Exam 10: Static and Flexible Budgets

One disadvantage of participative budgeting is employees' tendency to set targets too high to impress management with their motivation.

Waterloo County provides free weekly homemaking services for qualified shut-in elderly. The budget allocations for the program were $123,600 in 20x6 and $149,116 in 20x7. The director of the program is responsible for providing as many home visits as possible within the budget. 20x6 20x7 Homemaker wages $ 60,000 $ 75,200 Cleaning supplies 8,600 13,416 Transportation 5,000 6,500 Program administration 50,000 54,000 Total Costs $123.600 $149,116 Number of home visits 2,060 2,472 Average Cost per Home Visit $60 $60 The homemakers, who are hourly employees hired as needed, did not receive an increase in wages in 20x6 or 20x7. The prices of cleaning supplies increased about 5% from 20x6 to 20x7. Transportation is provided by the homemakers, who are reimbursed per kilometre travelled. Program administration consists of the salary of the program director and her assistant, plus discretionary expenditures such as travel to conferences. a)The County had planned to allocate the same amount in 2007 as was allocated for 2006. However, actual results for 20x7 were about $30,000 higher than expected. The director of the program explained that costs had increased because the number of visits was higher. Prepare a flexible budget for 20x7 using the results for 20x6 as a benchmark. b)Calculate budget variances. c)How many more home visits could have been made had costs been under control during 20x7? d)Which variances would you investigate? Explain your reasoning.

(Appendix 10A)RLN Corporation is preparing its cash budget for the next fiscal quarter. Several pieces of data which may be useful for that task are shown below. Beginning cash balance $ 6,000 Amortization 8,000 Support department costs 12,000 Plant asset purchases 17,000 Wages expense (direct labour)19,000 Cash paid to direct labour employees 22,000 Inventory purchases 25,000 Payments to inventory suppliers 40,000 Sales revenue 80,000 Cash collected from customers 95,000 Support department costs do not include amortization. The company plans to purchase the plant asset at the end of the year, making a 30% down payment and financing the remainder with a 6%, 180-day note payable. RLN wishes to maintain an ending cash balance of $7,200; any excess cash is invested in short-term securities. A zero rate of return is budgeted for short-term securities. Cash deficiencies are made up through short-term borrowing (30%)and capital stock issuances (70%). a)Use the relevant data to prepare RLN's cash budget. b)Explain why the managers of RLN Corporation cannot be certain that achieving the cash budget results calculated in part (a).

Master budgets are often summarized in a company's short-term operating plans.

All of the following are potential adjustments to flexible budgets except:

How can budgeting assist an organization to efficiently use its human resources?

In a production budget, beginning inventory plus budgeted production equals sales plus targeted ending inventory.

One objective of budgeting is motivating managers to:

The direct manufacturing labour budget: I. Is stated in direct labour hours and cost II. Is only stated in direct labour cost III. Includes hours and costs of supervisors

A master budget is a comprehensive plan for an upcoming financial period.

The manufacturing overhead budget: I. Compares revenue to overhead II. Forecasts overhead costs per unit for cost of goods sold calculations III. Forecasts total overhead costs

TNR Corporation is preparing its budgeted income statement for the month of August. Budgeted sales are $18,000. Cost of goods sold is twice the amount of operating costs, and operating costs plus cost of goods sold equals 40% of net income. Return on sales (net income / sales)is anticipated to be 50%. TNR does not have any nonoperating items on its income statement. TNR's budgeted gross margin is:

Kaizen budgets:

Kelita, Inc., projects sales for its first three months of operation as follows: October November December Credit sales $100,000 $150,000 $200,000 Cash sales 40,000 60,000 50,000 Total Sales $140,000 $210,000 $250,000 Inventory on October 1 is $40,000. Subsequent beginning inventories should be 40% of that month's cost of goods sold. Goods are priced at 140% of their cost. 50% of purchases are paid for in the month of purchase; the balance is paid in the following month. It is expected that 50% of credit sales will be collected in the month following sale, 30% in the second month following the sale, and the balance the third month. A 5% discount is given if payment is received in the month following sale. What is the projected cost of goods sold for October?

Sales of $250,000 are forecast for the third quarter. Gross profit is 60% of sales, and beginning inventory is $165,000. If ending inventory is budgeted as $183,000, what are the budgeted purchases?

(Appendix 10A)Gold Company has the following balances at December 31, 20x0: Cash $6,000; accounts receivable $34,000 ($10,000 from November and $24,000 from December); merchandise inventory $40,000; and accounts payable $20,000 (for merchandise purchases only). Budgeted sales follow: January $ 50,000 February 90,000 March 60,000 April 100,000 Other data: *Sales are 40% cash, 50% collected during the following month, and 10% collected during the second month after sale. A 3% cash discount is given on cash sales *Cost of goods sold is 40% of sales *Ending inventory must be 140% of the next month's cost of sales *Purchases are paid 70% in month of purchase and 30% in the following month *The selling and administrative cost function is: $6,000 + $0.2 × sales. This includes $1,000 for amortization *All costs are paid in the month incurred *Minimum cash balance requirement is $6,000 What is the budgeted cost of purchases for February?

When an organization implements activity-based budgeting, managers must identify activities for:

In an activity-based budgeting system, managers develop budgets for each:

Which of the following is not required to develop a budgeted income statement?

(Appendix 10A)Gold Company has the following balances at December 31, 20x0: Cash $6,000; accounts receivable $34,000 ($10,000 from November and $24,000 from December); merchandise inventory $40,000; and accounts payable $20,000 (for merchandise purchases only). Budgeted sales follow: January $ 50,000 February 90,000 March 60,000 April 100,000 Other data: *Sales are 40% cash, 50% collected during the following month, and 10% collected during the second month after sale. A 3% cash discount is given on cash sales *Cost of goods sold is 40% of sales *Ending inventory must be 140% of the next month's cost of sales *Purchases are paid 70% in month of purchase and 30% in the following month *The selling and administrative cost function is: $6,000 + $0.2 × sales. This includes $1,000 for amortization *All costs are paid in the month incurred *Minimum cash balance requirement is $6,000 Cash receipts for April will be: