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Horngren'S Financial And Managerial Accounting
Found in: Page 1237

Short Answer

Preparing an operating budget—inventory, purchases, and cost of goods sold budget

Slate, Inc. sells tire rims. Its sales budget for the nine months ended September 30, 2018, follows:

Quarter Ended Nine-Month Total

March 31 June 30 September 30 Cash sales, 20% $ 28,000 $ 38,000 $ 33,000 $ 99,000

Credit sales, 80% 112,000 152,000 132,000 396,000 Total sales $ 140,000 $ 190,000 $ 165,000 $ 495,000

In the past, cost of goods sold has been 40% of total sales. The director of marketing and the financial vice president agree that each quarter’s ending inventory should not be below $5,000 plus 10% of cost of goods sold for the following quarter. The marketing director expects sales of $240,000 during the fourth quarter. The January 1 inventory was $38,000. Prepare an inventory, purchases, and cost of goods sold budget for each of the first three quarters of the year. Compute cost of goods sold for the entire nine-month period.


The total budgeted inventory is $471,600 and budgeted cost of goods sold is $198,000.

See the step by step solution

Step by Step Solution

Step 1: Preparation of inventory budget

March 31

June 30

September 30


Budgeted sales





Plus: Desired ending inventory





Total required inventory





Less: Beginning inventory





Budgeted inventory





Step 2: Preparation of cost of goods sold budget

March 31

June 30

September 30


Budgeted sales





Budgeted cost of goods sold





Most popular questions for Business-studies Textbooks

Question: Preparing a financial budget—schedule of cash receipts, schedule of cash payments, cash budget

Puckett Company has provided the following budget information for the first quarter of 2018:

Total sales $ 216,000

Budgeted purchases of direct materials 40,600

Budgeted direct labor cost 36,800 Budgeted manufacturing overhead costs:

Variable manufacturing overhead 1,025

Depreciation 1,000

Insurance and property taxes 6,650

Budgeted selling and administrative expenses:

Salaries expense 14,000

Rent expense 2,500

Insurance expense 2,000

Depreciation expense 350

Supplies expense 4,320

Additional data related to the first quarter of 2018 for Puckett Company:

a. Capital expenditures include $41,000 for new manufacturing equipment to be purchased and paid in the first quarter.

b. Cash receipts are 75% of sales in the quarter of the sale and 25% in the quarter following the sale.

c. Direct materials purchases are paid 50% in the quarter purchased and 50% in the next quarter.

d. Direct labor, manufacturing overhead, and selling and administrative costs are paid in the quarter incurred.

e. Income tax expense for the first quarter is projected at $49,000 and is paid in the quarter incurred.

f. Puckett Company expects to have adequate cash funds and does not anticipate borrowing in the first quarter.

g. The December 31, 2017, balance in Cash is $25,000, in Accounts Receivable is $21,600, and in Accounts Payable is $16,500.


1. Prepare Puckett Company’s schedule of cash receipts from customers and schedule of cash payments for the first quarter of 2018.

2. Prepare Puckett Company’s cash budget for the first quarter of 2018.

Computing and journalizing standard cost variances

Moss manufactures coffee mugs that it sells to other companies for customizing with their own logos. Moss prepares flexible budgets and uses a standard cost system to control manufacturing costs. The standard unit cost of a coffee mug is based on static budget volume of 59,800 coffee mugs per month:

Direct material (0.2 lbs. @$0.25 per lb)


Direct Labor (3 minutes @ $0.11 per minute)


Manufacturing Overhead:

Variable (3 minutes @ $0.06 per minute)


Fixed (3 minutes @ $0.13 per minute)



Total Cost per Coffee Mug


Actual cost and production information for July 2018 follows:

a. There were no beginning or ending inventory balances. All expenditures were on account.

b. Actual production and sales were 62,500 coffee mugs.

c. Actual direct materials usage was 11,000 lbs. at an actual cost of $0.17 per lb.

d. Actual direct labor usage was 197,000 minutes at a total cost of $25,610.

e. Actual overhead cost was $10,835 variable and $29,765 fixed.

f. Selling and administrative costs were $95,000.


1. Compute the cost and efficiency variances for direct materials and direct labor.

2. Journalize the purchase and usage of direct materials and the assignment of direct labor, including the related variances.

3. For manufacturing overhead, compute the variable overhead cost and efficiency variances and the fixed overhead cost and volume variances.

4. Journalize the actual manufacturing overhead and the allocated manufacturing overhead. Journalize the movement of all production costs from Work­-in­-Process Inventory. Journalize the adjusting of the Manufacturing Overhead account.

5. Moss intentionally hired more highly skilled workers during July. How did this decision affect the cost variances? Overall, was the decision wise?


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