Exam 23: Incremental Analysis

A company has budgeted direct materials purchases of $200,000 in March and $320,000 in April. Past experience indicates that the company pays for 70% of its purchases in the month of purchase and the remaining 30% in the next month. During April, the following items were budgeted: The budgeted cash disbursements for April are

The most common budget period is

Budgets are statements of management's plans stated in financial terms.

An unrealistic budget is more likely to result when it

The budget is developed within the framework of a sales forecast.

Grove, Inc. produces rulers from plastic resin. Grove has estimated production and sales of rulers in units for the next 2 months as: Each ruler requires 0.25 pounds of resin. The cost of resin is $4.50 per pound. Grove wants to have 20% of the next month's materials requirements on hand at the end of each month. Instructions Prepare a direct materials purchases budget for the month of May.

Pierce Merchandising Company expects to purchase $60,000 of materials in March and $70,000 of materials in April. Three-quarters of all purchases are paid for in the month of purchase, and the other one-fourth are paid for in the month following the month of purchase. In addition, a 2% discount is received for payments made in the month of purchase. How much will April's cash disbursements for materials purchases be?

Financial planning models and statistical and mathematical techniques may be used in forecasting sales.

Grayson.Com plans to sell 2,000 purple lawn chairs during May, 1,900 in June, and 2,000 during July. The company keeps 15% of the next month's sales as ending inventory. How many units should Grayson.Com produce during June?

Long-range planning

Oakes Company is preparing its master budget for 2010. Relevant data pertaining to its sales budget are as follows: Sales for the year are expected to total 6,000,000 units. Quarterly sales are 25%, 30%, 15%, and 30%, respectively. The sales price is expected to be $2.00 per unit for the first quarter and then be increased to $2.30 per unit in the second quarter. Instructions Prepare a sales budget for 2010 for Oakes Company.

Wesley Company reported the following information for 2010: $\bullet$ All sales are on credit. $\bullet$ Customer amounts on account are collected 50% in the month of sale and 50% in the following month. How much is the November 30, 2010 budgeted Accounts Receivable?

In order to develop a budgeted balance sheet, the previous year's balance sheet is needed.

During September, the capital expenditure budget indicates a $140,000 purchase of equipment. The ending September cash balance from operations is budgeted to be $20,000. The company wants to maintain a minimum cash balance of $10,000. What is the minimum cash loan that must be planned to be borrowed from the bank during September?

Nunley Company's direct materials budget shows total cost of direct materials purchases for April $200,000, May $240,000 and June $280,000. Cash payments are 60% in the month of purchase and 40% in the following month. The budgeted cash payments for June are

The City National Bank has asked Donham, Inc. for a budgeted balance sheet for the year ended December 31, 2010. The following information is available: 1. The cash budget shows an expected cash balance of $75,000 at December 31, 2010. 2. The 2010 sales budget shows total annual sales of $900,000. All sales are made on account and accounts receivable at December 31, 2010 are expected to be 10% of annual sales. 3. The merchandise purchases budget shows budgeted cost of goods sold for 2010 of $600,000 and ending merchandise inventory of $105,000. 20% of the ending inventory is expected to have not yet been paid at December 31, 2010. 4. The December 31, 2009 balance sheet includes the following balances: Equipment $294,000, Accumulated Depreciation $120,000, Common Stock $270,000, and Retained Earnings $48,000. 5. The budgeted income statement for 2010 includes the following: depreciation on equipment $15,000, federal income taxes $24,000, and net income $66,000. The income taxes will not be paid until 2011. 6. In 2010, management does not expect to purchase additional equipment or to declare any dividends. It does expect to pay all operating expenses, other than depreciation, in cash. Instructions Prepare an unclassified budgeted balance sheet at December 31, 2010.

Which of the following would not appear as a fixed expense on a selling and admini-strative expense budget?

A sales forecast

Ferguson Inc. provided the following information: $\bullet$ $\bullet$ Ferguson pays 40% of merchandise purchases in the month purchased and 60% in the following month. $\bullet$ General operating expenses are budgeted to be $31,000 per month of which depreciation is $3,000 of this amount. Ferguson pays operating expenses in the month incurred. $\bullet$ Ferguson makes loan payments of $4,000 per month of which $450 is interest and the remainder is principal. Instructions Calculate budgeted cash disbursements for May.

Wyatt Company has budgeted the following unit sales: The finished goods units on hand on December 31, 2010, was 2,000 units. Each unit requires 2 pounds of raw materials that are estimated to cost an average of $4 per pound. It is the company's policy to maintain a finished goods inventory at the end of each month equal to 10% of next month's anticipated sales. They also have a policy of maintaining a raw materials inventory at the end of each month equal to 20% of the pounds needed for the following month's production. There were 3,920 pounds of raw materials on hand at December 31, 2010. Instructions For the first quarter of 2011, prepare (1) a production budget and (2) a direct materials budget.