Exam 23: Incremental Analysis

DeVito Exports, Inc. budgets on an annual basis for its fiscal year. The following beginning and ending inventory levels are planned for the fiscal year of July 1, 2010 to June 30, 2011: Three kilos of raw materials are needed to produce each unit of finished product. If DeVito Exports plans to produce 280,000 units during the 2010-2011 fiscal year, how many kilos of materials will the company need to purchase for its production during the year?

The direct materials budget shows: The total direct materials needed for production is

Budgeting and long-range planning are two terms that describe the same process.

Frontenac Landscaping Inc. is preparing its budget for the first quarter of 2010. The next step in the budgeting process is to prepare a cash receipts schedule and a cash payments schedule. To that end the following information has been collected. Clients usually pay 60% of their fee in the month that service is provided, 30% the month after, and 10% the second month after receiving service. Actual service revenue for 2009 and expected service revenues for 2010 are: November 2009, $120,000; December 2009, $110,000; January 2010, $130,000; February 2010, $160,000; March 2010, $170,000. Purchases on landscaping supplies (direct materials) are paid 40% in the month of purchase and 60% the following month. Actual purchases for 2009 and expected purchases for 2010 are: December 2009, $21,000; January 2010, $18,000; February 2010, $22,000; March 2010, $27,000. Instructions (a) Prepare the following schedules for each month in the first quarter of 2010 and for the quarter in total: (1) Expected collections from clients. (2) Expected payments for landscaping supplies. (b) Determine the following balances at March 31, 2010: (1) Accounts receivable. (2) Accounts payable.

If there were 70,000 pounds of raw materials on hand on January 1, 140,000 pounds are desired for inventory at January 31, and 420,000 pounds are required for January production, how many pounds of raw materials should be purchased in January?

The cash budget reflects

Which is true of budgets?

A common starting point in the budgeting process is

The management of Farmer Company estimates that credit sales for August, September, October, and November will be $270,000, $375,000, $420,000, and $240,000, respectively. Experience has shown that collections are made as follows: Instructions Determine the collections from customers in October and November. Show all computations.

Accounting generally has the responsibility for

In September 2010, the management of Gerber Company assembles the following data in preparation of budgeted merchandise purchases for the months of October and November. 1. Expected Sales 2. Cost of goods sold is expected to be 68% of sales. 3. Desired ending merchandise inventory is 25% of the next month's cost of goods sold. 4. The beginning inventory at October 1 will be the desired amount. Instructions Compute the budgeted merchandise purchases for October and November. Use a columnar format with separate columns for each month.

Financial budgets must be completed before the operating budgets can be prepared.

The direct materials budget shows: What are the direct materials per unit?

Match the items below by entering the appropriate code letter in the space provided. A. Budget F. Production budget B. Financial budgets G. Cash budget C. Budget committee H. Long-range planning D. Master budget I. Direct materials budget E. Sales forecast J. Sales budget ____ 1. A selection of strategies to achieve long-term goals. ____ 2. An estimate of expected sales for the budget period. ____ 3. Budgets that indicate the cash resources needed for expected operations and planned capital expenditures. ____ 4. The projection of potential sales for the industry and the company's expected share of such sales. ____ 5. Management's plans expressed in financial terms for a specified future time period. ____ 6. A projection of anticipated cash flows. ____ 7. A group responsible for coordinating the preparation of the budget. ____ 8. A projection of production requirements to meet expected sales. ____ 9. A set of interrelated budgets that constitute a plan of action for a specified time period. ____ 10. An estimate of the quantity and cost of direct materials to be purchased.

The culmination of preparing operating budgets is the

Flint Company estimates its sales at 120,000 units in the first quarter and that sales will increase by 12,000 units each quarter over the year. They have, and desire, a 25% ending inventory of finished goods. Each unit sells for $25. 40% of the sales are for cash. 70% of the credit customers pay within the quarter. The remainder is received in the quarter following sale. Cash collections for the third quarter are budgeted at

The manufacturing overhead budget shows the expected manufacturing overhead costs.

The beginning cash balance is $20,000. Sales are forecasted at $800,000 of which 80% will be on credit. 70% of credit sales are expected to be collected in the year of sale. Cash expenditures for the year are forecasted at $500,000. Accounts receivable from previous accounting periods totaling $12,000 will be collected in the current year. The company is required to make a $20,000 loan payment and an annual interest payment on the last day of the year. The loan balance as of the beginning of the year is $120,000, and the annual interest rate is 10%. Instructions How much will be reported as 'cash' on the budgeted balance sheet?

The manufacturing overhead budget generally has separate sections for variable, mixed, and fixed costs.

A company determined that the budgeted cost of producing a product is $30 per unit. On June 1, there were 40,000 units on hand, the sales department budgeted sales of 150,000 units in June, and the company desires to have 60,000 units on hand on June 30. The budgeted cost of goods manufactured for June would be