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# cost accounting master budget

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Compute the required answer for each of the following independent situations.

a. For next year, Penny Suits projects \$8,000,000 of sales and total fixed manufacturing costs of \$2,000,000. Variable manufacturing costs are estimated at 65 percent of sales. Assuming no change in inventory, what is the company's projected cost of goods sold?

b. Tommy's Company has projected the following information for October:
Sales ............................................................................... \$800,000
Gross profit (based on sales) .......................................... 25%
Increase in Merchandise Inventory in October ................. \$20,000
Decrease in Accounts Payable for October ..................... \$45,000
What are expected cash disbursements for inventory purchases for October?

c. Buda Corp. is attempting to budget its overhead costs for March 2011. Overhead is a mixed cost with the following flexible budget formula: y = \$250,000 + \$17.50X, where X represents machine hours. Fixed overhead includes \$95,000 of depreciation. If Buda Corp. expects to utilize 7,500 machine hours in March, what is the company's budgeted March overhead cost? How much cash will the company pay for budgeted overhead in March?

d. Elizabeth Enterprises expects to begin 2011 with a cash balance of \$15,000. Cash collections from sales and on account during the year are expected to be \$470,500. The firm wants to maintain a minimum cash balance of \$5,000. Budgeted cash disbursements for the year are as follows:
Payoff of note payable .................................................................... \$52,500
Interest on note payable ................................................................. 4,700
Purchase of computer system ......................................................... 17,900
Payments for operating costs and inventory purchases .................. 193,500
Direct labor payments ..................................................................... 110,000
Cash selling and administrative payments ...................................... 94,800
The company can, if necessary, borrow in \$1,000 amounts. Prepare a cash budget for 2011.

#### Solution Preview

1.
Projected Cost of Goods Sold:
Total Manufacturing Cost = Fixed Manufacturing Cost + Variable Manufacturing Cost
\$2,000,000 + (0.65 x 8,000,000) = \$7,200,000
2.
Explanation
a. More cash is spent as inventory is purchased. Therefore, Cash Disbursements will increase as inventory increases.
b. Accounts payable decreases when the firm pays cash to its creditors. Therefore, Cash disbursements increase as accounts payable decreases.
c. Total Increase in cash payment = \$20,000 + \$45,000 = \$65,000
d. Based on the information given the cash disbursement for inventory will be ...

#### Solution Summary

Four Different Scenarios are analyzed and used to create the following budgets:
1. The Cost of Goods Sold Budget
2. The Inventory Purchases Budget
4. The Cash Budget

\$2.19