Exam 13: Planning and Budgeting

Why is it more difficult to prepare a marketing and administrative budget than it is to prepare a production budget?

A sales budget is given below for one of the products manufactured by Trumpet, Ltd. Month Sales Budget in Units July 28,000 August 30,000 September 34,000 October 36,000 Novernber 29,000 December 26,000 The inventory of finished goods at the end of each month must be equal to 20% of the next month's sales. On June 30, the finished goods inventory totaled 6,800 units. Each unit of product requires ten ounces of a special chemical known as AQ-12. Sometimes the chemical is in short supply; for this reason, the company has a policy of maintaining an inventory at the end of each month equal to 75% of the next month's production needs. This requirement was met on July 1 of the current year Required: Prepare a budget showing the quantity of AQ-12 to be purchased for October.

A company is preparing its cash budget for the coming month. All sales are on account. Given the following: Beginning Balances Budget Amount Cash 50,000 Accounts Receivable 180,000 Sales \8 00,000 Cash disbursements 780,000 Depreciation 25,000 Ending accounts receivable balance 210,000 What is the expected cash balance of the company at the end of the coming month? (CIA adapted)

The production budget must be prepared before the direct materials, direct labor, and overhead budgets can be prepared.

Ng Inc. bases its marketing and administrative expense budget on the number of units sold. The variable marketing and administrative expense is $4.30 per unit. The budgeted fixed marketing and administrative expense is $30,240 per month, which includes depreciation of $3,510. The remainder of the fixed marketing and administrative expense represents current cash flows. The sales budget shows 2,700 units are planned to be sold in April. Required: Prepare a schedule showing total marketing and administrative expenses for April, as well as the cash disbursements for marketing and administrative expenses.

A company is formulating its plans for the coming year, including the preparation of its cash budget. Historically, the company's sales are 30% cash. The remaining sales are on credit with the following collection pattern: Collections on Account Percent age In the month of sale 40\% In the month following the sale 58\% Uncollectible 2\% Sales for the first 5 months of the coming year are forecast as follows: January \ 3,500,000 February 3,800,000 March 3,600,000 April 4,000,000 May 4,200,000 For the month of April, the total cash receipts from sales and collections on accounts would be: (CIA adapted)

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 direct 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 are estimated net sales for 2020, assuming the sales return/gross sales relationship remains constant?

Which of the following statements is true regarding ethical issues accompanying budgeting?

James, Inc. makes a product that has peak sales in September of each year. The company has prepared a sales budget for the third quarter as shown below: Month Budgeted Sale. July \ 200,000 August 400,000 September 600,000 The company is in the process of preparing a cash budget for the third quarter and must determine the expected cash collections by month. To this end, the following information has been assembled: Collections on Sales In month of sale 60\% In month following sale 25\% In second month following sale 15\% The company gives a 3% cash discount to customers paying in the month of their sale. The company charges 2% interest to customers who pay in the second month following their sales. The accounts receivable balance to start the quarter is $150,000: $35,000 from May's sales and $115,000 from June's sales. Required: Prepare a schedule of cash receipts for the third quarter.

Why does budgeting create serious ethical issues for many people and give an example?

A sales budget is given below for one of the products manufactured by Reyes, Ltd. Month Sales Budget in Units July 36,000 August 40,000 September 48,000 October 52,000 November 38,000 December 31,000 The inventory of finished goods at the end of each month must be equal to 30% of the next month's sales. On June 30, the finished goods inventory totaled 16,800 units. Each unit of product requires four pounds of material. The company has a policy of maintaining a material inventory at the end of each month equal to 25% of the next month's production needs. This requirement was met on July 1 of the current year. Required: Prepare a budget showing the quantity of material to be purchased for August.

An organization's sales staff is more likely to provide a lower sales forecast than a forecast provided by market researchers.

The forecasting method in which individual forecasts of group members are submitted anonymously and evaluated by the group as a whole is called:

Which of the following budgets is not required in a wholesale organization?

Adair Credit, Inc. has $35.0 million in consumer loans with an average interest rate of 12.0%. The company has $30.0 million in home equity loans with an average interest rate of 8.0%, and owns $5.0 million in corporate securities with an average interest rate of 6%. Next year, consumer loans are estimated to increase to $40.0 million because of a rate decrease to 10.0%, while home equity loans are estimated to increase to $32.0 million at an average interest rate of 6.5%. Unfortunately, the investment in corporate securities is estimated to decrease by 20% and the average interest rate is estimated to be 9.0%. What is Adair's estimated change in revenues next year?

When assembling the master budget, the budgeted balance sheet is the last budget prepared in the process.

Thomas Company's past experience has demonstrated that 55% of the net sales billed in a month are collected during the month, 35% are collected in the following month and 9% are collected in the second following month. Customers are allowed a 3% discount if payment is made within 5 days after the billing date. 65% of the customers that pay in the month of the sale, pay within 5 days and take the discount. A sales budget for the four months ending June 30 is as follows: Month Units Selling Price March 30,000\ 5.20 April 50,000 5.20 May 80,000 5.60 June 40,000 5.60 Required: Prepare a schedule of cash receipts for May and June.

Both variable and fixed manufacturing overhead costs are included in the manufacturing overhead budget.

Allentown Company has been busy over the first few years of its existence in penetrating its market and gaining a respectable market share. To facilitate this, Mr. Marks, the CEO, and his controller, Mr. Nance, have been developing the annual master budgets. To date, this approach has worked well. Allentown has been acquired by a company in a related business but will continue to operate as an independent subsidiary. The CFO of the acquiring company, Mr. Radisson, has suggested to Mr. Marks that, since it was expected that his company would continue to grow, it adopt a departmental budgeting system; a suggestion Mr. Marks agreed to readily. Mr. Radisson explained to Marks' departmental managers the concepts of a departmental participative budgeting system and their involvement. The managers were encouraged to take the information and come back with suggestions which could then be put into a formal budget process. Required: a. What benefits will accrue to Mr. Marks under this new budgeting system? b. What behavioral issues might arise for departmental managers and for production workers? c. What is the most probable long-term reaction of Marks' people to the participative budget system?

Center Company makes collections on sales according to the following schedule: $30 \%$ in the month of sale $60 \%$ in the month following sale $8 \%$ in the second month following sale The following sales are expected: Expected Sales January \ 100,000 February \ 120,000 March \ 110,000 Cash collections in March should be budgeted to be: