Exam 10: Static and Flexible Budgets

Which of the following is a type of budgeting that is used to develop cost and time budgets for information technology projects?

Favourable variances are positive amounts; unfavourable variances are negative amounts.

Canton Corp. plans to produce 30,000 units per month during the company year. Sales are projected at 25,000 for January, but will increase 5% per month thereafter. How many units are estimated to be on hand at April 30 if there is no beginning inventory for the year?

Planning Systems, Inc. has forecast the following unit sales and production for the next year, by quarter: 1^st 2^nd 3^rd 4^th Production 150 160 140 100 Sales 120 140 150 120 The firm has beginning inventories as follows: Finished goods 50 units Direct material A 100 Direct material B 100 A finished unit requires one unit of material A and two units of material B. There should be enough material on hand at the end of each quarter to meet 20% of the next quarter's production needs. There are no work-in-process inventories. What is the ending inventory for material A for quarter 2?

(Appendix 10A)Snow Blowers produces and sells snow blowers. Production levels are high in the summer and the beginning of fall, and then taper off through the winter. Sales are high in the fall and in early winter, and then taper off in the spring. Explain why preparing a cash budget might be particularly important for Snow Blowers.

A budget cycle is a series of steps that organizations follow to develop and use budgets. It typically begins by revisiting and possibly revising the organizational vision and core competencies. The steps in the budgeting cycle are listed below in random order. Number them (1 through 7)according to their usual sequence in the budget cycle. ____ Develop operating plans ____ Evaluate and reward performance ____ Investigate major differences between actual and budgeted results ____ Monitor actual results compared to budget ____ Reassess vision and core competencies ____ Reconsider long-term strategies ____ Translate strategies and operating plans into master budget

Budgeting provides a means for defining managers' decision rights.

Planning Systems, Inc. has forecast the following unit sales and production for the next year, by quarter: 1^st 2^nd 3^rd 4^th Production 150 160 140 100 Sales 120 140 150 120 The firm has beginning inventories as follows: Finished goods 50 units Direct material A 100 Direct material B 100 A finished unit requires one unit of material A and two units of material B. There should be enough material on hand at the end of each quarter to meet 20% of the next quarter's production needs. There are no work-in-process inventories. What is the ending inventory for material B in quarter 1?

(Appendix 10A)A firm expects credit sales for the week to amount to $3,000, accounts receivable to increase by $200, and accounts payable to decrease by $500. Given this information, what will be the effect on cash?

(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 The cash disbursements for purchases in March are:

The Vegan Wagon is part of a chain of restaurants and has been losing money in past months. Part of the problem has been a decline in sales. However, sales are expected to pick up during the summer months. In March, for example, the loss was $2,250. Static Budget Actual Revenue $80,000 $65,000 Costs: Cost of ingredients 24,000 22,750 Serving personnel 20,000 19,000 Cashier 4,000 4,000 Administration 12,000 14,000 Corporate cost allocation 8,000 6,500 Utilities 1,500 1,000 Income (Loss)$10,500 $ (2,250) The restaurant purchases ingredients directly from the chain and is charged in direct proportion to the number of meals served. Personnel paid by Vegan prepare and serve the food, tend the cash register, bus and clean tables, and wash dishes. The staffing levels in Vegan are rarely changed - the existing crew can handle modest fluctuations in volume. Administrative costs are largely the salaries of the manager and her staff. The chain allocates corporate costs based on revenue, and the usual charge is 10% of Vegan's revenue. Utilities are the costs of heating and lighting the restaurant during normal operating hours and are relatively unaffected by the amount of food prepared. a)Develop a flexible budget for Vegan Wagon that could be used to evaluate the performance of the manager. b)Calculate the variances for Vegan Wagon. c)Identify the largest variance and list one question that you would ask the manager about that variance.

(Appendix 10A)Conner Company is a medium-sized toy distributor. Experience has shown that 30% of sales are collected within the month of sale, 60% is collected the month after the sale, and 10% is collected two months after the sale. Inventory on hand at the end of a month is to be 70% of the next month's budgeted sales. Cost of goods sold is 50% of the selling price. Payment for purchases is made in the month after purchase. All other costs are paid in the month incurred. Budgeted amounts are as follows: March April May June July August Sales $10,000 $20,000 $30,000 $30,000 $50,000 $40,000 Costs: Wages 1,500 2,000 2,500 1,500 Rent 500 500 500 500 Other 400 500 600 500 Purchases for the month of May are expected to be:

The cash budget is included in an organization's operating budget.

Cost-volume-profit analysis is a simplified version of a flexible budget.

Under which of the following types of budgeting must managers justify their budget requests each year as if prior information did not exist?

January February March April Sales $26,400 $23,100 $33,000 $25,000 Production in units 990 1,440 1,710 1,200 Sales are 30% cash and 70% on account, and 60% of credit sales are collected in the month of the sale. In the month after the sale, 30% of credit sales are collected. The remainder is collected two months after the sale. It takes 4 kilograms of direct material to produce a finished unit, and direct materials cost $5 per kilogram. All direct materials purchases are on account, and are paid as follows: 40% in the month of the purchase, 50% the following month, and 10% in the second month following the purchase. Ending direct materials inventory for each month is 40% of the next month's production needs. January's beginning materials inventory is 1,080 kilograms. Suppose that both accounts receivable and accounts payable are zero at the beginning of January. The ending direct materials inventory for March is:

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. (Appendix 10A)What are the anticipated cash receipts for November?

Zero-based budgeting:

(CMA)Table Top produces tables sold to discount stores. The table tops are manufactured in Canada by Table Top, but the table legs are manufactured in a plant in Nogales, Mexico. The assembly department attaches the four purchased table legs to the table top. It takes 20 minutes of labour to assemble a table. The company follows a policy of producing enough tables to insure that 40% of next month's sales are in the finished goods inventory. Table Top also purchases sufficient raw materials to insure that raw materials inventory is 60% of the following month's scheduled production. Table Top's sales budget in units for the next quarter is as follows: Table Top's ending inventories in units for June 30, 20x5 are: Assume the required production for August and September is 1,600 and 1,800 units, respectively, and the July 31, 20x5 raw materials inventory is 4,200 units. The number of table legs to be purchased in August is:

The principles of activity-based costing can be applied to the budgeting process.