Exam 10: Static and Flexible Budgets

Seer, Inc. has projected sales of its product for the next 6 months as follows: July 120 units August 270 September 300 October 240 November 90 December 210 The product sells for $100 per unit, variable expenses are $30 per unit, and fixed expenses are $1,500 per month. The finished product requires 3 units of raw material and 10 hours of direct labour. The company tries to maintain an ending inventory of finished goods equal to the next 2 months of sales and an ending inventory of raw materials equal to half of the current month's usage. a)Prepare a production budget for August, September, and October. b)Prepare a direct labour hours budget for August, September, and October c)Give a brief explanation of the various budgets that are required by the cost of goods sold budget. Explain how these budgets are derived from the production budget. Then explain the manner in which the budgets are used in the budgeted income statement.

Static budgets: I. Are based on specific volumes of products II. May hide variances caused by operational inefficiencies III. Do not include fixed costs

(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 that Table Top will produce 1,800 units in the month of September 20x5. How many employees will be required for the assembly department? (Fractional employees are acceptable since employees can be hired on a part-time basis. Assume a 40 hour work week and a 4 week month.)

List two methods that organizations could use to minimize budgetary slack.

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 October?

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 expected income tax rate is:

On a budgeted income statement, the gross margin is determined by:

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. (Appendix 10A)The ending balance in accounts payable for March is:

A formalized financial plan for organizational operations in the coming year is best described as a:

Budget variances cannot be calculated from a static budget.

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. (Appendix 10A)Cash payments on account for February are:

(Appendix 10A)Taft Corporation collects cash from customers as follows: 60% in the month of sale, 20% in the month after sale, 19% in the second month after sale, and 1% is never collected. Bad debts are written off annually in December. Budgeted sales are all on credit and amount to: May $600,000 June 700,000 July 500,000 August 600,000 What is the budgeted amount of cash to be collected in July?

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. Material purchases for February are:

Intentionally understating revenues and / or overstating costs during a budgeting process is called:

Managers need information from current beginning inventories and required ending inventories to prepare the production budget.

Horton Company produces and sells two products: round and square tables. In August 20x0, the budget projected the following for 20x1: The tables are manufactured using the following direct materials: Budgeted data for 20x1 direct materials are: Budgeted data for 20x1 Direct labour and overhead are: The cost of purchases for direct material P for 20x1 is:

When managers use Kaizen budgeting, which of the following is (are)explicitly embedded in the budget? I. Cost reduction goals II. Quality improvement goals III. Changes in activity cost drivers

Master budgets contain both operating components and financial components. List three specific budgets included in each component.

Which of the following is based on forecasts of specific volumes of products or services?

When evaluating actual results at the end of an accounting period, the static budget provides an appropriate benchmark for actual operations.