Exam 7: Master Budgets and Performance Planning

Southland Company is preparing a cash budget for August. The company has $17,000 cash at the beginning of August and anticipates $120,800 in cash receipts and $134,500 in cash disbursements during August. Southland Company wants to maintain a minimum cash balance of $10,000. To maintain the minimum cash balance of $10,000, the company must borrow:

The task of preparing a budget should be the sole task of the most important department in an organization.

Use the following information to prepare a budgeted balance sheet for Grover Company for the month of June. a. The budgeted net income for the month of June is $236,000. b. The beginning cash balance is $62,000; total budgeted cash receipts are $1,660,000; total budgeted cash disbursements are $1,580,000. c. Budgeted sales for June are $1,700,000. Collections are 40% in the month of sale and 60% in the month following. d. The projected inventory balance is 10% of the following month's sales. Sales for July are projected to be $1,750,000. e. Budgeted purchases for June are $900,000 to be paid 80% in the month of purchase and 20% in the month following. f. The equipment account balance is $1,400,000 on May 31. No equipment purchases or disposals were made during June. On May 31, the accumulated depreciation is $276,000. Depreciation expense for June is estimated to be $24,000. g. There is an outstanding loan balance of $800,000. h. Accrued income taxes payable for June 30 are $71,000; and salaries payable are $50,000. i. The only other balance sheet accounts are: Common Stock, with a balance of $800,000 on May 31, and Retained Earnings with a balance of $300,000 on May 31. No additional common stock was issued and no dividends were paid during June.

The sales budget for Modesto Corp. shows that 20,000 units of Product A and 22,000 units of Product B are going to be sold for prices of $10 and $12, respectively. The desired ending inventory of Product A is 20% higher than its beginning inventory of 2,000 units. The beginning inventory of Product B is 2,500 units. The desired ending inventory of B is 3,000 units. Budgeted purchases of Product A for the year would be:

A sporting goods manufacturer budgets production of 45,000 pairs of ski boots in the first quarter and 30,000 pairs in the second quarter of the upcoming year. Each pair of boots require 2 kg of a key raw material. The company aims to end each quarter with ending raw materials inventory equal to 20% of the following quarter's material needs. Beginning inventory for this material is 18,000 kg and the cost per kg is $8. What is the budgeted materials need in kg. in the first quarter?

Oxford, Inc., is preparing its master budget for the quarter ended June 30. It sells a single product for $40 each. Sales are 60% cash and 40% on credit. All credit sales are collected in the month following the sale. At March 31, the balance in accounts receivable is $12,000, which represents the uncollected balance on March sales. Budgeted sales for the next four months follow: The product cost is $20 per unit, and desired ending inventory is 60% of the following month's sales in units. Inventory at March 31 is 480 units. Purchases are paid 50% in the month of purchase and 50% in the following month. At March 31, the balance in accounts payable is $11,000, which represents the unpaid purchases from March. Operating expenses are paid in the month incurred and consist of: · Commissions (10% of sales) · Shipping (3% of sales) · Office salaries ($3,000 per month) · Rent ($5,000 per month) Depreciation is $2,000 per month. Income taxes are 40%, and will be paid on July 1. There are no taxes payable at March 31. A minimum cash balance of $12,000 is required, and the beginning cash balance is $12,000. Loans are obtained at the end of any month when a cash shortage occurs. Interest is 1% per month based on the beginning of the month loan balance and is paid at each month end. If the ending cash balance exceeds the minimum, the excess will be applied to repaying any outstanding loan balance. At March 31, the loan balance is $2,000. Prepare a master budget (round all dollar amounts to the nearest whole dollar) for each of the months of April, May, and June that includes the: · Sales budget · Schedule of cash receipts · Merchandise purchases budget · Schedule of cash disbursements for purchases of merchandise · Schedule of cash disbursements for selling and administrative expenses (combined) · Cash budget, including information on the loan balance · Budgeted income statement for the quarter

The process of evaluating performance can be improved by using budgets.

A manufacturing budget shows dollar amounts estimated to be spent to purchase additional plant assets and amounts expected to be received from plant asset disposals.

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

When preparing the cash budget, all of the following should be considered except:

The budget that lists the dollar amounts to be both received from plant asset disposals and spent to purchase additional plant assets to carry out the budgeted business activities is the ________.

What is activity-based budgeting?

Activity-based budgeting is a budget system based on expected activities and their levels for the budget period, which helps management plan for the resources required.

The practice of preparing budgets for each of several future periods and revising those budgets as each period is completed, adding a new budget each period so that the budgets always cover the same number of future periods, is called:

Flagstaff Company has budgeted production units for July of 7,900 units. Variable factory overhead is $1.20 per unit. Budgeted fixed factory overhead is $19,000, which includes $3,000 of factory equipment depreciation. Compute the total budgeted overhead to be reported on the factory overhead budget for the month.

Justin Company's budget includes the following credit sales for the current year: September, $25,000; October, $36,000; November, $30,000; December, $32,000. Experience has shown that payment for the credit sales is received as follows: 15% in the month of sale, 60% in the first month after sale, 20% in the second month after sale, and 5% is uncollectible. How much cash can Justin Company expect to collect in November as a result of current and past credit sales?

Bengal Co. provides the following sales forecast for the next three months: The company wants to end each month with ending finished goods inventory equal to 25% of the next month's sales. Finished goods inventory on June 30 is 1,250 units. The budgeted production units for July are:

Wichita Industries' sales are 10% cash and 90% on credit. Credit sales are collected as follows: 30% in the month of sale, 50% in the next month, and 20% in the following month. On December 31, the accounts receivable balance includes $12,000 from November sales and $42,000 from December sales. Assume that total sales for January are budgeted to be $50,000. What are the expected cash receipts for January from the current and past sales?

Traditional budgeting is generally better than activity-based budgeting when attempting to reduce costs by eliminating non-value-added activities.

The budgeted balance sheet and income statement are normally completed after preparation of operating and capital expenditure budgets.