Exam 5: Planning and Forecasting in a Manufacturing Setting

Avery Manufacturing has the following sales budgets for the fourth quarter. The accounting manager has analyzed cash collections and determined that credit sales are collected 70% in the month of sale, 20% in the month following the sale, and 10% in the second month following sale.How much cash is Avery expected to collect in December?

Wright's sales budget for the third quarter of the upcoming year shows budgeted sales of $465,000, $525,000, and $487,500 in July, August, and September, respectively.All sales are made on credit.The cash receipts budget for September shows total cash receipts equal to $459,975.Wright grants a discount to customers who pay within 10 days of the invoice.Wright collects 60% of sales within the discount period, 20% in the month of sale but outside the discount period, 15% in the month following sale and the remainder is uncollectible.What is the discount offered by Wright, and what are the cash collections in September associated with September sales?

On October 31, 2020, Janie Mounce, manager of a department in the largest division of the XYZ Company, was contacted by the chairman of the budget committee.Janie needed to send her 2021 departmental budget to the committee.Instructions from the chair of the committee to all the department managers indicated that any revenue or expense items that deviated more than 5% from last year's budget needed a written explanation to be turned in with the budget. Required: Describe XYZ's budget process as a top-down or bottom-up approach.What are the advantages and disadvantages of this budget process?

What is budgetary slack and why is it an issue in budget preparation?

The first component of the master budget is the cash budget.

On a pro-forma balance sheet, the cash balance comes directly from

Johnson Equipment expects the following sales in January, February, and March: The controller has determined that the company collects credit sales as follows: 60% in the month of sale, 35% in the first month after sale, and 5% in the second month after sale.How much cash will be collected from customers in March?

Top-down budgeting is also referred to as participative budgeting.

Sophia, Inc.is preparing its cash budget for the fourth quarter.The inventory manager advises that materials purchases will be $40,000 in October and will increase by 25% for each month thereafter due to the holiday season.Sophia's purchases in September were $32,000.Sophia pays for purchases 50% in the month after sale and 50% in the 2nd month after the sale.What are Sophia's budgeted cash payments for purchases in November?

Preparing a budget does not allow managers to

Kandy Harts manufactures custom T-shirts.Each T-shirt can be imprinted front and back with photos, company logos or other information.Each T-shirt requires 2 ounces of ink, 15 minutes of direct labor (processing, folding, packaging), and a plastic bag for packaging.The following information is available regarding costs: Kandy applied overhead at a rate of $9.40 per direct labor hour, and fringe benefits for workers are an additional 20% of wages.What is the standard price of producing one long-sleeve T-shirt?

Cooper Company, a retailer of camping supplies has budgeted activity for January using the following data: Required: Prepare a cash budget for January.Omit the heading.

Budgetary slack is more common in a top-down approach to budgeting than in a bottom-up approach.

A rolling budget always includes 12 months of data and as one month ends, it is removed from the budget and the entire budget rolls forward one month.

Pro-forma financial statements are prepared based on assumed rather than actual results.

James Worman is preparing a direct labor budget.His sales budget shows total sales units of 15,000 and sales dollars of $18,750.The direct materials purchases budget shows materials to be purchased of 15,000 units and budgeted purchases cost of $3,750.The production budget indicates a total of 12,000 units to be produced.Standard direct labor hours per unit are 0.30 and the standard average wage rate is $15.What is budgeted direct labor cost?

Jody Jewelry manufactures jewelry.It applies overhead based on direct labor hours.In October Jody is planning to make 500 rings, 400 bracelets, and 210 pendants.The company expects the total manufacturing overhead for the year would be $3,450,000 and that total direct labor hours for the year would be 75,000.Actual overhead incurred for October was $295,920.Each ring requires 6.25 hours of labor to manufacture; each bracelet requires 5.5 hours of labor to manufacture, and each pendant requires 4 hours of labor to manufacture.What is the standard overhead cost per bracelet?

Standard direct labor prices are also referred to as direct labor rates.

Which of the following is a suggested source for forecasting sales for a new business?

Candi's Wholesale Foods specializes in providing hors d'oeuvres at a wholesale price to caterers.One of Candi's best sellers is a fruit éclair.Her recipe calls for 1 pint of pastry cream, 8 ladyfinger cookies, and 2 cups of fruit (strawberries, raspberries, or blueberries).Each recipe makes 8 éclairs (one batch).The standard direct materials cost is $0.80 per pint of pastry cream, $0.90 for a box of 24 ladyfingers, and $0.25 for a cup of fruit.The éclairs are packed on plastic trays costing $0.30 each.Caterers pick up the éclairs immediately so there is no storage or delivery cost to Candi.It requires one person 4 minutes preparation time and 2 minutes of packaging time for one batch of éclairs.The standard wage rate is $15 per hour.Overhead is applied at 50% of direct labor cost. Required: Calculate the standard cost for a batch (8 éclairs).