Exam 15: The Budgeting Process

Budgeted sales for the second quarter for Maxwell Company, a retailer, are as follows: Maxwell started the quarter with an inventory of 30,000 units. The company likes to maintain an inventory equal to 10 per cent of next month's budgeted sales. Budgeted purchases in units for May would be

In what ways does a department orientation hinder traditional budgeting?

The Good As Old Company manufactures antique-looking, oak rocking chairs. Budgeted sales for the first five months of the year are as follows: Each rocking chair requires 10 square feet of oak, at a cost of £20 per square foot. The company wants to maintain an inventory of chairs equal to 25 per cent of the following month's sales. At the beginning of the year, 40 chairs are on hand. Assume the company maintains an inventory of oak equal to 10 per cent of the next month's needs. At the beginning of the year, 240 square feet of oak are on hand. Inventory of oak at March 31 is estimated to be 180 square feet. Required: a. Prepare a production budget, in units, for each of the first four months of the year. b. Prepare a purchases budget, in dollars, for each of the first three months of the year.

At the beginning of the current month, Melrose had £10,000. Cash disbursements were £260,000 and cash collections were £235,000. Melrose invests all excess cash in a money market fund and has a line of credit to cover cash deficiencies. If Melrose wishes to start the next month with £15,000, Melrose must

Figure 15-5 Canceco Company produces and sells pillows. It expects to sell 10,000 pillows in the year 2008 and had 1,000 pillows in finished goods inventory at the end of 2011. Canceco would like to complete operations in the year 2008 with at least 1,250 completed pillows in inventory. There is no ending work-in-process inventory. The pillows sell for £5 each. -Refer to Figure 15-5. What would be the total sales for the year 2008?

Budgeted sales for the third quarter of the year for Brown Company are as follows: The company normally collects 30 per cent in the month of sale and 65 per cent in the month following the sale. Five per cent of all sales are uncollectible and are written off in the following month. The balance in accounts receivable at July 1 was £245,000, which represents 70 per cent of June sales. Required: Prepare a schedule of cash collections on accounts receivable for the third quarter.

Sales for October, November, and December are expected to be £200,000, £180,000, and £220,000, respectively, for Ripken Company. All sales are on account (terms 2/15, net 30 days) and are collected 50 per cent in the month of sale and 50 per cent in the following month. One-half of all sales discounts are taken on the average. Materials are purchased one month before being needed, and all purchases and expenses are paid for as incurred. Activities for the quarter are expected to be: Required: Using the given information, prepare a cash budget for November.

A bank manager may review a company's cash budget to

The city of Coventry had the following sales of water for the selected months of 2011: All sales are on credit. Historically, 50 per cent is collected in the month of sale, 35 per cent during the first month following the sale, and 15 per cent in the second month following the sale. Cost of water averages 75 per cent of sales. Water is purchased in the month of sale. All purchases are paid during the month following the purchase. Operating costs of £40,000 are paid each month. The March 1 cash balance is expected to be the minimum balance of £5,000. Money can be borrowed from a local bank in increments of £1,000. (Do not include interest charges in your budget.) Required: Prepare a cash budget for March, April, and May.

Activity-based budgeting

Figure 15-1 Rydingsward, Inc., has done a cost analysis for its production of reflectors. The following activities and cost drivers have been developed: -Refer to Figure 15-1. What is the budgeted maintenance cost if there was production of 50,000 reflectors that will require 8,000 machine hours, 25 batches, and 15,000 purchase orders?

Michael Ltd. has the following sales forecasts for the first three months of 2011: Sixty-five per cent of sales are collected in the month of the sale and the remainder are collected in the following month. Minimum cash balance is £20,000. Cash can be borrowed in £1,000 increments from the local bank (assume no interest charges). How much cash would be collected in March from sales?

Jiggy Company plans to sell 33,000 units during the month of May. Beginning inventory was 1,200 units. The company plans to have 2,500 units on hand at the end of the month. Each unit requires 3 pounds of raw materials. If raw material inventory on May 1 is 4,400 pounds and desired ending inventory is 2,200 pounds, how many pounds of raw materials must be purchased during May?

Budgeted sales for the second quarter of the year for Reuben Company are as follows: The company normally collects 60 per cent in the month of sale and 30 per cent in the month following the sale. Ten per cent of all sales are uncollectible and are written off in the following month. The balance in accounts receivable at April 1 was £200,000, which represents 40 per cent of March sales. Required: Prepare a schedule of cash collections on accounts receivable for the second quarter.

Figure 15-4 Budgeted sales for the second quarter of the current year are as follows: The company collects 20 per cent in the month of sale, 70 per cent in the first month following the sale, and 10 per cent in the second month following the sale. -Refer to Figure 15-4. April sales to be collected in May are

Figure 15-1 Rydingsward, Inc., has done a cost analysis for its production of reflectors. The following activities and cost drivers have been developed: -Refer to Figure 15-1. What is the budgeted setup costs if there was production of 50,000 reflectors that will require 8,000 machine hours, 25 batches, and 15,000 purchase orders?

Figure 15-3 Projected sales for Sommers, Inc., for next year and beginning and ending inventory data are as follows: The selling price is £40 per unit. Each unit requires four pounds of material which costs £6 per pound. The beginning inventory of raw materials is 12,000 pounds. The company wants to have 3,000 pounds of material in inventory at the end of the year. -Refer to Figure 15-3. How many pounds of material would Sommers need to purchase?

Figure 15-3 Projected sales for Sommers, Inc., for next year and beginning and ending inventory data are as follows: The selling price is £40 per unit. Each unit requires four pounds of material which costs £6 per pound. The beginning inventory of raw materials is 12,000 pounds. The company wants to have 3,000 pounds of material in inventory at the end of the year. -Refer to Figure 15-3. According to Sommers' production budget, how many units should be produced?

General Ltd. manufactures boxes. The estimated number of boxes sold for the first three months of 2012 are: Finished goods inventory at the end of December was 900 units. Ending finished goods inventory is equal to 20 per cent of the next month's sales. General Ltd. expects to sell the boxes for £5 each. April 2012 sales is projected at 4,500 boxes. What is the expected sales amount for March?

The following budget estimates have been prepared by Clifton Company: The company likes to maintain a minimum cash balance of £40,000. Any excess cash is invested in a money market account earning 9 per cent compounded monthly. Interest is reinvested in the money market account. Any cash deficiencies are covered by a withdrawal from the money market account. If additional cash is needed, the company has a line of credit at 12 per cent interest with the local bank. Interest is paid monthly. Assume a cash balance on May 1 of £40,000, a money market account balance of £0, and a credit line loan balance of £0. Required: Prepare a cash budget for May and June.