Exam 13: Planning and Budgeting

Software Corporation is preparing its cash budget for November. The budgeted beginning cash balance is $31,000. Budgeted cash receipts total $135,000 and budgeted cash disbursements total $141,000. The desired ending cash balance is $50,000. The company can borrow up to $100,000 at any time from a local bank, with interest not due until the following month. Required: Prepare the company's cash budget for November in good form.

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 merchandise purchases (in dollars) for May?

A friend of yours wants to plan a 5K fun-run for a local charity. He explains that his strategic objective is to maximize contributions and also develop numerous scenario budgets for the event due to several venue alternatives and weather uncertainties. He knows that you have taken a managerial accounting course and asks for your advice. Based on this information, what would you suggest to your friend?

The Beatrice Manufacturing Company increased its merchandise inventory by $17,000 over the year. The company also granted its customers more liberal credit terms which increased the accounts receivable by $37,500. Sales were $975,000 and the accounts payable decreased by $27,500. The gross profit on sales is 45%. Marketing and administrative expenses were $145,000; this included depreciation expense of $4,000. What were the cash disbursements for the year?

The cash budget is normally prepared before the budgeted income statement.

The production budget allows management to plan for the resources needed to meet the current sales demand and ensure that inventory levels are sufficient for future sales.

The Variable Speed Company manufactures a line of high quality tools. The company sold 1,000,000 hammers at a price of $4 per unit last year. The company estimates that this volume represents a 20% share of the current hammers market. The market is expected to increase by 5%. Marketing specialists have determined that, as a result of a new advertising campaign and packaging, the company will increase its share of this larger market to 24%. Due to changes in prices, the new price for the hammer will be $4.30 per unit. This new price is expected to be in line with the competition and have no effect on the volume estimates. What are the estimated sales revenues in the coming year?

Which of the following types of accounts would not be included on a budgeted balance sheet?

Trevor Company expects sales of Product W to be 60,000 units in April, 75,000 units in May, and 70,000 units in June. The company desires that the inventory on hand at the end of each month be equal to 40% of the next month's expected unit sales. Due to excessive production during March, on March 31 there were 25,000 units of Product W in the ending inventory. Given this information, Trevor Company's production of Product W for the month of April should be:

Parker Company has forecast its sales as follows: November \ 190,000 (actual) December \ 240,000 (actual) January \ 280,000 February \ 300,000 March \ 350,000 April \ 320,000 Parker has experienced collections of 55% during the month of sale, 38% the month after the sale, and 7% the second month after the sale. Required: a. Prepare a schedule of cash receipts for the 4-month period January - April. b. What will the Accounts Receivable balance be on April 30?

Tennison Corporation had the following transactions in its first year of operations: Sales ( 90 \% collected in year) \1 ,500,000 Bad debt write-offs 60,000 Disbursements for production costs 1,200,000 and other expenses Disbursements for income taxes 90,000 Purchases of fixed assets 400,000 Depreciation of fixed assets 80,000 Proceeds from issuance of common stock 500,000 Proceeds from short-term borrowings 100,000 Payments on short-term borrowings 50,000 What is the cash balance at year-end?

Establishing organizational goals as a management function is more important:

What is the "curse of growth" with respect to budgeting and why is this a critical problem affecting new firms?

Goodnight and Son is a small business that, after struggling for a while, has taken off. Goodnight, Jr. has been attending various seminars to improve his business knowledge and has brought back several new ideas to see if they can be implemented in the company. One idea that he felt was very urgent to implement was for he and his father, and others in managerial positions, to sit down and develop a strategic plan and a budget process for the company. This had not been done when the company started so he would have to do some persuading to get the others accepting and involved. One other thing he had learned at one of his seminars was that something like this had to be accepted at the top before others would accept it. Required: What kinds of issues should Goodnight, Jr. bring up to get his idea accepted?

Which of the following statements does not reflect a difficulty in preparing the marketing and administrative budget?

Ari, Inc. is working on its cash budget for December. The budgeted beginning cash balance is $14,000. Budgeted cash receipts total $127,000 and budgeted cash disbursements total $126,000. The desired ending cash balance is $40,000. Any borrowing is in multiples of $1,000 and interest is paid in the month following the borrowing. To attain its desired ending cash balance for December, the company needs to borrow:

The Overland Company is preparing its cash budget for the month of June. The following information is available concerning its accounts receivable: Estimated credit sales for June \ 300,000 Actual credit sales for May 225,000 Estimated collections in June for credit sales in June 25\% Estimated collections in June for credit sales in May 65\% Estimated collections in June for credit sales prior to May \ 18,000 Estimated write-offs in June for uncollectible credit sales 12,000 Estimated provision for bad debts in June for credit sales in June 10,000 What are the estimated cash receipts from accounts receivable collections in June?

Acutron is a large securities dealer. Last year, the company made 120,000 trades with an average commission of $120. Because of the general economic climate, Acutron expects trade volume to decline by 20%. Fortunately, the average commission per trade is likely to increase by 10% because trades are expected to be large in the coming year. What are the estimated commission's revenues for Acutron in the coming year?

Sales projections are often the most difficult part of the budgeting process because it involves a considerable amount of subjectivity.

The statistical method of forecasting that relies heavily on regression models is called: