Brian Foley, CPA bfoley@sl.on.

ca

Group Assignment
ST. LAWRENCE COLLEGE, Kingston
ACCT27 - Management Accounting Fall 2024
Due* Monday November 25th 2024 – Open Book – Group Submission
16% of Final Grade

PRINT NAME of Group Members _____________________________________________

Student Numbers___________________________________________________________

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This Assignment will require that you do some research on your own into chapter 7 –
Budgeting. The methods needed to solve the questions are contained in Chapter 7. This is
why it is assignment and not a closed book test.

Question 1
Royal Company is preparing budgets for the 2nd quarter, which ends on June 30.
Prepare a Master budget as all 10 items will be required plus analysis question:
1. Sales budget (with a schedule of expected cash collections).
2. Production budget.
3. Direct materials budget (with a schedule of expected cash
disbursements for materials).
4. Direct labor budget.
5. Manufacturing overhead budget.
6. Ending finished goods inventory budget.
7. Selling and administrative expense budget.
8. Cash budget.
9. Budgeted income statement.
10. Budgeted balance sheet.
11. Explain in a paragraph how the company is performing and if you see
anything that it can improve upon.

1
Additional Information:
Budgeted sales of the company’s only product 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 $10 per unit.

Additional data:
• All sales are on account.
• The company collects 70% of these credit sales in the month of the sale; 25%
are collected in the month following sale; and the remaining 5% are
uncollectible.
• The accounts receivable balance on March 31 was $30,000. All of this balance
was collectible.
• The company desires to have inventory on hand at the end of each month
equal to 20% of the following month’s budgeted unit sales.
• On March 31, 4,000 units were on hand.
• 5 pounds of material are required per unit of product.
• Management desires to have materials on hand at the end of each month equal
to 10% of the following month’s production needs.
• The beginning materials inventory was 13,000 pounds.
• The material costs $0.40 per pound
• Half of a month’s purchases are paid for in the month of purchase; the other half
is paid for in the following month.
• No discounts are given for early payment.
• The accounts payable balance on March 31 was $12,000.
• Each unit produced requires 0.05 hour of direct labor time.
• Each hour of direct labor time costs the company $10.
• Management fully adjusts the workforce to the workload each month.
• Royal Company uses absorption costing in its budgeted income statement and
balance sheet.
• Manufacturing overhead is applied to units of product on the basis of direct labor
hours.

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 • The company has no work in process inventories
• Variable manufacturing overhead is $20 per direct labor hour.
• Fixed manufacturing overhead is $50,500 per month. This includes $20,500 in
depreciation, which is not a cash outflow.
• Variable selling and administrative expenses are $0.50 per unit sold.
• Fixed selling and administrative expenses are $70,000 per month and include
$10,000 in depreciation.

A line of credit is available at a local bank that allows the company to borrow up to
$75,000.
a. All borrowing occurs at the beginning of the month, and all repayments occur
at the end of the month.
b. The interest rate is 1% per month.
c. The company does not have to make any payments until the end of the
quarter.
• Royal Company desires a cash balance of at least $30,000 at the end of each
month. The cash balance at the beginning of April was $40,000.
• Cash dividends of $51,000 are to be paid to stockholders in April.
• Equipment purchases of $143,700 are scheduled for May and $48,800 for June.
This equipment will be installed and tested during the second quarter and will not
become operational until July, when depreciation charges will commence.

3
BEGINNING BALANCE SHEET

Royal Company
Balance Sheet
March 31

Current assets:
Cash ............................................................ $ 40,000
Accounts receivable .................................... 30,000
Raw materials inventory .............................. 5,200
Finished goods inventory............................. 20,000 $ 95,200
Plant and equipment:
Land ............................................................ 400,000
Buildings and equipment ............................. 1,610,000
Accumulated depreciation ........................... (750,000) 1,260,000
Total assets .................................................... $1,355,200

Liabilities:
Accounts payable ........................................ $ 12,000
Stockholders’ equity:
Common stock ............................................ $ 200,000
Retained earnings ....................................... 1,143,200 1,343,200
Total liabilities and stockholders’ equity .......... $1,355,200