ACT502 - Management Accounting - Questions and Answers - Assessment Answer

Assessment Task:

Question One         
Comfort Furniture Pty Ltd manufactures and distributes stylish and practical furniture for the hospitality industry in Australia.
To meet sales requirements and to have 2,500 units of finished goods on hand on December 31, 2017, the production budget shows 9,000 required units of output. The total unit cost of production is expected to be $18. The company uses the first-in, first 
ACT502 Assignment
out (FIFO) inventory costing method. Interest expense is expected to be $3,500 for the year. Income taxes are expected to be 40% of income before income taxes, in 2017, the company expects to declare and pay $8,000 cash dividends.  
The company’s cash budget shows and expected cash balance of $5,880 on December 31, 2017. All sales and purchases are on account. It is expected that 60% of quarterly sales are collected in cash within the quarter and the remainder is collected in the following quarter. Direct materials purchased from suppliers and paid 50% in the quarter incurred and the remainder in the following quarter. Purchases in the fourth quarter were the same as the materials used. In 2017, the company expects to purchase additional equipment costing $9,000. $4,000 of depreciation expense on equipment is included in the budget data and split equally between manufacturing overhead and selling and administrative expenses.  
The company expects to pay $8,000 on the outstanding notes payable balance plus all interest due and payable to December 31 (included in interest expense $3,500, above). Accounts payable at December 31, 2017, includes amounts due suppliers (see above) plus other accounts payable of $7,200. Unpaid income taxes at December 31 will be $5,000. 
 
Required:  
Prepare the following for 2017:  
1) Budgeted statement of cost of goods sold 
2) The budgeted multiple-step income statement 
3) Retained earnings statement for 2017 
4) Budgeted classified balance sheet at December 31, 2017
5) Proof of budgeted cash balance on December 31, 2017 
 
Question Two           
a) Discuss all the primary benefits of budgeting to the CEO of Comfort Furniture Pty Ltd. Provide detailed information. 
b) How may a Comfort Furniture’s budget report for the second quarter differ from the first quarter? Provide a detailed explanation.

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