Exam 6: Operational Budgets

A danger of under estimating sales forecasts is that the entity may lose the capacity to increase sales in the short term.

Super Solar Systems has forecast the following unit sales and production for the next year, by quarter: Production 75 80 70 50 Sales 60 70 75 60 Super Solar has the following beginning inventories: Firished Goods 50 Direct Material A 50 Direct Material B 50 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?

Poster Artist Ltd, a retail store selling classic and rare marketing materials, has just completed its master budget for the next fiscal year. Ending inventory is budgeted at 20% of cost of goods available for sale. Selected data from that process appear in the table below: Begirring irventory \ 20,000 Budgeted purchases 50,000 Expected reverue 150,000 Irflows of cash 120,000 Support departments costs 30,000 Total cash outflows 80,000 Poster Artist Ltd's budgeted cost of goods sold for the next fiscal year will be:

Budgetary slack occurs when a divisional manager under-utilises support department resources.

At the end of 2019, Dubai Mission prepared its master budget for 2020. Selected amounts from that budget, along with actual results for 2020, are presented below: Sales \ 180,000 \ 210,000 Research and development cost 25,000 20,000 Interest revenue 7,600 7,000 Cost of goods sold 60,000 65,000 Marketing costs 45,000 45,000 Dubai Mission's total budget variance for the data provided is:

Mr Lewis's Co has projected sales for the next four months as follows: January 70,000 February 90,000 March 55,000 April 65,000 Beginning inventory for the year is 47,000 units. Ending inventory for each month should be 30% of the next month's sales. How many units need to be available for sale in February?

The budgeted statement of financial position is prepared before budgeted income statement.

A flexible budget separates fixed and variable costs to accurately reflect the effects of activity on cost.

Rainbow Legacy Ltd has the following balances at 31^st December 2019: Cash $46,000; 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 \ 100,000 February \ 180,000 March \ 120,000 April \ 200,000 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 150% 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 depreciation -All costs are paid in the month incurred -Minimum cash balance requirement is $6,000 What will be the ending cash balance for January before lending (if required)?

Olympic Duel Ltd budgeted annual indirect labour cost is: $7,200 + $1.50 per direct labour hour. Operating budgets for the current month are based on 15,000 hours of budgeted direct labour hours. Budgeted indirect labour cost is:

A master budget is typically developed for:

Mr Lewis's Co has projected sales for the next four months as follows: January 70,000 February 90,000 March 55,000 April 65,000 Beginning inventory for the year is 47,000 units. Ending inventory for each month should be 30% of the next month's sales. How many units should the company produce in January?

Limelite Ltd, projects sales for its first three months of operation as follows: Jaruary February March Credit Sales \ 150,000 \ 188,000 \ 176,000 Cash Sales \ 60,000 \ 50,000 \ 55,000 \ 210,000 \ 238,000 \ 231,000 Inventory on 1^st January 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 are the anticipated cash receipts for February?

The component of a master budget that contains management's plans for revenues, production, and operating costs is the operating budget.

Rainbow Legacy Ltd has the following balances at 31^st December 2019: Cash $46,000; 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 \ 100,000 February \ 180,000 March \ 120,000 April \ 200,000 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 150% 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 depreciation -All costs are paid in the month incurred -Minimum cash balance requirement is $6,000 What is the budgeted cost of purchases for February?

Limelite Ltd, projects sales for its first three months of operation as follows: Jaruary February March Credit Sales \ 150,000 \ 188,000 \ 176,000 Cash Sales \ 60,000 \ 50,000 \ 55,000 \ 210,000 \ 238,000 \ 231,000 Inventory on 1^st January 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 are the anticipated cash disbursements for January?

Support department costs are included in the budgeted income statement.

Poster Artist Ltd, a retail store selling classic and rare marketing materials, has just completed its master budget for the next fiscal year. Ending inventory is budgeted at 20% of cost of goods available for sale. Selected data from that process appear in the table below: Begirring irventory \ 20,000 Budgeted purchases 50,000 Expected reverue 150,000 Irflows of cash 120,000 Support departments costs 30,000 Total cash outflows 80,000 Which of the following amounts is irrelevant in the preparation of Poster Artist Ltd's budgeted income statement?

Some entities monitor individual manager performance by comparing actual results to budgeted results.

The production department manager should not be held responsible for variances due to changes in forecasted sales volume.