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