Exam 24: The Budgeting Process

Purchases of buildings and equipment are formally planned in the

Budgets identify, gather, summarize, and communicate

Only manufacturing organizations need a set of operating budgets.

Wean Corporation's budgeted balance sheet for the coming year shows total assets of $5,000,000 and total liabilities of $2,000,000. Common stock and retained earnings make up the entire stockholders' equity section of the balance sheet. Common stock remains at its beginning balance of $1,500,000. The projected net income for the year is $333,000. The company pays no cash dividends. What is the balance of retained earnings at the beginning of the budget period?

Fantastic Futons goes through two departments in the production process. Each futon requires two direct labor hours in Department A and one hour in Department B. Labor cost is $8 per hour in Department A and $10 per hour in Department B. The labor capacity for a normal eight-hour shift for a month is 50,000 direct labor hours each for both Departments A and B. Overtime is paid at time and a half. What would be the budgeted direct labor cost for January, assuming a budgeted production of 30,000 units?

Sondari Corporation estimates the following for 2010: Ending cash balance for 2009 was $150,000. Prepare a cash budget to determine the ending cash balance for 2010.

A company expects to begin the coming year with 6,000 ceramic pots in finished goods inventory. It expects to sell 85,000 ceramic pots and end the year with 8,000 pots in the finished goods inventory. Four pounds of clay go into each ceramic pot. The company expects to have 4,000 pounds of clay on hand at the beginning of the coming year and wishes to end the year with 6,000 pounds in inventory. a. Prepare a production budget showing the number ceramic pots that the company must manufacture to carry out these plans. b. Prepare a direct materials purchases budget showing the number of pounds of clay that the company must purchase during the year.

Budgets assign resources and the responsibility to use them wisely to managers who are held accountable for their results.

Fantastic Futons manufactures futons. The estimated number of futon sales for the first three months of 2010 are as follows: January 40,000 February 50,000 March 60,000 Finished goods inventory at the end of 2009 was 12,000 units. On average, 25 percent of the futons are produced during the month before they are sold, which normally accounts for the ending balance in finished goods inventory. The planned selling price is $150 per unit. How many futons are budgeted to be produced in January?

The expected sales for Uptown Clothing in the month of May are shown in the table below. Chelsea Rogers, the owner, gives credit to a select group of customers (20 percent of sales), but all others must pay cash. Of Chelsea's credit customers, 80 percent pay her the month after the sale and 20 percent pay the following month. Chelsea pays cash for 10 percent of her purchases. The other 90 percent she pays off by the end of the next month. Chelsea's operating expenses are paid the month after incurrence. Her operating expenses are about $7,000 each month, $500 of which is depreciation. Selling expenses have a fixed and a variable component. The fixed is $1,500 a month, and the variable is 10 percent of sales. Chelsea began May with $9,000 in cash. Sales Purchases March \ 130,000 \ 120,000 Apri 140,000 125,000 May 150,000 130,000 Prepare a cash budget to determine Uptown Clothing's ending cash balance for May.

Holman Company pays each of its three salespeople a base salary of $1,000 per month plus a commission of 10 percent of their sales. The base salary is paid each month as incurred; the 10 percent commission is paid the month following the month of sale. The total sales for the past four months are as follows: June 15,000 July 22,000 August 14,000 September 40,000 Total salary and commission cash payments for September total

Cellular Solutions, Inc., had a very successful year in 2009. Based on a $100 average unit selling price, monthly sales during 2009 were as follows: Mr. Serene, vice president of sales, is preparing the sales budget for 2010. Increased manufacturing costs will make it necessary to increase the selling price by 10 percent. Even with this price increase, the unit volume of sales is expected to increase by 20 percent. The seasonal sales pattern shown for 2009 is expected to continue in 2010. a. Prepare the monthly sales unit and dollar budgets for the first quarter of 2010. b. Mr. Serene is considering the possibility of raising the average selling price by 30 percent in 2010. If this action is taken, he projects that the sales volume for the year will increase by only 12 percent. What would forecasted sales in units and dollars be in 2010 if his projection is correct?

A master budget is a compilation of forecasts for the coming year or operating cycle made by various departments or functions within an organization. What is the most basic forecast made in a master budget?

Which of the following is a true statement?

Information on cash receipts and payments would not come from which of the following sources?

Budgets do not take into account potential constraints.

The cost of goods manufactured budget is based on the results of the direct materials purchases, direct labor, and selling and administrative expense budgets.

Seymore Company manufactures three products, Ace, Deuce, and Trey, requiring the following inputs of raw materials: Units of Materials Required Product Fabric Metal Ace 2 2 Deuce 1 2 Trey 2 1 Unit cost and inventory for each raw material: Fabric Metal Unit cost \ 4 \ 2 Beginning inventory 6,000 5,000 Ending inventory 5,000 4,000 Schediuled arodiction: Ace 30,000 Deuce 20,000 Trey 50,000 Prepare a direct materials purchases budget for the year ended December 31, 2010.

Harrisburg Manufacturing produces three products requiring the following inputs of raw materials: Unit cost and inventory for each raw material: Fabric Metal Unit cost \ 3 \ 2 Beginning inventory 10,000 8,000 Ending inventory 9,000 6,000 Scheduled production: Scheduled production: Jade: 20,000 Kolia: 10,000 Lymon: 30,000 Prepare a direct materials purchases budget for the year ended December 31, 2010.

J. J. Johnson has decided to supplement his income by selling beehives. He expects to sell 25,000 hives in 2010. He ended 2009 with 2,500 completed hives in inventory and would like to complete operations in 2010 with at least 2,800 completed hives in inventory. There is no ending work in process inventory. One beehive holds about 250 bees. The bees are purchased for $4.00 per 1,000 bees. The hives sell for $15.00 each. What would be the yearly total on the direct materials purchases budget for bee purchases? (Assume for this question that 40,000 beehives will be produced.)