Exam 7: Master Budgets and Performance Planning

What is a sales budget? How is the sales budget prepared?

In preparing a budget for the last three months of the current year, Cozy Company is planning the units of merchandise it must order each month. The company's policy is to have 15% of the next month's sales in its inventory at the end of each month. Projected sales for October, November, and December are 27,000 units, 29,500 units, and 31,000 units, respectively. How many units must be ordered in November?

Use the following information to prepare a budgeted balance sheet for Grover Company for the month of June. a. The budgeted net income for the month of June is $236,000. b. The beginning cash balance is $62,000; total budgeted cash receipts are $1,660,000; total budgeted cash payments are $1,580,000. c. Budgeted sales for June are $1,700,000. Collections are 40% in the month of sale and 60% in the month following. d. The projected inventory balance is 10% of the following month's sales. Sales for July are projected to be $1,750,000. e. Budgeted purchases for June are $900,000 to be paid 80% in the month of purchase and 20% in the month following. f. The equipment account balance is $1,400,000 on May 31. No equipment purchases or disposals will be made during June. On May 31, the accumulated depreciation is $276,000. Depreciation expense for June is estimated to be $24,000. g. An outstanding loan balance of $800,000 is expected at the end of June. h. Accrued income taxes payable for June 30 are expected to be $71,000. Salaries payable for June 30 are expected to be $50,000. i. The only other balance sheet accounts are: Common Stock, with a balance of $800,000 on May 31, and Retained Earnings with a balance of $300,000 on May 31. No additional common stock will be issued and no dividends will be paid during June.

Webster Corporation is preparing its cash budget for April. The March 31 cash balance is $36,400. Cash receipts are expected to be $641,000 and cash payments for purchases are expected to be $608,500. Other cash expenses expected are $27,000 selling and $33,500 general and administrative. The company desires a minimum cash balance at the end of each month of $30,000. If necessary, the company borrows enough cash to meet the minimum using a short-term note. The amount Webster must borrow during April is:

The sales budget for Modesto Corp. shows that 20,000 units of Product A and 22,000 units of Product B are going to be sold for prices of $10 and $12, respectively. The desired ending inventory of Product A is 20% higher than its beginning inventory of 2,000 units. The beginning inventory of Product B is 2,500 units. The desired ending inventory of Product B is 3,000 units. Budgeted purchases of Product B for the year would be:

A sporting goods store budgeted August purchases of ski jackets at $140,000. The store had ski jackets costing $12,000 in its inventory at the beginning of August; and to cover part of anticipated September sales, they expect to have $25,000 of ski jackets in inventory at the end of the month of August. What is the budgeted cost of goods sold for August?

Flagstaff Company has budgeted production units of 7,900 for July and 8,100 for August. The direct materials requirement per unit is 2 ounces (oz.). The company has determined that it wants to have safety stock of direct materials on hand at the end of each month to complete 20% of the units of budgeted production in the following month. There was 3,160 ounces of direct material in inventory at the start of July. The total cost of direct materials purchases for the July direct materials budget, assuming the materials cost $1.15 per ounce, is:

What is activity-based budgeting?

A capital expenditures budget shows dollar amounts estimated to be spent to purchase additional plant assets and amounts expected to be received from plant asset disposals.

A formal statement of future plans, usually expressed in monetary terms, is a:

The usual starting point in the budgeting process is a plan showing the planned sales units and the revenue expected from these sales. This plan is called the:

Hammerly Corporation is preparing its master budget for the quarter ending March 31. It sells a single product for $25 a unit. Budgeted sales are 40% cash and 60% on credit. All credit sales are collected in the month following the sales. Budgeted unit sales for the next four months follow: At December 31, the balance in accounts receivable is $10,000, which represents the uncollected portion of December sales. The company desires merchandise inventory equal to 30% of the next month's sales in units. The December 31 balance of merchandise inventory is 340 units, and inventory cost is $10 per unit. 40% of purchases are paid in the month of purchase and 60% are paid in the following month. At December 31, the balance of Accounts Payable is $8,000, which represents the unpaid portion of December's purchases. Operating expenses are paid in the month incurred and consist of: · Sales commissions (10% of sales) · Freight (2% of sales) · Office salaries ($2,400 per month) · Rent ($4,800 per month) Depreciation expense is $4,000 per month. The income tax rate is 40%, and income taxes will be paid on April 1. A minimum cash balance of $10,000 is required, and the cash balance at December 31 is $10,200. Loans are obtained at the end of a month in which a cash shortage occurs. Interest is 1% per month, based on the beginning of the month loan balance, and must be paid each month (The interest payment is rounded to the nearest whole dollar). If the ending cash balance exceeds the minimum, the excess will be applied to repaying any outstanding loan balance. At December 31, the loan balance is $0. Prepare a master budget (round all dollar amounts to the nearest whole dollar) for each of the months of January, February, and March that includes the: · Sales budget · Schedule of cash receipts · Merchandise purchases budget · Schedule of cash payments for merchandise purchases · Schedule of cash payments for selling and administrative expenses (combined) · Cash budget, including information on the loan balance · Budgeted income statement for the quarter

The responsibility for coordinating the preparation of a master budget should be assigned to the Chief Executive Officer.

Calgary Industries is preparing a budgeted income statement for 2018. Predicted sales for the year are $730,000 and cost of goods sold is 40% of sales. The expected selling expenses are $81,000 and the expected general and administrative expenses are $90,000, which includes $23,000 of depreciation. The company's income tax rate is 30%. The budgeted net income for 2018 is:

Which of the following statements about budgeting is false?

What is a production budget?

Cameroon Corp. manufactures and sells electric staplers for $16 each. If 10,000 units were sold in December, and management forecasts 4% growth in sales each month, the number of units of electric stapler sales budgeted for February should be:

The master budget process usually ends with:

Gardner Company expects sales for October of $248,000. Experience suggests that 45% of sales are for cash and 55% are on credit. The company collects 50% of its credit sales in the month of sale and 50% in the month following sale. Budgeted Accounts Receivable on September 30 is $67,000. What is the amount of cash expected to be collected in October?

Diego, Inc., sells two products, Baubles and Charms. The sales forecast in units for the first quarter of the coming year is: Cash sales are 30% of each product's monthly sales. The remaining sales are credit sales which are collected as follows: 70% in the month of sale, 20% the next month, and 10% in the following month. Unit sale prices are $30 and $20 for Baubles and Charms, respectively. Determine the company's cash receipts for March from its current and past sales.