The document provides budgeted information for the Expando Company, which produces entertainment centers from particle board. It includes budgeted unit sales, prices, expenses, cash flows, and beginning balances. Overhead rates are based on standard direct labor hours and production units. Desired inventory levels are 10% of next month's material needs for direct materials and 5% for finished goods. Budgeted unit sales are provided for the first six months along with a sales price of $100 per unit and cash/credit mix. Variable and fixed expenses are also budgeted. The cost per output includes direct materials, labor, and overhead costs. Additional beginning account balances for fixed assets and equity are also presented.

1. EXAMPLE 9-1
The Expando Company produces entertainment centers from a type of pressed wood
referred to as particle board. Other materials, such as glue and screws are viewed as
insignificant and are charged to overhead as indirect materials. Budgeted, or standard
quantities allowed per unit along with the budgeted prices and rates are as follows:
Overhead rates are based on 4,800 standard direct labor hours per month, or average
monthly production of 12,000 units, i.e., (.4)(12,000) = 4,800 hours. Desired ending
inventories are 10% of next periods material needs for direct material and 5% of next
periods sales for finished goods. Unit Sales are budgeted as follows for the first six
months of the year.
January February March April May June
9,000 10,000 11,000 12,000 14,000 14,500
The budgeted sales price is $100 per unit. Sales are budgeted as 50% cash and 50%
credit sales. Past experience indicates that 80% of the credit sales are collected during
the month of sale, 18% are collected in the following month, and 2% are
uncollectible. A 1% cash discount is allowed to customers who pay within the month
the sale takes place including cash sales.
Variable selling and administrative expenses are budgeted at 10% of sales dollars. The
budget for fixed selling and administrative expenses is $50,000 per month. Cash
payments are made for all expenditures made during the month except for
depreciation of $100,000 in manufacturing and $25,000 in the selling and
administrative area. The budgeted beginning cash balance for March is $100,000 and
the tax rate is 40%. Budgeted income taxes from January and February are $200,000.
This amount is to be paid at the end of march along with the current months taxes. A
three month note for $50,000 is to be repaid at the end of March. The interest rate on
the note is 12 percent.
Type of Input Inputs per output Cost per Input Cost per Output
Direct materials 2 particle board sheets* $10 $20
Direct labor .4 hours 15 6
Factory overhead:
Variable .4 hours 30 12
Fixed .4 hours 50 20
Total cost per output $58
* Particle board is purchased in sheets that are 3/4" by 4'by 8'.

2. Some additional account balances budgeted for the end of February include: Land
$5,000,000, buildings and equipment $15,000,000, accumulated depreciation
$6,000,000, other current liabilities 0 , long term liabilities 0, common stock
$5,000,000 and retained earnings $8,993,000.
The following illustrations include a partial master budget for March including the
various parts of the operating budget, a cash budget and an abbreviated balance sheet.
Budgets for February and April can also be prepared with the given data. However, a
budget for January would require unit sales for December. A budget for May would
require unit sales for July.