Exam 7: Master Budgets and Performance Planning

Widmer Corp. requires a minimum $10,000 cash balance. If necessary, loans are taken to meet this requirement at a cost of 1% interest per month (paid monthly). If the ending cash balance exceeds the minimum, the excess will be applied to repaying any outstanding loan balance. The cash balance on July 1 is $10,400. Cash receipts other than for loans received for July, August, and September are forecasted as $24,000, $32,000, and $40,000, respectively. Payments other than for loan or interest payments for the same period are planned at $28,000, $30,000, and $32,000, respectively at July 1, there are no outstanding loans. Required: Prepare a cash budget for July, August, and September.

List the three important guidelines that should be followed in the budgeting process.

Trago Company manufactures a single product and has a JIT policy that ending inventory must equal 5% of the next month's sales. It estimates that May's ending inventory will consist of 14,000 units. June and July sales are estimated to be 280,000 and 290,000 units, respectively. Compute the number of units to be produced that would appear on the company's production budget for the month of June.

Groundworks Company budgeted the following credit sales during the current year: September, $90,000; October, $123,000; November, $105,000; December, $111,000. Experience has shown that cash from credit sales is received as follows: 10% in the month of sale, 50% in the first month after sale, 35% in the second month after sale, and 5% is uncollectible. How much cash should Groundworks Company expect to collect in November from all current and past credit sales?

The usual starting point for preparing a master budget is forecasting or estimating:

Glaston Company manufactures a single product using a JIT inventory system. The production budget indicates that the number of units expected to be produced are 193,000 in October, 201,500 in November, and 198,000 in December. Glaston assigns variable overhead at a rate of $0.75 per unit of production. Fixed overhead equals $150,000 per month. Compute the total budgeted overhead that would appear on the factory overhead budget for month of October.

The sales budget is derived from the production budget.

What are rolling budgets? Why are rolling budgets prepared?

In preparing financial budgets:

Zhang Industries budgets production of 300 units in June and 310 units in July. Each unit requires 1.5 hours of direct labor. The direct labor rate is $14 per hour. The indirect labor rate is $21.00 per hour. Compute the budgeted direct labor cost for July.

Fortune Company's direct materials budget shows the following cost of materials to be purchased for the coming three months: Payments for purchases are expected to be made 50% in the month of purchase and 50% in the month following purchase. The December Accounts Payable balance is $6,500. The budgeted cash payments for materials in January are:

The responsibility for coordinating the preparation of a master budget should be assigned to the Chief Executive Officer.

Part of the cash budget is based on information taken from the capital expenditures budget.

The capital expenditures budget summarizes the effects of investing activities on cash.

Zhang Industries sells a product for $700. Unit sales for May were 400 and each month's sales are expected to exceed the prior month's results by 3%. Zhang pays a sales manager a monthly salary of $3,000 and a commission of 2% of sales. Compute the projected selling expense to be reported on the selling expense budget for the manager for month ended June 30.

Assuming a bottom-up process of budget development, which of the following should be initially responsible for developing sales estimates?

Budgeting is an informal plan for future business activities.

A company's history indicates that 20% of its sales are for cash and the rest are on credit. Collections on credit sales are 20% in the month of the sale, 50% in the next month, 25% the following month, and 5% is uncollectible. Projected sales for December, January, and February are $60,000, $85,000 and $95,000, respectively. The February expected cash receipts from all current and prior credit sales is:

Charm Enterprises' production budget shows the following units to be produced for the coming three months: A finished unit requires four ounces of a key direct material. The March 31 Raw Materials Inventory has 4,032 ounces (oz.) of the material. Each month's ending Raw Materials Inventory should be 35% of the following month's production needs. The materials to be purchased during May should be:

A sporting equipment store expects to purchase $8,000 of ski boots in October. The store had $2,000 of ski boots in merchandise inventory at the beginning of October, and expects to have $3,000 of ski boots in merchandise inventory at the end of October to cover part of anticipated November sales. What is the budgeted cost of goods sold for October?