Exam 10: Static and Flexible Budgets

(Appendix 10A) To address the difference between budgeted cash receipts and budgeted cash disbursements, managers also budget which of the following?

If actual activities do not follow plans, a variance is likely to result.

TFS Corporation, a retail company selling hotel furniture, has just completed its master budget for the next fiscal year. Ending inventory is budgeted at 20% of cost of goods available for sale. Selected data from that process appear in the table below: Beginning inventory \ 10,000 Budgeted purchases 25,000 Expected revenue 150,000 Inflows of cash 120,000 Support departments costs 30,000 Total cash outflows 80,000 TFS' budgeted profit before taxes for the next fiscal year will be:

Intentionally understating revenues and / or overstating costs during a budgeting process is called:

In zero-based budgeting, managers justify budget amounts as if no information about prior budgets exists.

(Appendix 10A) Allen, Inc. has the following disbursements: *Variable manufacturing costs are $3 per unit. They are paid 40% in the month of purchase and 60% in the following month. Purchases are made in the month of production. *Fixed overhead is $2,000, including $500 amortization. Overhead costs are paid as incurred. *Selling costs are $1,500 per month plus $1 per unit sold and are paid in the month incurred. *Production for January, February, and March was 3,000, 2,000, and 1,200 units, respectively. *Sales for the 3 months were 1,000, 2,500, and 1,000 units, respectively. What is the amount of cash disbursements for February?

The cost of goods sold budget:

Expected ending inventory volumes and costs need to be calculated to forecast:

To overcome possible problems with budgets that are developed only by top level managers, an alternative is to use:

Budgeting provides a means for defining managers' decision rights.

Budget variances cannot be calculated from a static budget.

A firm that manufactures vases has budgeted production for the next four months as follows: Units Produced October 40,000 November 50,000 December 30,000 January 40,000 Each vase requires 30 grams of silica. The managers desire an ending inventory sufficient to meet 25% of the next month's production. There is no beginning inventory of raw material in October. Budgeted purchases of silica in grams for November would be:

Budgets are used to: I. Forecast future performance II. Compare to actual operations III. Communicate an organization's strategy and targets

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 accounts receivable balance at the end of March is:

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. Material purchases for February are:

TFS Corporation, a retail company selling hotel furniture, has just completed its master budget for the next fiscal year. Ending inventory is budgeted at 20% of cost of goods available for sale. Selected data from that process appear in the table below: Beginning inventory \ 10,000 Budgeted purchases 25,000 Expected revenue 150,000 Inflows of cash 120,000 Support departments costs 30,000 Total cash outflows 80,000 Which of the following amounts is irrelevant in the preparation of TFS' budgeted income statement?

A formalized financial plan for organizational operations in the coming year is best described as a:

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. (Appendix 10A) What are the anticipated cash receipts for October?

Sales of $250,000 are forecast for the third quarter. Gross profit is 60% of sales, and beginning inventory is $165,000. If ending inventory is budgeted as $183,000, what are the budgeted purchases?

An advantage of a flexible budget is that it: