assets ($)

Cash 32,400

Accounts receivable 472,500

Inventory 135,000

current assets

Total current assets 639,900

Equipment 486,000

Less accumulated depreciation (60,750)

Net equipment 425,250

Total assets 1,065,150

Liabilities and Equity ($)

Accounts payable 324,000

Bank loan payable 13,500

Taxes payable (due 3/15/2018) 81,000

Total liabilities 418,500

425,250

Common stock 425,250

Retained earnings 221,400

Total stockholders’ equity 646,650

1,065,150

Total liabilities and equity 1,065,150

TRUE TRUE TRUE

per unit.

$50

.

units

of January’s

20%

units

units

units

units

·     

credit sales.

75%

·     

of credit sales is collected in the first month after the sale, and

is collected

60%

40%

·     

of the accounts receivable balance for December 31, 2017, is collected in

$112,500 TRUE

is collected in February.

$360,000

·     

20%

is made in the second month.

80%

·     

of the balance of accounts payable for December 31, 2017, is paid in

$72,000 TRUE

is paid in February.

$252,000

·     

per year. In addition to this, a sales

$45,000

20%

·     

per year.

$108,000

·     

is paid for maintainance expenses.

$1,500

·     

.

January 2017

$72,000

·     

$112,500

·     

8

·     

·     

8.

Crouch Corp.

January, February, and March 2018

Crouch Corp.

January, February, and March 2018

January February February March Total

Crouch Corp.

January, February, and March 2018

January February March Total

Crouch Corp.

January, February, and March 2018
January February March Total

January February March Total

Crouch Corp.

January, February, and March 2018

January February March

Crouch Corp.

January, February, and March 2018

January February March

January February March Total

Crouch Corp.

Crouch Corp.

March 31, 2018
BUS-FPX4061 – Managerial Accounting Principles Input values
Assessment

8 Company name
Crouch Corp.
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 March 8. Master budget for April
Crouch Corp. Estimated Balance Sheet (as of December 31, 2017)
Assets ($)
Cash 32,400
Accounts receivable 472,500
Inventory 135,000
Total 639,900
Equipment 486,000
Less accumulated depreciation (60,750)
Net equipment 425,250
Total assets 1,065,150
Liabilities and Equity ($)
Accounts payable 324,000
Bank loan payable 13,500
Taxes payable (due 3/15/2018) 81,000
Total liabilities 418,500
Common stock
Retained earnings 221,400
Total stockholders’ equity 646,650
Total liabilities and equity
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 Unit sale price
The anticipated inventory level on December 31, 2017, is 2,500

units Anticipated inventory on December 31, 2017 2500
This is actually more than its desired level for 2018, which is

20% Ratio of inventory to future sales of next month’s desired sales
projected sales (in units). Projected sales are: January projected sales 5250
5,250 units for January February projected sales 6750
6,750 units for February March projected sales 8250
8,250 units for March April projected sales 7500
7,500 units for April Cash sales (percentage of total sales) 25%
The total sales consists of 25% cash sales and

75% Credit sales (percentage of total sales)
60% 40% % of credit sales collected in the first month after sales
in the second month after the sale. % of credit sales collected in the second month after sales
$112,500 Accounts receivable for December 31, 2017 – collected in January
January and

$360,000 Accounts receivable for December 31, 2017 – collected in February
20% of the payment for merchandise purchases is made one month after the % of purchases paid for one month after the purchase
purchase, and

80% % of purchases paid for two months after the purchase
$72,000 Accounts payable for December 31, 2017 – paid in January
January, and

$252,000 Accounts payable for December 31, 2017 – paid in February
Salaries for salespersons average

$45,000 Average salary of salespersons
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
Salaries for general administrative staff average

$108,000 General administrative staff annual salaries
Each month,

$1,500 Monthly maintenance expenses
The December 2017 balance sheet reflects an equipment purchase in

January 2017 Month of equipment purchase
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
asset is purchased. March equipment purchases $21,600
The following new equipment purchases are projected for the next quarter: Purchase price of land
$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
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)
Budgeted balance sheet as of

March 31, 2018
Note: Round numbers to the nearest dollar and use supporting calculations.
Sales Budgets
Budgeted Units Budgeted Unit Price Budgeted Total Dollars
Merchandise Purchases Budgets
-1650
Selling Expenses Budget
General and Administrative Expenses Budget
* Depreciation expense calculations
Annual Depreciation Expense
Capital Expenditures Budget
Cash Budgets
Supporting calculations
Note A: Cash receipts from customers
$703,875
Note B: Cash payments for merchandise
Budgeted Income Statement
For Three Months Ended March 2018
Budgeted Balance Sheet

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