Exam 9: How Are Operating Budgets Created

Marker Products Inc sells all of its products on credit.The company expects to collect 65 percent of sales in the quarter of sale and 35 percent the quarter following the sale.Accounts receivable at the end of last year totaled $3 million,all of which will be collected in the first quarter of the coming year.Marker's sales budget shows the following projected sales revenues: Prepare a budget for cash collections from sales for each of the four quarters.

Merchandising companies and service organizations do not use production budgets.

Depreciation is deducted at the bottom of a manufacturing overhead budget to determine cash payments for overhead.

The amount of cash paid out for overhead each period does not equal the total overhead costs incurred during the period because:

For most nonprofit organizations,the approved budget serves as the legal authority for expenditures.

The usual starting point in budgeting is the sales budget.

Dryer Company's policy is to keep 25% of the next month's sales in ending inventory.If Dryer meets its ending inventory policy at the end of April and sales are expected to be 24,000 units in May and 41,000 units in June,how many units need to be produced in May?

Exhibit 9-2 Bowline Inc.is a distributor which sells one product for $60 per unit.Bowline pays $33 to buy the product.In addition,fixed costs total $42,000 per month.Bowline wishes to maintain an inventory at the end of each month equal to 25% of the next month's projected sales.Purchases are paid in the month after purchase. Bowline makes all sales on credit and collects 30% in the month of sale and 70% in the month after sale.Budgeted monthly sales in units for the first five months of 2013 are as follows: -Refer to Exhibit 9-2.What will cash collections be in April?

All of the following appear on the budgeted income statement except:

The production budget is based on sales projections plus an estimate of desired ending finished goods inventory,less beginning finished goods inventory.

Organizations use budgets to control operations,because budgets provide a means to evaluate employee and company performance.

The production budget for Ventura Company shows the company expects to produce 3,000 units in the first quarter and 3,200 units in the second quarter.Each unit requires 30 pounds of direct materials at a cost of $5 per pound.The company prefers to maintain raw materials inventory equal to 25 percent of next quarter's materials needed in production.Each unit of product requires four direct labor hours at a cost of $20 per hour. Prepare a direct labor budget for the first quarter.

An operating budget is similar to a capital budget in that both are long-term budgets.

The budgeted balance sheet shows an estimate of the organization's profit for a given budget period.

Which of the following best describes an operating budget?

Silo Company has one product and sold 35,000 units in the first quarter of 2012.The company expects to sell 30% more units in the first quarter of 2013,at a price of $20 per unit.Based on this information,what is the amount of sales revenue that will appear in the budgeted income statement for the first quarter of 2013?

All of the following appear on the manufacturing overhead budget except:

Establishing a sales budget that underestimates likely sales will have no effect on materials and labor in a production process.

Bailey Company purchases all direct materials on credit.The company expects to pay 60 percent of purchases in the quarter of purchase and 40 percent the following quarter.Accounts payable at the end of last year totaled $1,000,000,all of which will be paid in the first quarter of this coming year.Bailey's direct materials purchases budget shows the following projected cost of materials to be purchased: Prepare a cash payments budget for purchases of materials for each of the four quarters.

According to the Business in Action "Moving from Spreadsheets to Intranet Budgeting," which of the following is not an advantage of Intranet budgeting?