Exam 15: Budgets

Southern Mills is a textile manufacturing company in eastern Tennessee. Every year the company prepares a complete set of budgets. The budgeting process begins with information supplied by the Sales and Marketing department. The balance in Accounts Receivable at the beginning of the year was $900 000. The marketing department has predicted unit sales to be as follows: Selling price for the fabric is $2.00 per square yard. Cash sales account for 25% of sales. Collections on account (non-cash sales charged to accounts receivable) are received 60% in the month of the sale and 40% in the following month. Required:

Well-designed budgets:

If actual costs were to exceed budgeted costs for a period, the variance would be considered favourable.

The Marginal Manufacturing Company manufactures a product called Saver. Each unit of Saver requires 10 kilos of a material called Lostit. The budget calls for production of 7500 units of Saver for the month of July. The ending inventory of Lostit is forecast at 3500 kilos for the month of July and 4000 kilos for the month of June. If the cost of Lostit is $2 per kilo, what is the cost of purchases in monetary terms during the month of July?

The Sutcliff Manufacturing Company manufactures a product called Zyklon. Each unit of Zyklon requires 2 kg of Zinses. The budget calls for production of 8000 units of Zyklon during the third quarter. The ending inventory of Zinses is forecasted at 3000 kg for the second quarter and 2000 kg for the third quarter. How many kilograms of Zinses must be purchased during the third quarter?

The Bowden Company has furnished the following information: What are Bowden Company's forecast total cash collections for the second quarter?

Participative budgeting is where an entity is structured into strategic business units and the performance of these units is measured in terms of accounting results.

Which of the following information is not required for preparation of a budget?

Hamilton has budgeted total manufacturing overhead costs for the year as $125 000, based on 20 000 direct labour hours. The ratio of variable manufacturing overhead costs to fixed manufacturing overhead costs is 2:1. In a given month, 2000 direct labour hours are budgeted for production. How much overhead is budgeted?

A reporting system that supports the responsibility accounting approach will communicate relevant information on the comparison between actual and budgeted performance. This report highlights the cause of variances between actual and budgeted performance.

Each of Pallet, Inc.'s production workers can produce four wooden pallets per hour. During the month of June, Pallets, Inc. has forecast sales of 100 000 pallets. The beginning inventory was 10 000 pallets, and desired ending inventory is 25 000 pallets. How many hours of direct labour must be budgeted to meet production needs?

In preparing the sales budget, the preparer should consider:

A typical non-cash expense would be:

Why do entities budget?

Formulating guidelines for overall activity levels and policies on performance criteria, and communicating this information to the preparers of budgets, are all part of the budget process.