1. Comprehensive budgeting The balance sheet of Watson Company as of December 31
ID: 2444437 • Letter: 1
Question
1. Comprehensive budgeting
The balance sheet of Watson Company as of December 31, 20X1, follows.
WATSON COMPANY
Balance Sheet
December 31, 12X1
Assets
Cash
$4,595
Accounts receivable
10,000
Finished goods (575 units x $7.00)
4,025
Direct materials (2,760 units x $0.50)
1,380
Plant & equipment
$50,000
Less: Accumulated depreciation
10,000
40,000
Total assets
$60,000
Liabilities & Stockholders' Equity
Accounts payable to suppliers
$14,000
Common stock
$25,000
Retained earnings
21,000
46,000
Total liabilities &. stockholders' equity
$60,000
The following information has been extracted from the firm's accounting records:
All sales are made on account at $20 per unit. Sixty percent of the sales are collected in the month of sale; the remaining 40% are collected in the following month. Forecasted sales for the first five months of 20X2 are: January, 1,500 units,- February, 1,600 units; March, 1,800 units; April, 2,000 units; May, 2,100 units.
Management wants to maintain the finished goods inventory at 30% of the following month's sales.
Watson uses four units of direct material in each finished unit. The direct material price has been stable and is expected to remain so over the next six months. Management wants to maintain the ending direct materials inventory at 60% of the following month's production needs.
Seventy percent of all purchases are paid in the month of purchase; the remaining 30% are paid in the subsequent month.
Watson's product requires 30 minutes of direct labor time. Each hour of direct labor costs $7.
I have already done part one but the rest confuses me
WATSON COMPANY
Balance Sheet
December 31, 12X1
Assets
Cash
$4,595
Accounts receivable
10,000
Finished goods (575 units x $7.00)
4,025
Direct materials (2,760 units x $0.50)
1,380
Plant & equipment
$50,000
Less: Accumulated depreciation
10,000
40,000
Total assets
$60,000
Liabilities & Stockholders' Equity
Accounts payable to suppliers
$14,000
Common stock
$25,000
Retained earnings
21,000
46,000
Total liabilities &. stockholders' equity
$60,000
Explanation / Answer
2) SCHEDULE OF CASH COLLECTIONS
Particulars January February March Total
January $18,000 $12,000 N/A $30,000
February N/A $19,200 $12,800 $32,000
March N/A N/A $21,600 $21,600
__________________________________________________________________________
Total $18,000 $31,200 $34,400 $83,600
___________________________________________________________________________
Explanation:
January = 1500 units * $20 =$30,000 60/100 =$18,000:: February =$30,000*40/100=$12,000
February = 1,600 units * $20=$32,000 * 60/100=$19,200:: March= $32,000 * 40/100=$12,800
March=1,800 units *$20=$36,000*60/100= $21,600: April =$36,000 * 40/100=$14,400
______________________________________________________________________________
3)Production Budget
Particulars January February March Total
Number of units sold 1,500 1,600 1,800 4,900
Add:
Desired ending finished 480 540 600 600
_________________________________________________________________________
Total finished units needed 1,980 2,140 2,400 5,500
Less: Beginning direct
materials inventory (units) 450 480 540 540
______________________________________________________________________________
Number of units to be produced 1,530 1,660 1,860 4,960
________________________________________________________________________
Explanation for ending inventory and opening inventory
January = following month means next month is February =1,600 *30/100=480
February following month next month is March = 1,800 * 30/100=540
March following month next month is April =2,000 * 30/100=600
Total only march ending will go april month so need not add jan and feb desired ending inventory.
Ending Inventory of last month considered to be a next month opening inventory.
For December month ending inventory january is following month so ending inventory =1,500 *30/10=450, the units takes as january month opening inventory.
January ending inventory = February opening inventory
February ending inventory = March opening Inventory
March ending inventory = April opening Inventory.
____________________________________________________________________________
5) SCHEDULE OF CASH DISBURSEMENTS FOR MATERIAL PURCHASES
Particulars January February March Total
Accounts Payable $14,000 N/A N/A $14,000
January $2,395 $1,027 N/A $3,422
February N/A $2,492 $1,068 $3,560
March N/A N/A $2,747 $2,747
_____________________________________________________________________________
Total $16,395 $3,519 $3,815 $23,729
____________________________________________________________________________
Explanation:
Jan $3,422 *70/100= $2,395 following month Feb = $3,422 *30/100= $1,027
Feb $3,560 * 70/100= $2,492 : following month March = $3,560 * 30/100= $1,068
March $3,924 *70/100= $2,747 :
__________________________________________________________________
4) DIRECT MATERIAL PURCHASES BUDGET
Particulars January February March Total
Planned production, in units 1,530 1,660 1,860 4,960
Multiply
Units of direct material per finished unit 4 4 4 4
______________________________________________________________________
Direct materials used in Production unit 6,120 6,440 7,440 19,840
Add: Desired ending direct materials 996 1,116 1,218 3,360
inventory
______________________________________________________________________
Total direct materials needed 7,116 7,556 8,658 23,330
Less: Beginning direct materials 918 996 1,116 3,030
____________________________________________________________________
Direct materials to be Purchased 6,198 6,560 7,542 20,300
Multiply
Cost per unit $9.00 $9.00 $9.00 $9.00
_________________________________________________________________________
Cost of direct material pruchase $55,782 $59,040 $67,878 $182,700
_______________________________________________________________________
Desired ending direct materials jan taken from Feb = 1,660 * 60 /100=996
Desired ending direct materials Feb taken from March = 1,860 *60/100= 1,116
Desired ending direct materials March taken from april = 2,030 *60/100= 1,218
april Calculations:
2,000 units +630( 30% ending inventoryfrom may 2100) -600=2,030
last month ending inventory considered to be a next month Beginning Inventory =
December ending inventory = 1,530 *60/100= 918 Jan Beginning Inventory
Jan ending inventory = 1,660 * 60 /100=996 Feb Beginning Inventory
Feb ending inventory = 1,860 *60/100= 1,116 March Beginning Inventory
________________________________________________________________
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