Cost Accounting Questions

© John Wiley & Sons, 2011
Chapter 10: Static and Flexible Budgets
Eldenburg & Wolcott’s Cost Management, 2e
Slide # 1
Cost Management
Measuring, Monitoring, and Motivating Performance

Chapter 10
Static and Flexible Budgets

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© John Wiley & Sons, 2011
Chapter 10: Static and Flexible Budgets
Eldenburg & Wolcott’s Cost Management, 2e
Slide # 2
Chapter 10: Static and Flexible Budgets
Learning objectives
Q1: How do budgets contribute to the strategic management process?
Q2: What is a master budget and how is it prepared?
Q3: What are flexible budgets and how can they be used for sensitivity analysis?
Q4: How are budget variances calculated and used as performance measures?
Q5: How do behavioral tensions influence the budgeting process?
Q6: What approaches exist for addressing the problems of traditional budgeting?

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© John Wiley & Sons, 2011
Chapter 10: Static and Flexible Budgets
Eldenburg & Wolcott’s Cost Management, 2e
Slide # 3
Q1: Budgets & Strategic Management Process
A budget is
A formalized financial plan.
A translation of an organization’s strategies.
A method of communicating.
A way to define areas of responsibility and decision rights.
The budget cycle is the series of sequential steps followed to create and use budgets.

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© John Wiley & Sons, 2011
Chapter 10: Static and Flexible Budgets
Eldenburg & Wolcott’s Cost Management, 2e
Slide # 4
Q1: Budgets & Strategic Management Process
Budgeting process begins with the organizational vision, core competencies, and risk appetite
Organizational strategies designed to achieve the vision will drive the capital expenditures and long term financing plans
Operating plans are then created in line with the organizational strategies
Actual results must be monitored, measured, and analyzed compared to budgeted plans

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© John Wiley & Sons, 2011
Chapter 10: Static and Flexible Budgets
Eldenburg & Wolcott’s Cost Management, 2e
Slide # 5
Q1: Budgets & Levers of Control

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Belief Systems

Communicates organizational strategies and goals

Motivates managers to plan in advance and coordinate activities

Boundary Systems

Authorizes employees to engage in planned activities and spend within budget limits

Ensures sufficient cash flow for financial viability

Interactive Control Systems

Utilize variances to identify opportunities and threats to the business

Revaluate strategies and operating plans as conditions changes

Diagnostic Control Systems

Assign responsibility and reward employees for achieving budget targets

Motivate managers to provide good estimates and use resources appropriately

© John Wiley & Sons, 2011
Chapter 10: Static and Flexible Budgets
Eldenburg & Wolcott’s Cost Management, 2e
Slide # 6
Q2: Master Budgets
A master budget is
A comprehensive plan for the upcoming accounting period.
Usually prepared for a one-year period.
Is based on a series of budget assumptions.
The master budget consists of several subsidiary budgets, in two categories:
Operating budgets.
Financial budgets.

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© John Wiley & Sons, 2011
Chapter 10: Static and Flexible Budgets
Eldenburg & Wolcott’s Cost Management, 2e
Slide # 7
Q2: Operating Budgets

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© John Wiley & Sons, 2011
Chapter 10: Static and Flexible Budgets
Eldenburg & Wolcott’s Cost Management, 2e
Slide # 8
Q2: Operating Budgets
Revenue budget
Production budget
Direct materials budget
Direct labor budget
Manufacturing overhead budget
Inventory and cost of goods sold budget
Support department budgets
Budgeted income statement
The operating budget is created by preparing the following individual budgets, in this order:

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© John Wiley & Sons, 2011
Chapter 10: Static and Flexible Budgets
Eldenburg & Wolcott’s Cost Management, 2e
Slide # 9
Q2: Financial Budgets
Capital budget
Long-term financing budget
Cash budget
Budgeted balance sheet
Budgeted statement of cash flows
The financial budget is created by preparing the following individual budgets, in this order:

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© John Wiley & Sons, 2011
Chapter 10: Static and Flexible Budgets
Eldenburg & Wolcott’s Cost Management, 2e
Slide # 10

Stanley J, Inc., makes a tool used by auto mechanics that sells for $68/unit. It expects to sell 6,000 units in April and 7,000 units in May. Stanley J prefers to end each period with a finished goods inventory equal to 10% of the next period’s sales in units and a direct materials inventory equal to 20% of the direct materials required for the next period’s production. The company never has any beginning or ending work-in-process inventories. There were 400 units in finished goods inventory on April 1. Prepare the revenue and production budgets for April.
Q2: Operating Budget Example

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© John Wiley & Sons, 2011
Chapter 10: Static and Flexible Budgets
Eldenburg & Wolcott’s Cost Management, 2e
Slide # 11
Stanley J’s product uses 0.3 pounds of direct material per unit, at a cost of $4/lb. There were 220 lbs. of direct material on hand on April 1. Assume that budgeted production for May is 6,500 units. Prepare the direct materials purchases and usage budget for April.
Q2: Operating Budget Example

Usage Budget = 1,890 pounds * $4 per pound = $7,560

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© John Wiley & Sons, 2011
Chapter 10: Static and Flexible Budgets
Eldenburg & Wolcott’s Cost Management, 2e
Slide # 12
Stanley J’s product uses 0.2 hours of direct labor at a cost of $12/hr. Prepare the direct labor budget for April.
Q2: Operating Budget Example

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© John Wiley & Sons, 2011
Chapter 10: Static and Flexible Budgets
Eldenburg & Wolcott’s Cost Management, 2e
Slide # 13
Stanley J’s budgeted fixed manufacturing overhead for April is $167,000, and variable manufacturing overhead is budgeted at $6 per direct labor hour. Prepare the manufacturing overhead budget for April.
Q2: Operating Budget Example

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© John Wiley & Sons, 2011
Chapter 10: Static and Flexible Budgets
Eldenburg & Wolcott’s Cost Management, 2e
Slide # 14
Assume that Stanley J’s April 1 direct materials inventory had a cost of $1,560. Prepare the April ending inventories budget for direct materials.
Q2: Operating Budget Example

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© John Wiley & Sons, 2011
Chapter 10: Static and Flexible Budgets
Eldenburg & Wolcott’s Cost Management, 2e
Slide # 15
Prepare the April ending inventories budget for finished goods.
Q2: Operating Budget Example

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© John Wiley & Sons, 2011
Chapter 10: Static and Flexible Budgets
Eldenburg & Wolcott’s Cost Management, 2e
Slide # 16
Assume that Stanley J’s April 1 finished goods inventory had a cost of $12,146. Prepare the cost of goods sold budget for April.
Q2: Operating Budget Example

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© John Wiley & Sons, 2011
Chapter 10: Static and Flexible Budgets
Eldenburg & Wolcott’s Cost Management, 2e
Slide # 17
Stanley J’s budget for April includes $22,000 for administrative costs, $34,000 for fixed distribution costs, $18,000 for research and development, and $13,000 for fixed marketing costs. Additionally, the budgeted variable costs for distribution are $0.75/unit sold and the budgeted variable costs for marketing are 4% of sales revenue. Prepare the support department budget for April.
Q2: Operating Budget Example

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© John Wiley & Sons, 2011
Chapter 10: Static and Flexible Budgets
Eldenburg & Wolcott’s Cost Management, 2e
Slide # 18
Suppose that Stanley J’s income tax rate is 28%. Prepare the budgeted income statement for April.
Q2: Operating Budget Example

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© John Wiley & Sons, 2011
Chapter 10: Static and Flexible Budgets
Eldenburg & Wolcott’s Cost Management, 2e
Slide # 19
Q4: Budget Variances
Managers compare actual results to budgeted results in order to
Monitor operations, and
Motivate appropriate performance.
Differences between budgeted and actual results are called budget variances.
Variances are stated in absolute value terms, and labeled as Favorable or Unfavorable.

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© John Wiley & Sons, 2011
Chapter 10: Static and Flexible Budgets
Eldenburg & Wolcott’s Cost Management, 2e
Slide # 20
Q4: Budget Variances
Reasons for budget variances are investigated.
The investigation may find:
Inefficiencies in actual operations that can be corrected.
Efficiencies in actual operations that can be replicated in other areas of the organization.
Uncontrollable outside factors that require changes to the budgeting process.

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© John Wiley & Sons, 2011
Chapter 10: Static and Flexible Budgets
Eldenburg & Wolcott’s Cost Management, 2e
Slide # 21
Q3: Static Budgets
A budget prepared for a single level of sales volume is called a static budget.

Static budgets are prepared at the beginning of the year.

Differences between actual results and the static budget are called static budget variances.

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© John Wiley & Sons, 2011
Chapter 10: Static and Flexible Budgets
Eldenburg & Wolcott’s Cost Management, 2e
Slide # 22
Q3: Flexible Budgets
A budget prepared for a multiple levels of sales volume is called a flexible budget.
Flexible budgets are prepared at the beginning of the year for planning purposes and at the end of the year for performance evaluation.
Flexible budgets are also used for sensitivity analysis and to manage risk due to uncertainty.
Differences between actual results and the flexible budget are called flexible budget variances.

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© John Wiley & Sons, 2011
Chapter 10: Static and Flexible Budgets
Eldenburg & Wolcott’s Cost Management, 2e
Slide # 23

Q3, Q4: Flexible Budget Example
Tina’s Trinkets is preparing a budget for 2006. The budgeted selling price per unit is $10, and total fixed costs for 2006 are estimated to be $5,000. Variable costs are budgeted at $3/unit. Prepare a flexible budget for the volume levels 1,000, 1,100, and 1,200 units.

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© John Wiley & Sons, 2011
Chapter 10: Static and Flexible Budgets
Eldenburg & Wolcott’s Cost Management, 2e
Slide # 24
Q3, Q4: Static Budget Variances Example
Suppose that Tina’s 2006 static budget was for 1,100 units of sales. The actual results are given below. Compute the static budget variances for each row and discuss.

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© John Wiley & Sons, 2011
Chapter 10: Static and Flexible Budgets
Eldenburg & Wolcott’s Cost Management, 2e
Slide # 25
Q3, Q4: Flexible Budget Variances Example
Compute the flexible budget variances for Tina and discuss the results. Compare the flexible budget variances to the static budget variances on the prior page.

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No solutions are provided for the “compare” part of the question, but the instructor should talk about how the volume differences are gone from the FBVs.
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© John Wiley & Sons, 2011
Chapter 10: Static and Flexible Budgets
Eldenburg & Wolcott’s Cost Management, 2e
Slide # 26
Q3, Q4: Performance Evaluation
A static budget variance includes effects from output volume.
A flexible budget variance removes these output volume effects.
Other adjustments to the year-end flexible budget may be made for a fair performance evaluation, such as
Input price changes outside the control of the manager under evaluation
Fixed cost increases outside the control of the manager under evaluation

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Budgets used to evaluate performance and compensation can create behavioral tension
Participative budgeting – when managers who are responsible for the budgets prepare the budget forecasts
Can result in budgetary slack – when managers set targets so low that goals can be met easily (and bonuses achieved)
Budget ratcheting – when top managers set targets
If targets unachievable, this can result in employees having little motivation to meet targets
Organizations must watch for budget manipulation

© John Wiley & Sons, 2011
Chapter 10: Static and Flexible Budgets
Eldenburg & Wolcott’s Cost Management, 2e
Slide # 27
Q5: Behavior Tensions in Budgeting

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© John Wiley & Sons, 2011
Chapter 10: Static and Flexible Budgets
Eldenburg & Wolcott’s Cost Management, 2e
Slide # 28
Zero based budgets are prepared without using past information as justification.
Rolling budgets are prepared frequently for overlapping time periods and actual results may be used to update the budget for the next period.
Kaizen budgets plan cost reductions over time.
Activity based budgets use more cost pools and cost drivers.
GPK and RCA budgets identify fixed and variable cost functions at the resource center level.
Beyond budgeting uses external benchmarks to evaluate managers’ performance
Q6: Other Budgeting Approaches

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Production budget
Budgeted sales in units in April6,000
Desired ending FG inventory700
Total units required6,700
Less: beginning FG inventory(400)
Required production in units6,300
Revenue budget
Budgeted sales in units in April6,000
Budgeted selling price per unit$68.00
Budgeted revenues$408,000
Revenue budget
Budgeted sales in units in April6,000
Budgeted selling price per unit$68.00
Budgeted revenues$408,000
Production budget
Budgeted sales in units in April6,000
Desired ending FG inventory700
Total units required6,700
Less: beginning FG inventory(400)
Required production in units6,300

operating budget

Assumed budgeted production in May 6,500 units

Budgeted sales in units in April 6,000 units Total budgeted costs for administration $22,000

Budgeted sales in units in May 7,000 units Budgeted fixed costs for distribution $34,000

Budgeted selling price per unit $68.00 Budgeted variable costs for distribution $0.75 /unit

Direct materials required per unit 0.3 lbs Total budgeted costs for research & development $18,000

Direct material cost $4.00 /lb Budgeted fixed costs for marketing $13,000

Direct labor required per unit 0.2 hrs Budgeted variable costs for marketing 4% of sales revenue

Direct labor cost $12.00 Income tax rate 28%

Beginning finished goods inventory 400 units

Beginning direct materials inventory 220 lbs Support department budget

Desired FG as % of next period’s sales 10% Administration $22,000

Desired DM as % of next period’s needs 20% Distribution: Fixed costs $34,000

Budgeted variable overhead per DL hour $6.00 /DL hr Variable costs $4,500 $38,500

Fixed overhead $167,000 Research & development $18,000

Costs attached to beginning FG inventory $12,146 Marketing: Fixed costs $13,000

Costs attached to beginning DM inventory $854 Variable costs $16,320 $29,320

Total budgeted support department costs $107,820

Revenue budget

Budgeted sales in units in April 6,000 Budgeted income statement

Budgeted selling price per unit $68.00 Sales revenue $408,000

Budgeted revenues $408,000 Cost of goods sold $187,447

Gross margin $220,553

Production budget Operating costs:

Budgeted sales in units in April 6,000 Administration $22,000

Desired ending FG inventory 700 Distribution $38,500

Total units required 6,700 Research & development $18,000

Less: beginning FG inventory (400) Marketing $29,320 $107,820

Required production in units 6,300 Net income before taxes $112,733

Income taxes $31,565

Direct materials budget Net income $81,168

Required production in units 6,300

DM required per unit, in pounds 0.3

Total DM required, in pounds 1,890

Less: Beginning DM inventory (220)

Plus: Desired ending DM inventory 390

Required DM purchases in pounds 2,060

Budgeted DM cost per pound $4.00

Budgeted cost of DM $8,240

Direct labor budget

Required production in units 6,300

DL required per unit, in hours 0.2

Total DL hours required 1,260

Budgeted cost per DL hour $12.00

Budgeted cost of DL $15,120

Manufacturing overhead budget

Total DL hours required 1,260

Budgeted variable overhead per DL hour $6.00

Total budgeted variable overhead $7,560

Budgeted fixed overhead $167,000

Total budgeted overhead $174,560

Ending inventories budgets

Budgeted cost of DM purchases $8,240

Beginning DM inventory $854

DM available for use $9,094

Budgeted cost of desired ending DM inventory:

[6,500 units x 0.3 lbs/unit] x 20% x $4/lb $1,560

Budgeted cost of DM to be used $7,534

Budgeted cost of DM to be used $7,534

Budgeted cost of DL $15,120

Total budgeted overhead $174,560

Total budgeted manufacturing costs $197,214

Required production in units 6,300

Budgeted manufacturing cost per unit $31.3037

Budgeted ending FG inventory in units 700

Budgeted cost of ending FG inventory $21,913

Cost of goods sold budget

Beginning FG inventory $12,146

Total budgeted manufacturing costs $197,214

Cost of goods available for sale $209,359

Less: budgeted ending FG inventory $21,913

Budgeted cost of goods sold $187,447

SB & FB

Budgeted sales in units 1,700

Budgeted selling price per unit $10.00

Budgeted variable costs per unit $3.00

Budgeted fixed costs $5,000

Volume Levels

Sales in units 1,000 1,100 1,200

Revenues $10,000 $11,000 $12,000

Variable costs $3,000 $3,300 $3,600

Contribution margin $7,000 $7,700 $8,400

Fixed costs $5,000 $5,000 $5,000

Operating income $2,000 $2,700 $3,400

SBV and FBV

Static budg units 1100

Budgeted sales in units 1,700 Actual units sold 980

Budgeted selling price per unit $10.00 Actual selling price 9.8

Budgeted variable costs per unit $3.00 Actual v cost 3.05

Budgeted fixed costs $5,000 Actual fixed costs 4520

Volume Levels Actual

Sales in units 1,000 1,100 1,200 980

Revenues $10,000 $11,000 $12,000 $9,604

Variable costs $3,000 $3,300 $3,600 $2,989

Contribution margin $7,000 $7,700 $8,400 $6,615

Fixed costs $5,000 $5,000 $5,000 $4,520

Operating income $2,000 $2,700 $3,400 $2,095

Static Budget Actual Results Static Budget Variance

Sales in units 1,100 980

Revenues $11,000 $9,604 $1,396 Unfavorable

Variable costs $3,300 $2,989 $311 Favorable

Contribution margin $7,700 $6,615 $1,085 Unfavorable

Fixed costs $5,000 $4,520 $480 Favorable

Operating income $2,700 $2,095 $605 Unfavorable

Year-end Flexible Budget Actual Results Flexible Budget Variance

Sales in units 980 980

Revenues $9,800 $9,604 $196 Unfavorable

Variable costs $2,940 $2,989 $49 Unfavorable

Contribution margin $6,860 $6,615 $245 Unfavorable

Fixed costs $5,000 $4,520 $480 Favorable

Operating income $1,860 $2,095 $235 Unfavorable

cash budget

January February March

Budgeted sales $100,000 $150,000 $200,000

January February March

Cash sales $40,000 $60,000 $80,000

A/R collections:

From current month’s sales $27,000 $40,500 $54,000

From 1 month ago $0 $30,000 $45,000

From 2 months ago $0 $0 $3,000

Total $67,000 $130,500 $182,000

DM purchases $20,000 $35,000 $45,000

January February March

Direct labor costs $30,000 $45,000 $60,000

Payments on A/P:

From current month’s purchases $8,000 $14,000 $18,000

From 1 month ago $0 $10,000 $17,500

From 2 months ago $0 $0 $2,000

Total $38,000 $69,000 $97,500

January February March

Direct labor and materials $38,000 $69,000 $97,500

Other variable costs $4,000 $6,000

Other fixed costs $6,000 $6,000 $6,000

Total $44,000 $79,000 $109,500

January February March

Beginning cash balance $0 $23,000 $74,500

Cash receipts $67,000 $130,500 $182,000

Cash disbursements ($44,000) ($79,000) ($109,500)

Ending cash balance $23,000 $74,500 $147,000

operating budget

Assumed budgeted production in May 6,500 units

Budgeted sales in units in April 6,000 units Total budgeted costs for administration $22,000

Budgeted sales in units in May 7,000 units Budgeted fixed costs for distribution $34,000

Budgeted selling price per unit $68.00 Budgeted variable costs for distribution $0.75 /unit

Direct materials required per unit 0.3 lbs Total budgeted costs for research & development $18,000

Direct material cost $4.00 /lb Budgeted fixed costs for marketing $13,000

Direct labor required per unit 0.2 hrs Budgeted variable costs for marketing 4% of sales revenue

Direct labor cost $12.00 Income tax rate 28%

Beginning finished goods inventory 400 units

Beginning direct materials inventory 220 lbs Support department budget

Desired FG as % of next period’s sales 10% Administration $22,000

Desired DM as % of next period’s needs 20% Distribution: Fixed costs $34,000

Budgeted variable overhead per DL hour $6.00 /DL hr Variable costs $4,500 $38,500

Fixed overhead $167,000 Research & development $18,000

Costs attached to beginning FG inventory $12,146 Marketing: Fixed costs $13,000

Costs attached to beginning DM inventory $854 Variable costs $16,320 $29,320

Total budgeted support department costs $107,820

Revenue budget

Budgeted sales in units in April 6,000 Budgeted income statement

Budgeted selling price per unit $68.00 Sales revenue $408,000

Budgeted revenues $408,000 Cost of goods sold $187,447

Gross margin $220,553

Production budget Operating costs:

Budgeted sales in units in April 6,000 Administration $22,000

Desired ending FG inventory 700 Distribution $38,500

Total units required 6,700 Research & development $18,000

Less: beginning FG inventory (400) Marketing $29,320 $107,820

Required production in units 6,300 Net income before taxes $112,733

Income taxes $31,565

Direct materials budget Net income $81,168

Required production in units 6,300

DM required per unit, in pounds 0.3

Total DM required, in pounds 1,890

Less: Beginning DM inventory (220)

Plus: Desired ending DM inventory 390

Required DM purchases in pounds 2,060

Budgeted DM cost per pound $4.00

Budgeted cost of DM $8,240

Direct labor budget

Required production in units 6,300

DL required per unit, in hours 0.2

Total DL hours required 1,260

Budgeted cost per DL hour $12.00

Budgeted cost of DL $15,120

Manufacturing overhead budget

Total DL hours required 1,260

Budgeted variable overhead per DL hour $6.00

Total budgeted variable overhead $7,560

Budgeted fixed overhead $167,000

Total budgeted overhead $174,560

Ending inventories budgets

Budgeted cost of DM purchases $8,240

Beginning DM inventory $854

DM available for use $9,094

Budgeted cost of desired ending DM inventory:

[6,500 units x 0.3 lbs/unit] x 20% x $4/lb $1,560

Budgeted cost of DM to be used $7,534

Budgeted cost of DM to be used $7,534

Budgeted cost of DL $15,120

Total budgeted overhead $174,560

Total budgeted manufacturing costs $197,214

Required production in units 6,300

Budgeted manufacturing cost per unit $31.3037

Budgeted ending FG inventory in units 700

Budgeted cost of ending FG inventory $21,913

Cost of goods sold budget

Beginning FG inventory $12,146

Total budgeted manufacturing costs $197,214

Cost of goods available for sale $209,359

Less: budgeted ending FG inventory $21,913

Budgeted cost of goods sold $187,447

SB & FB

Budgeted sales in units 1,700

Budgeted selling price per unit $10.00

Budgeted variable costs per unit $3.00

Budgeted fixed costs $5,000

Volume Levels

Sales in units 1,000 1,100 1,200

Revenues $10,000 $11,000 $12,000

Variable costs $3,000 $3,300 $3,600

Contribution margin $7,000 $7,700 $8,400

Fixed costs $5,000 $5,000 $5,000

Operating income $2,000 $2,700 $3,400

SBV and FBV

Static budg units 1100

Budgeted sales in units 1,700 Actual units sold 980

Budgeted selling price per unit $10.00 Actual selling price 9.8

Budgeted variable costs per unit $3.00 Actual v cost 3.05

Budgeted fixed costs $5,000 Actual fixed costs 4520

Volume Levels Actual

Sales in units 1,000 1,100 1,200 980

Revenues $10,000 $11,000 $12,000 $9,604

Variable costs $3,000 $3,300 $3,600 $2,989

Contribution margin $7,000 $7,700 $8,400 $6,615

Fixed costs $5,000 $5,000 $5,000 $4,520

Operating income $2,000 $2,700 $3,400 $2,095

Static Budget Actual Results Static Budget Variance

Sales in units 1,100 980

Revenues $11,000 $9,604 $1,396 Unfavorable

Variable costs $3,300 $2,989 $311 Favorable

Contribution margin $7,700 $6,615 $1,085 Unfavorable

Fixed costs $5,000 $4,520 $480 Favorable

Operating income $2,700 $2,095 $605 Unfavorable

Year-end Flexible Budget Actual Results Flexible Budget Variance

Sales in units 980 980

Revenues $9,800 $9,604 $196 Unfavorable

Variable costs $2,940 $2,989 $49 Unfavorable

Contribution margin $6,860 $6,615 $245 Unfavorable

Fixed costs $5,000 $4,520 $480 Favorable

Operating income $1,860 $2,095 $235 Unfavorable

cash budget

January February March

Budgeted sales $100,000 $150,000 $200,000

January February March

Cash sales $40,000 $60,000 $80,000

A/R collections:

From current month’s sales $27,000 $40,500 $54,000

From 1 month ago $0 $30,000 $45,000

From 2 months ago $0 $0 $3,000

Total $67,000 $130,500 $182,000

DM purchases $20,000 $35,000 $45,000

January February March

Direct labor costs $30,000 $45,000 $60,000

Payments on A/P:

From current month’s purchases $8,000 $14,000 $18,000

From 1 month ago $0 $10,000 $17,500

From 2 months ago $0 $0 $2,000

Total $38,000 $69,000 $97,500

January February March

Direct labor and materials $38,000 $69,000 $97,500

Other variable costs $4,000 $6,000

Other fixed costs $6,000 $6,000 $6,000

Total $44,000 $79,000 $109,500

January February March

Beginning cash balance $0 $23,000 $74,500

Cash receipts $67,000 $130,500 $182,000

Cash disbursements ($44,000) ($79,000) ($109,500)

Ending cash balance $23,000 $74,500 $147,000

operating budget

Assumed budgeted production in May 6,500 units

Budgeted sales in units in April 6,000 units Total budgeted costs for administration $22,000

Budgeted sales in units in May 7,000 units Budgeted fixed costs for distribution $34,000

Budgeted selling price per unit $68.00 Budgeted variable costs for distribution $0.75 /unit

Direct materials required per unit 0.3 lbs Total budgeted costs for research & development $18,000

Direct material cost $4.00 /lb Budgeted fixed costs for marketing $13,000

Direct labor required per unit 0.2 hrs Budgeted variable costs for marketing 4% of sales revenue