Exam 13: Planning and Budgeting

Denton Company wants to have 10,000 units on hand at the end of the year after marketing 100,000 units during the year. If the beginning inventory is 5,000 units, Denton needs to produce 105,000 units during the year.

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Question 1

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Shipping Company plans to sell 90,000 units of a certain product line at a price of $16 per unit. There are 7,500 units of the product in inventory at January 1 and the inventory is to be increased 15% during the year. Two types of materials are used to make the product. Three units of Material A, costing 40 cents each, are required for each unit of product, and two units of Material B, costing 36 cents each, are required for each unit of product. On January 1, there are 10,000 units of Material A in inventory and 5,000 units of Material B. Plans for the year indicate both Material A and B inventories will increase 10%. Each unit of product can be produced in 20 minutes of direct labor time. Direct labor is paid at the rate of $12.00 an hour. The variable manufacturing overhead rate is $2.60 per direct labor hour and the fixed manufacturing overhead for the year is estimated at $175,000. Required: a. Prepare a production budget for the year. b. Prepare a direct materials budget for the year. c. Prepare a direct labor budget for the year. d. Prepare a budget for manufacturing overhead for the year.

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Question 2

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a.Production Budget:
$\begin{array} { l r } \text { Sales (units) } & 90,000 \\ \text { Plus desired ending inventory } & \mathbf { 8 , 6 2 5 } \\& 98,625 \\ \text { Less estimated begirning inventory } & ( 7,500 ) \\ \text { Production requirements } & 91,125 \\\end{array}$ Desired ending inventory: 7,500 × 115% = 8,625.
b.Direct Materials Budget:
$\begin{array}{lrr} \text {Materials}& \text {A}&\text {B}\\\text { Production requirements } & 91,125 & 91,125 \\\text { Materials in one finished unit } & \times 3 & \times 2 \\\text { Materials to meet production } & 273,375 & 182,250 \\ \text { Plus desired ending inventory } & 11,000 & 5,500 \\& 284,375&187,750\\\text { Less estimated beginn } & (10,000) &(5,000)\\ \text { Materials to be purchased } &274,375&182,750 \\ \text {Cost per material unit}&\times\$0.04&\times\$0.36\\ \text {Materialpurchases}&\$109,750&\$65,790\end{array}$
Desired ending inventories: A: 10,000 × 110% = 11,000; B: 5,000 × 110% = 5,500.
c.Direct Labor Budget:
$\begin{array} { l r } \text { Production requirements } & 91,125 \\\text { Hours per unit } & \underline{ \times 1 / 3} \\\text { Hours required for production } & 30,375 \\\text { Rate per hour } & \underline{ \times \$ 12} \\\text { Labor costs } & \underline{\$ 364,500} \\\end{array}$ d.Manufacturing Overhead Budget:
$\begin{array} { l r } \text { Variable overhead } ( \$ 2.60 \times 30,375 \mathrm { hrs } ) & \$ 78,975 \\\text { Fixed overhead } & \underline{ 175,000 }\\ \text { Total overhead } & \underline{\$ 253,975 }\\\end{array}$

Participative budgeting streamlines the budgeting process by reducing budget development time.

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Question 3

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Which of the following budgets does not require the production budget?

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Question 4

Merriweather Corporation is a manufacturer of tables sold to schools, restaurants, hotels, and other institutions. The table tops are manufactured by Merriweather, but the table legs are purchased from an outside supplier. The Assembly Department takes a manufactured table top and attaches the four purchased table legs. It takes 20 minutes of labor to assemble a table. The company follows a policy of producing enough tables to ensure that 40% of next month's sales are in the finished goods inventory. Merriweather also purchases sufficient raw materials (legs) to ensure that raw materials (legs) inventory is 60% of the following month's scheduled production needs. Merriweather's sales budget in units for the next quarter is as follows: (CMA adapted) July 2,300 Agust 2,500 September 2,100 Merriweather's ending inventories in units for June 30 are: Finished goods 1,900 Raw materials (legs) 4,000 - The number of tables to be produced during August is:

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Question 5

The Ralston Company manufactures a special line of graphic tubing items. The company estimates it will sell 75,000 units of this item in 2020. The beginning finished goods inventory contains 20,000 units. The target for each year's ending inventory is 10,000 units. Each unit requires five feet of plastic tubing. The tubing inventory currently includes 70,000 feet of the required tubing. Materials on hand are targeted to equal three months' production. Any shortage in materials will be made up by the immediate purchase of materials. Sales take place evenly throughout the year. - What are the materials requirements (in feet) for 2020?

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Question 6

Trini Inc. bases its manufacturing overhead budget on budgeted direct labor-hours. The direct labor budget indicates that 8,100 direct labor-hours will be required in May. The variable overhead rate is $1.40 per direct labor-hour. The company's budgeted fixed manufacturing overhead is $100,440 per month, which includes depreciation of $8,910. All other fixed manufacturing overhead costs represent current cash flows. The May cash disbursements for manufacturing overhead on the manufacturing overhead budget should be:

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Question 7

Describe the difference between the following sales forecasting techniques: Delphi technique, trend analysis, and econometric models.

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Question 8

The Boxer Company, a merchandising firm, has budgeted its activity for December according to the following information: ? Sales at $500,000, all for cash. ? Merchandise Inventory on November 30 was $250,000. ? The cash balance at December 1 was $20,000. ? Marketing and administrative expenses are budgeted at $50,000 for December and are paid for in cash. ? Budgeted depreciation for December is $30,000. ? The planned merchandise inventory on December 31 is $260,000. ? The cost of goods sold represents 75% of the sales price. ? All purchases are paid for in cash in the month of purchase. Required: a. What are the budgeted cash receipts for December? b. What are the budgeted cash disbursements for December?

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Question 9

Xenos Company has the following sales projections for the coming months: Month Sales January \ 60,000 February 68,000 March 75,000 April 80,000 May 95,000 June 90,000 Xenos collects 20% of its sales in the month of sale, 45% in the month following the sale, and 35% in the second month following the sale. Required: a. Prepare a schedule of cash receipts for the three months April through June. b. What would be the accounts receivable balance on June 30?

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Question 10

The Model Company is to begin operations in April. It has budgeted April sales of $30,000, May sales of $34,000, June sales of $40,000, July sales of $42,000, and August sales of $38,000. Note that 10% of each month's sales is expected to represent cash sales; 75% of the balance is expected to be collected in the month following the sale, 17% the second month, 6% the third month, and the balance is expected to be uncollectible. - The Model Company is considering charging 1 1/2% on any balance that is not collected in the month following the month of sale. This charge would also change the collection percentages to 15% cash sales, 80% of the balance collected in the month following the sale, 16% the second month, and 3% the third month. This stricter credit policy will reduce the estimated sales budgets by 7% each month. Under this stricter credit policy, what is the amount of cash to be collected in July? Round all calculations to the nearest whole dollar.

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Question 11

Endpoint Inc. bases its manufacturing overhead budget on budgeted direct labor-hours. The variable overhead rate is $1.30 per direct labor-hour. The company's budgeted fixed manufacturing overhead is $98,900 per month, which includes depreciation of $19,780. All other fixed manufacturing overhead costs represent current cash flows. The September direct labor budget indicates that 8,600 direct labor-hours will be required in that month. Required: a. Determine the cash disbursement for manufacturing overhead for September. b. Determine the predetermined overhead rate for September.

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Question 12

Rerun Manufacturing Company is in the process of preparing its 2020 budget and is anticipating the following changes: 30% increase in the number of units sold. 20% increase in the direct material unit cost. 15% increase in the direct labor cost per unit. 10% increase in the manufacturing overhead cost per unit. 14% increase in the sales price. 7% increase in the administrative expenses. Rerun does not keep any units in inventory. The composition of the cost of finished products during 2019 for materials, direct labor, and factory overhead, respectively, was in the ratio of 3:2:1. The condensed income statement for 2019 is as follows: Sales (30,000 units) \ 450,000 Less sales returns Net sales 436,500 Cost of goods sold Gross profit \1 30,500 Selling expenses \ 60,000 Admin expenses Net income - What is the estimated cost of goods sold for 2020 assuming the number of units sold does not change?

(Multiple Choice)

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Question 13

The Model Company is to begin operations in April. It has budgeted April sales of $30,000, May sales of $34,000, June sales of $40,000, July sales of $42,000, and August sales of $38,000. Note that 10% of each month's sales is expected to represent cash sales; 75% of the balance is expected to be collected in the month following the sale, 17% the second month, 6% the third month, and the balance is expected to be uncollectible. What is the amount of cash to be collected in the month of July?

(Multiple Choice)

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Question 14

The Ralston Company manufactures a special line of graphic tubing items. The company estimates it will sell 75,000 units of this item in 2020. The beginning finished goods inventory contains 20,000 units. The target for each year's ending inventory is 10,000 units. Each unit requires five feet of plastic tubing. The tubing inventory currently includes 70,000 feet of the required tubing. Materials on hand are targeted to equal three months' production. Any shortage in materials will be made up by the immediate purchase of materials. Sales take place evenly throughout the year. - What is the production budget (in units) for 2020?

(Multiple Choice)

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Question 15

Kevin Montgomery Retail seeks your assistance to develop cash and other budget information for May, June, and July. At April 30, the company had cash of $5,500, accounts receivable of $437,000, inventories of $446,250, and accounts payable of $133,055. The budget is to be based on the following assumptions: SALES: Each month's sales are billed on the last day of the month. Customers are allowed a 3% discount if payment is made within 10 days after the billing date. Receivables are recorded in the accounts at their gross amounts (not net of discounts). 55% of the billings are collected within the discount period; 30% are collected by the end of the month; 9% are collected by the end of the second month; and 6% turn out to be uncollectible. PURCHASES: The marketing, general, and administrative expenses and 60% of all purchases of merchandise are paid in the month purchased, with the remainder of merchandise purchases paid in the following month. The number of units in each month's ending inventory is equal to 125% of the next month's sales (units). The cost of each unit of inventory is $30. Marketing, general, and administrative expenses, of which $3,000 is depreciation, are equal to 15% of the current month's sales. Actual and projected sales are as shown below: Dollars Units March \ 472,000 11,800 April \ 484,000 12,100 May \ 476,000 11,900 June \ 456,000 11,400 July \ 480,000 12,000 August \ 480,000 12,200 - What are the budgeted cash disbursements during the month of June?

(Multiple Choice)

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Question 16

The starting point in preparing a comprehensive budget for a manufacturing company limited by its ability to produce and not by its ability to sell is

(Multiple Choice)

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Question 17

Italian Company, a retailer of Italian handbags, has the following sales budget for the coming year. Month Sales January \ 300,000 February \ 315,000 March \ 345,000 April \ 367,500 The sales price per unit is $15; the cost of sales is 60% of sales. Italian keeps inventory equal to the coming month's budgeted sales requirements. It pays for purchases 55% in the month of purchase and 45% in the month after purchase. Inventory at the beginning of January is $172,800. Accounts Payable on January 1 is $83,000. Required: a. Prepare a schedule of purchases, in units and in dollars, for the first three months of the year. b. Prepare a schedule of cash disbursements on account for the first three months of the year. c. Determine the accounts payable balance as of March 31.

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Question 18

What are the differences between strategic planning and the tactical planning process?

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Question 19

Wings Inc. is preparing its cash budget for November. The budgeted beginning cash balance is $10,000. Budgeted cash receipts total $100,000 and budgeted cash disbursements total $104,000. The desired ending cash balance is $30,000. Required: a. Calculate the excess (deficiency) of cash available over disbursements for November. b. To attain its desired ending cash balance for November, how much should the company borrow.

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Question 20

Denton Company wants to have 10,000 units on hand at the end of the year after marketing 100,000 units during the year. If the beginning inventory is 5,000 units, Denton needs to produce 105,000 units during the year.

Participative budgeting streamlines the budgeting process by reducing budget development time.

Which of the following budgets does not require the production budget?

Describe the difference between the following sales forecasting techniques: Delphi technique, trend analysis, and econometric models.

The starting point in preparing a comprehensive budget for a manufacturing company limited by its ability to produce and not by its ability to sell is

What are the differences between strategic planning and the tactical planning process?

Cost Accounting: Information for Decision Making

Cost Concepts and Behavior

Fundamentals of Cost-Volume-Profit Analysis

Fundamentals of Cost Analysis for Decision Making

Cost Estimation

Fundamentals of Product and Service Costing

Job Costing

Process Costing

Activity-Based Costing

Fundamentals of Cost Management

Service Department and Joint Cost Allocation

Fundamentals of Management Control Systems

Business Unit Performance Measurement

Transfer Pricing

Fundamentals of Variance Analysis

Additional Topics in Variance Analysis

Performance Measurement to Support Business Strategy

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