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    Ulod. Describe The Budgeting Framework and Develop A Master Budget

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    Jeson Malinao
    The document provides a master budget for Crown Company for the months of April, May and June. It includes budgets for sales, production, materials, labor, factory overhead, ending inventory, selling & administrative expenses, cash collections, and cash. The budgets are developed based on forecasted sales volumes and costs, and are used to project cash flows and financing needs for the period.

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    Ulod. Describe The Budgeting Framework and Develop A Master Budget

    Uploaded by

    Jeson Malinao
    311 views3 pages
    The document provides a master budget for Crown Company for the months of April, May and June. It includes budgets for sales, production, materials, labor, factory overhead, ending inventory, selling & administrative expenses, cash collections, and cash. The budgets are developed based on forecasted sales volumes and costs, and are used to project cash flows and financing needs for the period.

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    Developing a Master Budget

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    The document provides a master budget for Crown Company for the months of April, May and June. It includes budgets for sales, production, materials, labor, factory overhead, ending inventory, selling & administrative expenses, cash collections, and cash. The budgets are developed based on forecasted sales volumes and costs, and are used to project cash flows and financing needs for the period.

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    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    311 views3 pages

    Ulod. Describe The Budgeting Framework and Develop A Master Budget

    Uploaded by

    Jeson Malinao
    The document provides a master budget for Crown Company for the months of April, May and June. It includes budgets for sales, production, materials, labor, factory overhead, ending inventory, selling & administrative expenses, cash collections, and cash. The budgets are developed based on forecasted sales volumes and costs, and are used to project cash flows and financing needs for the period.

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    You are on page 1of 3

    WEEK 1-3

    ULOd. Describe the budgeting framework and develop a master budget.

    Excercise (3-1): Developing a Master Budget

    The Crown Company is preparing budgets for the quarter ending June 30.
    Budgeted sales for the next five months are:
    April 20,000 units
    May 50,000 units
    June 30,000 units
    July 25,000 units
    August 15,000 units
    The selling price is P10 per unit.

    Sales budget
    Month 1 Month 2 Month 3 Total
    Sales in units 20,000 50,000 30,000 100,000

    X selling price (SP) 200,000 500,000 300,000 P1,000,000

    Production budget
    The management at Crown Company wants ending inventory to be equal to 20% of the following
    month’s budgeted sales in units. On March 31, 4,000 units were on hand.
    Month 1 Month 2 Month 3 Month 4
    Budgeted Sales 20,000 50,000 30,000 25,000

    Add: Desired 20% x 50,000 = 20% x 30,000 = 20% x 25,000 = 20% x 15,000 =
    Ending Inventory
    10,000 6,000 5,000 3,000

    Total units needed 30,000 56,000 35,000 28,000

    Less: Beg. Inv. 4,000 10,000 6,000 5,000

    Req. production 26,000 46,000 29,000 23,000

    Direct materials budget and its cash disbursement budget


    At Crown Company, five pounds of materials are required per unit of product. Management
    wants materials on hand at the end of each month equal to 10% of the following month’s
    production. On March 31, 13,000 pounds of material are on hand. Material cost is P0.40 per
    pound. One-half of a month’s purchases is paid for in the month of purchase; the other half is
    paid in the following month. The March 31 accounts payable balance is P12,000.
    Month 1 Month 2 Month 3 Total
    Req. production 26,000 46,000 29,000 101,000
    Mat’ls needed/unit 5 lb 5 lb 5 lb 5 lb
    Total req. mat’ls 130,000 230,000 145,000 505,000
    Add: Desired E/Inv. 10% x 230,000 = 10% x 145,000 = 10% x 23,000 x 5 11,500
    =
    23,000 lb 14,500
    11,500
    Total mat’ls 153,000 244,500 156,500 516,500
    needed
    Less: Beg. Inv. 13,000 23,000 14,500 13,000
    Mat’ls purchased 140,000 221,500 142,000 503,500
    X purchase price P0.40 P0.40 P0.40 P0.40
    Total purchased 56,000 88,600 56,800 201,400
    cost
    Payment made 56,000/2 = 28,000 88,600/2 = 44,300 56,800/2 = 28,400 P185,000
    + 12,000 = 40,000 + 28,000 = 72,300 + 44,300 = 72,700

    Direct labor budget and its cash disbursement budget


    At Crown Company, each unit of product requires 0.05 hours (3 minutes) of direct labor. In
    exchange for the “no layoff” policy, workers agree to a wage rate of P10 per hour regardless of
    the hours worked (NO overtime pay).
    Month 1 Month 2 Month 3 Total
    Req. production 26,000 46,000 29,000 101,000
    Hours needed/unit 0.05 hour 0.05 hour 0.05 hour 0.05 hour
    Total Hours Req. 1,300 2,300 1,450 5,050
    X labor rate P10 per hour P10 per hour P10 per hour P10 per hour
    Total labor budget 13,000 23,000 14,500 P50,500
    cost

    Factory overhead budget and its cash disbursement budget


    At Crown Company, manufacturing overhead is applied to units of product on the basis of direct
    labor hours. The variable manufacturing overhead rate is P20 per direct labor hour. Fixed
    manufacturing overhead is P50,000 per month and includes P20,000 of noncash costs (primarily
    depreciation of plant assets).
    Month 1 Month 2 Month 3 Total
    Budg. Hours Req. 1,300 2,300 1,450 5,050
    X VOH rate P20 per DLH P20 per DLH P20 per DLH P20 per DLH
    Variable FOH 26,000 46,000 29,000 P101,000
    Fixed FOH 50,000 50,000 50,000 P150,000
    Total FOH cost 76,000 96,000 79,000 P251,000
    Less: Non-cash cost 20,000 20,000 20,000 P60,000
    Cash Disbursement 56,000 76,000 59,000 P191,000
    for FOH

    Ending finished goods inventory budget


    Production Cost Quantity needed/unit Cost/unit TC/unit
    Direct Materials 5 lb P0.40 per lb P2
    Direct Labor 0.05 hour P10 per DLH P0.50
    FOH 0.05 hour P251,000 / 5,050 DLH = P2.49
    P49.70
    Product Cost per unit P4.99

    Ending inventory (units) 5,000


    X unit production cost P4.99
    Ending Finished Goods P24,950

    Selling and administrative budget


    At Crown Company, the selling and administrative expenses budget is divided into variable and
    fixed components. The variable selling and administrative expenses are P0.50 per unit sold.
    Fixed selling and administrative expenses are P70,000 per month. The fixed selling and
    administrative expenses include P10,000 in costs – primarily depreciation – that are not cash
    outflows of the current month.
    Month 1 Month 2 Month 3 Total
    Budgeted sales 20,000 50,000 30,000 100,000
    X VS&A rate P0.50 per unit P0.50 per unit P0.50 per unit P0.50 per unit
    VS&A expenses 10,000 25,000 15,000 50,000
    Fixed S&A 70,000 70,000 70,000 210,000
    Total S&A 80,000 95,000 85,000 260,000
    Less: non-cash 10,000 10,000 10,000 30,000
    costs
    Cash disbursement 70,000 85,000 75,000 P230,000

    Cash collections budget


    All sales are on account. Crown’s collection pattern is: 70% collected in the month of sale, 25%
    collected in the month following sale, 5% uncollectible. The March 31 accounts receivable
    balance of P30,000 will be collected in full.

    Cash budget
    The beginning cash balance for March 31 is P350,000. Dividend declared and paid are: P15,000,
    P17,000 and P20,000 for the month of April, May and June, respectively.
    Month 1 Month 2 Month 3 Total
    Beg. Cash balance 350,000 326,000 452,700 P350,000
    Add: cash 200,000 x 70% = 500,000 x 70% = 300,000 x 70% = P905,000
    collections 140,000 + 30,000 350,000 210,000
    = 170,000 200,000 x 25%= 500,000 x 25%=
    50,000 125,000
    = 400,000 = 335,000
    Total cash available 520,000 726,000 787,700 P1,255,000
    Less: cash
    disbursements
    D-Materials 40,000 72,300 72,700 P185,000
    D-Labor 13,000 23,000 14,500 P50,500
    FOH 56,000 76,000 59,000 P191,000
    S&A 70,000 85,000 75,000 P230,000
    Dividend 15,000 17,000 20,000 P52,000
    Excess (deficiency) 326,000 452,700 546,500 P546,500
    Add (deduct):
    Financing
    Add: Borrowing
    Less: Interest
    Ending Cash 326,000 452,700 546,500 P546,500
    Balance

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