Exam 15: The Budgeting Process

Which budget is prepared without monetary amounts?

Retro, Inc., produces a single product. The projected sales for the first month of the coming year and the beginning and ending inventory data are as follows: Each unit requires three pounds of material costing £2 per pound. The beginning inventory of raw materials is 2,500 pounds, and the company wants to have 4,500 pounds of material in inventory at the end of the month. Each unit requires one hour of direct labour time, which is billed at £8 per hour. Required: a. Prepare a production budget for the first month. b. Prepare a direct materials purchases budget for the first month.

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. Wemberly's budgeted cash receipts for February are

Gerald Company manufactures books. Manufacturing a book takes 10 units of A1 and 1 unit of A2. Scheduled production of books for the next two months is 1,000 and 1,200 units, respectively. Beginning inventory is 4,000 units of A1 and 30 units of A2. The ending inventory of A1 is planned to decrease 500 units in each of the next two months, and the A2 inventory is expected to increase 5 units in each of the next two months. Based on this information, the number of units of A1 that needs to be purchased by Gerald during the first month is

Which of the following is an example of a discretionary fixed cost?

The following budget estimates have been prepared by Flowers Company: The company likes to maintain a minimum cash balance of £50,000. Any excess cash is invested in a money market account earning 8 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. Assume a cash balance on January 1 of £50,000, a money market account balance of £0, and a credit line loan balance of £0. Required: Prepare a cash budget for each of the first three months of the year.

Feedee Company has budgeted sales and production (in units) over the next three months as follows: There are 10,000 units on hand on January 1. A minimum of 20 per cent of the next month's sales in units must be on hand at the end of each month. April sales are expected to be 70,000. Budgeted sales for February would be

Figure 15-2 Harald, Inc., has done a cost analysis for its production of bumper stickers. The following activities and cost drivers have been developed: Following are the actual costs of producing 85,000 stickers: 5,000 machine hours; 10 batches; 20 purchase orders -Refer to Figure 15-2. What is the actual cost per sticker? (Round to three decimal places.)

Describe the incremental approach to budgeting. In what settings is the incremental approach typically used? What is the primary advantage of this approach? What is the primary disadvantage of this approach?

Kara Ltd. has the following sales forecasts for the selected three-month period in 2011: Seventy 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 £10,000. Cash can be borrowed in £1,000 increments from the local bank (assume no interest charges). How much cash would be collected in September from sales?

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 budget for maintenance if 20,000 reflectors were made that required 3,500 machine hours, 12 batches, and 5,000 purchase orders?

Dusty Company manufactures oak porch swings. Budgeted sales for the first four months of the year are as follows: Each porch swing requires 15 square feet of oak, at a cost of £20 per square foot. The company wants to maintain an inventory of swings equal to 20 per cent of the following month's sales. At the beginning of the year, 40 swings 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, 500 square feet of oak are on hand. Inventory of oak at March 31 is estimated to be 400 square feet. Required: a. Prepare a production budget, in units, for each of the first three months of the year. b. Prepare a purchases budget, in monetary values, for direct materials for each of the first three months of the year.

Rydingsward, Inc., has done a cost analysis for its production of reflectors. The following activities and cost drivers have been developed: Required: Prepare an activity-based budget for the following:

A budget where managers must justify all costs based on need is a(n)

Steve manufactures picture frames. Sales for July are expected to be 10,000 units of various sizes. Historically, the average frame requires five foot of framing, one square foot of glass, and one square feet of backing. Beginning inventory includes 7,000 feet of framing, 1,500 square feet of glass, and 2,500 square feet of backing. Current prices are £0.90 per foot of framing, £4.50 per square foot of glass, and £1.50 per square foot of backing. Ending inventory should be 150 per cent of beginning inventory. Purchases are paid for in the month acquired. Required: a. Determine the quantity of framing, glass, and backing that is to be purchased during July. b. Determine the total amount of cash needed for July purchases.

Diely Company has the following sales budget: Credit sales represent 80 per cent of budgeted sales. Of the credit sales, 20 per cent is collected in the month of the sale, 60 per cent in the month after the sale, and the remaining 15 per cent is collected two months after the sale. Five per cent of all sales are uncollectible and written-off. Cash receipts from sales in September amounted to

Dodge Ltd. is in the process of preparing its budget for next year. Cost of goods sold has been estimated at 60 per cent of sales. Merchandise purchases are to be made during the month preceding the month of the sales. Dodge pays 60 per cent in the month of purchase, and 40 per cent in the month following. Wages are estimated at 20 per cent of sales and are paid during the month of sale. Other operating costs amounting to 10 per cent of sales are to be paid in the month following the sale. The accounts payable balance on June 30 was £20,000. Required: Prepare a schedule of cash disbursements for July, August, and September.

Arlo Company uses an annual cost formula for overhead of £72,000 + £1.60 for each direct labour hour worked. For the upcoming month, Arlo plans to manufacture 96,000 units. Each unit requires five minutes of direct labour. Arlo's budgeted overhead for the month is

The production budget

Which of the following is an advantage of the budgeting process?