Exam 10: Static and Flexible Budgets

Steve Company uses the following flexible budget formula for monthly repair cost: total cost = $700 + $0.40 per machine hour. The annual operating budget calls for 35,000 hours of planned machine time. Budgeted repair cost is:

The Mzarek Company's budgeted annual indirect labour cost is: $7,200 + $0.75 per direct labour hour. Operating budgets for the current month are based on 30,000 hours of budgeted direct labour hours. Budgeted indirect labour cost is:

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 (Appendix 10A) Forecasted sales discounts to be taken by customers making remittances during February are:

Master budgets are often summarized in a company's short-term operating plans.

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. How much material A must be purchased in quarter 2?

Cost-volume-profit analysis is a simplified version of a flexible budget.

In a production budget, beginning inventory plus budgeted production equals sales plus targeted ending inventory.

(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 What will be the ending cash balance for January?

(Appendix 10A) To prepare a cash budget, managers plan: I. Cash receipts II. Cash disbursements III. Short-term borrowing or investments

The actual preparation of a budget usually begins with the:

(Appendix 10A) Conner Company is a medium-sized toy distributor. Experience has shown that 30% of sales are collected within the month of sale, 60% is collected the month after the sale, and 10% is collected two months after the sale. Inventory on hand at the end of a month is to be 70% of the next month's budgeted sales. Cost of goods sold is 50% of the selling price. Payment for purchases is made in the month after purchase. All other costs are paid in the month incurred. Budgeted amounts are as follows: March April May June July August Sales \ 10,000 \ 20,000 \ 30,000 \ 30,000 \ 50,000 \ 40,00 Cost Wages 1,500 2,000 2,500 1,500 Rent 500 500 500 500 Other 400 500 600 500 Purchases for the month of May are expected to be:

In an activity-based budgeting system, managers develop budgets for each:

Horton Company produces and sells two products: round and square tables. In August 20x4, the budget projected the following for 20x5: Budgeted data for 20x5 Direct labour and overhead are: Direct labour: Round 4 hours per unit at $6 per hour Square 6 hours per unit at $8 per hour Overhead: $4 per direct labour hour Direct labour costs for 20x5 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 TFS' budgeted gross profit for the next fiscal year will be:

A formalized financial plan for organizational operations is called a long-term strategy.

What feature differentiates Kaizen budgeting from other forms of budgeting?

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 operating income will be:

A flexible budget reflects a range of operations.

Which of the following is a type of budgeting that is used to develop cost and time budgets for information technology projects?

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) Cash payments on account for February are: