Exam 13: Planning and Budgeting

Roman Company, a merchandising firm, has the following sales budget for the coming year. Month Sales July \ 270,000 August \ 288,000 September \ 312,000 October \ 330,000 The sales price per unit is $20; the cost of sales is 60% of sales. Roman keeps inventory equal to 50% of the coming month's budgeted sales requirements. It pays for purchases 35% in the month of purchase and 65% in the month after purchase. Inventory at the beginning of July is $78,000. Accounts Payable on July 1 is $100,750. 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.

What does the phrase, "use it or lose it," mean in the context of budgeting?

Budgeted sales in Washburn Company over the next four months are given below: September October Novernber December Budgeted sales \ 100,000 \ 160,000 \ 180,000 \ 120,000 Twenty-five percent of the company's sales are for cash and 75% are on account. Collections for sales on account follow a stable pattern as follows: 50% of a month's credit sales are collected in the month of sale, 30% are collected in the month following sale, and 15% are collected in the second month following sale. The remainder is uncollectible. Given these data, cash collections for December should be:

Which of the following represents the correct order in which the indicated budget documents for a manufacturing company would be prepared?

Bentonville Inc. bases its marketing and administrative expense budget on budgeted unit sales. The sales budget shows 3,200 units are planned to be sold in December. The variable marketing and administrative expense is $3.10 per unit. The budgeted fixed marketing and administrative expense is $60,800 per month, which includes depreciation of $6,720 per month. The remainder of the fixed marketing and administrative expense represents current cash flows. The cash disbursements for marketing and administrative expenses on the December marketing and administrative expense budget should be:

Which of the following statements is (are) true regarding the master budget? (A) A master budget consists of (a) organizational goals, (b) strategic long-range profit plan, and (c) tactical short-range profit plan. (B) A master budget consists of only a budgeted (a) income statement, (b) balance sheet, and (c) stockholders' equity statement.

Which of the following is not a component of an overall organization plan for an organization?

Shown below is the sales forecast for Kalin Inc. for the first four months of the coming year. Jan Feb Mar Apr Cash sales \ 15,000 \ 24,000 \ 18,000 \ 14,000 Credit sales \ 100,000 \ 120,000 \ 90,000 \ 70,000 On average, 50% of credit sales are paid for in the month of the sale, 30% in the month following sale, and the remainder are paid two months after the month of the sale. Assuming there are no bad debts, the expected cash inflow in March is: (CMA adapted)

A production budget is not needed for a service organization.

The marketing and administrative expense budget of Frazier Corporation is based on budgeted unit sales, which are 5,500 units for June. The variable marketing and administrative expense is $1.00 per unit. The budgeted fixed marketing and administrative expense is $101,200 per month, which includes depreciation of $6,050 per month. The remainder of the fixed marketing and administrative expense represents current cash flows. The cash disbursements for marketing and administrative expenses on the June marketing and administrative expense budget should be:

Sensitivity analysis can best be used in the budgeting process to:

Rockwell Company is a fast-growing company with monthly sales for the current year estimated at a relatively steady upward trend. Past history has shown that all sales are collected within two months with negligible uncollectibles. The product for a given month is purchased partially in the month before sale and the rest during the month of sale and is paid for over a two-month period. Property and income taxes are paid quarterly while other expenses are paid as incurred. The company has a desired ending cash balance for each month of $150,000, and when necessary, borrows to meet shortfalls and invests overages. The success of the company has been sudden and Ms. Harrison, the controller, is concerned about meeting the goals of the company without getting into serious short-term financial difficulties. As a result, she has been very conscientious about preparing the cash budget and keeping it up-to-date as conditions warrant. Required: Why is cash budgeting important for a rapidly expanding firm such as Rockwell Company?

High Plains Lumber sells lumber and general building supplies to building contractors in a medium-sized town in North Dakota. Data regarding the store's operations follow: ? Sales are budgeted at $340,000 for November, $350,000 for December, and $370,000 for January. ? Collections are expected to be 55% in the month of sale, 44% in the month following the sale, and 1% uncollectible. ? The cost of goods sold is 75% of sales. ? The company purchases 60% of its merchandise in the month prior to the month of sale and 40% in the month of sale. Payment for merchandise is made in the month following the purchase. ? Other monthly expenses to be paid in cash are $21,100. ? Monthly depreciation is $19,000. ? Ignore taxes. Required: a. Determine the net income for December. b. Determine the cash balance at the end of December. c. Calculate the accounts receivable balance, net of uncollectible accounts, at the end of December. d. Determine the accounts payable at the end of December. e. Determine the balance in Retained earnings at the end of December.

Vermicelli Company plans to sell 200,000 units of finished product in July and anticipates a growth rate in sales of 5% per month. The desired monthly ending inventory in units of finished product is 80% of the next month's estimated sales. There are 150,000 finished units in inventory on June 30. Vermicelli Company's production requirement in units of finished product for the three-month period ending September 30 is: (CMA adapted)

Autumn Corporation makes and sells a single product called a Security Surge. The company is in the process of preparing its Marketing and Administrative Expense Budget for the last quarter of the year. The following budget data are available: All of these expenses (except depreciation) are paid in cash in the month they are incurred. Required: a. If the company budgets to sell 22,000 Security Surges in November, what would the total budgeted marketing and administrative expenses be for November? b. If the company budgets to sell 19,000 Security Surges in December, what would the budgeted total cash disbursements for marketing and administrative expenses be for December? c. If the total budgeted marketing and administrative expense for October is $409,000, then how many Security Surges does the company plan to sell in October?

Flores Corporation is working on its direct labor budget for the next two months. Each unit of output requires 0.07 direct labor-hours. The direct labor rate is $8.50 per direct labor-hour. The production budget calls for producing 4,800 units in June and 5,300 units in July. Required: Construct the direct labor budget for the next two months, assuming that the direct labor work force is fully adjusted to the total direct labor-hours needed each month.

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 August?

Sensitivity analysis is more likely to be used for sales forecasts than for fixed overhead costs.

Individual managers' beliefs and expectations are incorporated into the budgeting process using grass roots budgeting procedures.

Denton Company has 10,000 units on hand at the beginning of the year and plans to sell 100,000 units during the year. If the ending inventory needs to be twice the beginning inventory, Denton will need to produce 90,000 units during the year.