Exam 10: Static and Flexible Budgets

Under which of the following types of budgeting must managers justify their budget requests each year as if prior information did not exist?

(Appendix 10A) Taft Corporation collects cash from customers as follows: 60% in the month of sale, 20% in the month after sale, 19% in the second month after sale, and 1% is never collected. Bad debts are written off annually in December. Budgeted sales are all on credit and amount to: May \ 600,000 June 700,000 July 500,000 August 600,000 What is the budgeted amount of accounts receivable at the end of August?

Differences between budgeted amounts and actual amounts are called budget variances.

Korn Inc., projects sales for its first three months of operation as follows: October November December Credit sales \ 100,000 \ 150,000 \ 200,000 Cash sales 40,000 60,000 50,000 Tota \ 140,000 \ 210,000 \2 50,000 Inventory on October 1 is $40,000. Subsequent beginning inventories should be 40% of that month's cost of goods sold. Goods are priced at 140% of their cost. 50% of purchases are paid for in the month of purchase; the balance is paid in the following month. It is expected that 50% of credit sales will be collected in the month following sale, 30% in the second month following the sale, and the balance the third month. A 5% discount is given if payment is received in the month following sale. What is the projected cost of goods sold for October?

The Dilly Company marks up all merchandise at 25% of gross purchase price. All purchases are made on account with terms of 1/10, (1% discount if paid in 10 days) net/60 (full amount due within 60 days). Purchase discounts, which are recorded as miscellaneous income, are always taken. Normally, 60% of each month's purchases are paid for in the first month after purchase, whereas the other 40% are paid during the first 10 days of the first month after purchase. Inventories of merchandise at the end of each month are kept at 30% of the next month's forecasted cost of goods sold. Terms for sales on account are 2/10 (2% discount if paid within 10 days), net/30 (full amount due in 30 days). Cash sales are not subject to discount. Fifty percent of each month's sales on account are collected during the month of sale, 45% are collected in the succeeding month, and the remainder is usually uncollectible. Seventy percent of the collections in the month of sale are subject to discount, and 10% of the collections in the succeeding month are subject to discount (2%). Forecasted sales data and cost of sales for selected months are as follows: Sales on Account (Gross) Cash Sales Cost of Goods sold December \ 1,900,000 \ 400,000 \ 1,840,000 January 1,500,000 250,000 1,400,000 February 1,700,000 350,000 1,640,000 March 1,600,000 300,000 1,520,000 Assuming that all of the beginning inventory for December is sold, forecasted gross purchases for January are:

Participative budgeting: I. Occurs from the bottom up II. Motivates employees to buy into the budgeting process III. Provides managers with incentives to build in budgetary slack

TNR Corporation is preparing its budgeted income statement for the month of August. Budgeted sales are $18,000. Cost of goods sold is twice the amount of operating costs, and operating costs plus cost of goods sold equals 40% of net income. Return on sales (net income / sales) is anticipated to be 50%. TNR does not have any nonoperating items on its income statement. TNR's budgeted gross margin is:

Corporation is preparing its budgeted income statement for the month of August. Budgeted sales are $18,000. Cost of goods sold is twice the amount of operating costs, and operating costs plus cost of goods sold equals 40% of net income. Return on sales (net income / sales) is anticipated to be 50%. TNR does not have any nonoperating items on its income statement. TNR's budgeted operating costs are:

A financial budget is the master budget component that leads to all budgeted financial statements.

The revenues budget:

(Appendix 10A) Gold Company has the following balances at December 31, 20x4: Cash $6,000; accounts receivable $34,000 ($10,000 from November and $24,000 from December); merchandise inventory $40,000; and accounts payable $20,000 (for merchandise purchases only). Budgeted sales follow: January \ 50,000 February 90,000 March 60,000 April 100,000 Other data: *Sales are 40% cash, 50% collected during the following month, and 10% collected during the second month after sale. A 3% cash discount is given on cash sales. *Cost of goods sold is 40% of sales. *Ending inventory must be 140% of the next month's cost of sales. *Purchases are paid 70% in month of purchase and 30% in the following month. *The selling and administrative cost function is: $6,000 + $0.2 × sales. This includes $1,000 for amortization. *All costs are paid in the month incurred. *Minimum cash balance requirement is $6,000. The cash disbursements for purchases in March are:

Business strategy is incorporated in budgets through: I. Proposed changes in product emphasis II. Revenue forecasts for new products III. Proposed changes in discretionary expenses such as research and development

Managers need information from current beginning inventories and required ending inventories to prepare the production budget.

January February March April Sales \ 26,400 \ 23,100 \ 33,000 \ 25,000 Production in units 990 1,440 1,710 1,200 Sales are 30% cash and 70% on account, and 60% of credit sales are collected in the month of the sale. In the month after the sale, 30% of credit sales are collected. The remainder is collected two months after the sale. It takes 4 kilograms of direct material to produce a finished unit, and direct materials cost $5 per kilogram. All direct materials purchases are on account, and are paid as follows: 40% in the month of the purchase, 50% the following month, and 10% in the second month following the purchase. Ending direct materials inventory for each month is 40% of the next month's production needs. January's beginning materials inventory is 1,080 kilograms. Suppose that both accounts receivable and accounts payable are zero at the beginning of January. (Appendix 10A) The ending balance in accounts payable for March is:

Planning Systems, Inc. has forecast the following unit sales and production for the next year, by quarter: Production 150 160 140 100 Sales 120 140 150 120 The firm has beginning inventories as follows: Finished goods 50 units Direct material A 100 Direct material B 100 A finished unit requires one unit of material A and two units of material B. There should be enough material on hand at the end of each quarter to meet 20% of the next quarter's production needs. There are no work-in-process inventories. What is the ending inventory for material A for quarter 2?

Rolling budgets: I. Are often prepared monthly or quarterly II. Reflect any changes going forward through a specified future period (usually annually or longer) III. Provide managers with more current budget targets than traditional budgets

Favourable variances are positive amounts; unfavourable variances are negative amounts.

Which of the following is a new type of information technology project management that emphasizes communication between customers and information technology personnel?

(Appendix 10A) In a cash budget, operating cash receipts include:

A master budget is a comprehensive plan for an upcoming financial period.