Exam 13: Planning and Budgeting

The Express Company is preparing its cash budget for the month of June. The following information is available concerning its inventories: Inventories at beginning of June 67,500 Estimated purchases of June 330,000 Estimated cost of goods sold for June 337,500 Estimated payments in June for purchases in May 56,250 Estimated payments in June for purchases prior to May 15,000 Estimated payments in June for purchases in June 80\% What are the estimated cash disbursements for inventories in June?

Page Company makes 30% of its sales for cash and 70% on account. 60% of the credit sales are collected in the month of sale, 25% in the month following sale, and 12% in the second month following sale. The remainder is uncollectible. The following information has been gathered for Page's first year of operations: Month 1 2 3 4 Total sales \ 60,000 \ 70,000 \ 50,000 \ 30,000 Total cash receipts in Month 3 will be:

Bottlenecks in the production process can be discovered by the budgeting process before they occur.

Pablo Company has budgeted production for next year as follows: Quarter First Second Third Fourth Production in urits 60,000 80,000 90,000 70,000 Two pounds of material A are required for each unit produced. The company has a policy of maintaining a stock of material A on hand at the end of each quarter equal to 25% of the next quarter's production needs for material A. A total of 30,000 pounds of material A are on hand to start the year. Budgeted purchases of material A for the second quarter would be:

Vargas Corporation is working on its direct labor budget for the next two months. Each unit of output requires 0.77 direct labor-hours. The direct labor rate is $11.20 per direct labor-hour. The production budget calls for producing 7,100 units in October and 6,900 units in November. The company guarantees its direct labor workers a 40-hour paid work week. With the number of workers currently employed, that means that the company is committed to paying its direct labor work force for at least 5,480 hours in total each month even if there is not enough work to keep them busy. What would be the total combined direct labor cost for the two months?

Which of the following statements is (are) true regarding the benefits associated with participative budgeting? (A) Goal congruence by divisions means top management need not be concerned with overall profitability. (B) Employee motivation and acceptance of goals is enhanced.

The Arkansas Company makes and sells a product called Product K. Each unit of Product K sells for $24 and has a unit variable cost of $18. The company has the following budgeted data for November: ∙ Sales of $1,152,200, all in cash. ∙ A cash balance on November 1 of $48,000. ∙ Cash disbursements (other than interest) during November of $1,160,000. ∙ A minimum cash balance on November 30 of $60,000. If necessary, the company will borrow cash from a bank. The borrowing will be in multiples of $1,000 and will bear interest at 2% per month. All borrowing will take place at the beginning of the month. The November interest will be paid in cash during November. The amount of cash needed to be borrowed on November 1 to cover all cash disbursements and to obtain the desired November 30 cash balance is:

Describe what is meant by participative budgeting and give an example of a benefit and a drawback.

Davis Company has forecast its sales as follows: August \ 180,00 (actual) September \ 280,000 (actual) October \ 360,000 November \ 400,000 December \ 450,000 Davis has experienced collections of 40% during the month of sale, 50% the month after the sale, and 10% the second month after the sale. Required: a. Prepare a schedule of cash receipts for the 3-month period October - December. b. What will the Accounts Receivable balance be on December 31?

Cash disbursements would not include payments for:

Which of the following is not correct regarding the manufacturing overhead budget?

Estimates for direct labor costs can be obtained from the engineering and production management.

A sales budget is given below for one of the products manufactured by Dance, Ltd. Month Sales Budget in Units July 18,000 August 20,000 September 24,000 October 26,000 November 19,000 December 16,000 The inventory of finished goods at the end of each month must be equal to 5,000 units plus 10% of the next month's sales. On June 30, the finished goods inventory totaled 6,800 units. Each unit of product requires three ounces of a special liquid extract known as SV-6. Sometimes the extract is in short supply; for this reason, the company has a policy of maintaining an inventory at the end of each month equal to one half 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 SV-6 to be purchased for September.

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 units of sales. 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 collections during the month of May?

The manufacturing overhead budget of Waverly Corporation is based on budgeted direct labor-hours. The June direct labor budget indicates that 5,800 direct labor-hours will be required in that month. The variable overhead rate is $7.70 per direct labor-hour. The company's budgeted fixed manufacturing overhead is $111,360 per month, which includes depreciation of $17,400. All other fixed manufacturing overhead costs represent current cash flows. Required: a. Determine the cash disbursement for manufacturing overhead for June. b. Determine the predetermined overhead rate for June.

Arctic Corporation is working on its direct labor budget for the next two months. Each unit of output requires 0.41 direct labor-hours. The direct labor rate is $8.50 per direct labor-hour. The production budget calls for producing 2,300 units in August and 2,200 units in September. The company guarantees its direct labor workers a 40-hour paid work week. With the number of workers currently employed, that means that the company is committed to paying its direct labor work force for at least 960 hours in total each month even if there is not enough work to keep them busy. Required: Construct the direct labor budget for the next two months.

Which one of the following budgets would be the last one prepared in the master budget preparation process?

The Colson Company has budgeted sales for the year as follows: Quarter 1 2 3 4 Sales in urits 12,000 14,000 18,000 16,000 The ending inventory of finished goods for each quarter should equal 25% of the next quarter's budgeted sales in units. The finished goods inventory at the start of the year is 3,000 units. -Scheduled production for the second quarter is (in units):

The Pizza Merchandise Company has budgeted $40,000 in sales for the month of December. The company's cost of goods sold is 30% of sales. If the company has budgeted to purchase $18,000 in merchandise during December, then the budgeted change in inventory levels over the month of December is:

The sales budget drives the rest of the budgeting process for both manufacturers and merchandisers.