Exam 10: Strategy and the Master Budget

Graham Corporation's budgeted production schedule, by quarters, for the coming year is as follows: Quarter 1 = 22,500 units Quarter 2 = 19,000 units Quarter 3 = 17,000 units Quarter 4 = 24,000 units Each unit of product requires three pounds of direct material. The company's policy is to begin each quarter with 30% of that quarter's direct materials production requirements. Graham expects to have 50,000 pounds of direct materials on hand at the beginning of Quarter 1. What would be Graham's budgeted direct materials purchases (in pounds) for the third quarter?

A budgeting system that has, in effect, a budget for a set number of periods (that is, a constant planning horizon) at all times is called a(n):

The practice of maintaining budgets for the same number of future periods, revising those budgets as each period is completed and adding a new budget each period, is called:

Gorberchev Food Processing expects to have 20,000 units of finished goods inventory on hand on March 31 and reports the following expected sales (in units) for the months of April through July:At the end of each month the company desires its ending finished goods inventory to be 20% of the next month's projected sales (in units). The budgeted production (in units) for Gorberchev Food Processing for May should be:

In preparing a budget for the first three months of the year starting in October, Dubya Company is planning the number of units of merchandise to order each month.The company's policy is to have 40% of the next month's sales on hand at the end of the current month.Projected sales for October, November, and December are 40,000 units, 50,000 units, and 100,000 units, respectively. Required: How many units must be ordered in November?

Helen Auger has seen the Centicle Group, a not-for-profit, in-home health care organization, grow during the past 10 years to a $500 million revenue, multi-state organization. Helen was promoted to her controller position six months ago, after serving capably in several financial accounting positions at the Centicle Group. At a Budget Review Committee meeting last Friday, several committee members expressed frustration with the pace of the budget development. They described the newly introduced "bottom up" system of participative budgeting as "unwieldy," "slow-paced," and "repetitive." Helen's objective in introducing the participative approach was to involve to a much greater extent lower level supervisors and employees. Helen is meeting with the Budget Review Committee again tomorrow when she plans to explain the advantages of "bottom up" versus "top down" approaches to the budgeting process. Required: Helen has asked you to help her prepare for tomorrow's meeting by preparing the following: 1. A 40-50 word description of participative budgeting, including some basic advantages of this approach to budgeting. 2. A brief, one-paragraph explanation of the concept of "budget ownership," one of the values that participative ("bottom up") budgeting is said to have.

Information pertaining to Yekstop Corp.'s sales revenue is presented below:Management estimates that 4% of credit sales are eventually uncollectible. Of the collectible credit sales, 65% are likely to be collected in the month of sale and the remainder in the month following the month of sale. The company desires to begin each month with an inventory equal to 75% of the sales projected for the month. All purchases of inventory are on open account; 30% will be paid in the month of purchase, and the remainder paid in the month following the month of purchase. Purchase costs are approximately 60% of the selling prices. Budgeted cash payments in November for November inventory purchases by Yekstop Corp. are:

Gorberchev Food Processing expects to have 20,000 units of finished goods inventory on hand on March 31 and reports the following expected sales (in units) for the months of April through July:At the end of each month the company desires its ending finished goods inventory to be 20% of the next month's projected sales (in units). The budgeted production (in units) for Gorberchev Food Processing for April should be:

The type of compensation plan that focuses on the difference between actual performance (sales, operating income, etc.) and budgeted performance refers to:

The process of planning business actions in the near future and expressing them as formal plans of action is called:

Which of the following is not a potential benefit of having a sound budgeting process?

Information pertaining to Yeks Company's budgeted sales revenue for the first quarter of the year is presented below. Management estimated that four percent of credit sales would be uncollectible.Of the collectible credit sales, 60% would be collected in the month of sale and the remainder in the month following the sale. Required: Calculate total budgeted cash collections in February.

Uncertainty and the Budgeting Process: As indicated in the text, the validity of pro-forma financial statements that are produced as part of the master budgeting process is affected by the accuracy of the forecasted data going into the component budgets.Such data are subject to various levels of uncertainty.For this reason, accountants need to understand ways of dealing with uncertainty in the budgeting process. Required: Define and distinguish among the following ways of handling uncertainty in the budgeting process: 1.What-if analysis (give at least one concrete example) 2.Sensitivity analysis 3.Scenario analysis.

Which of the following is not an advantage of using a "highly achievable target" when constructing budgets?

Sales forecasting by its nature is:

A negotiated budgeting process is:

Enterprise Tax Services (ETS) provides tax planning.The company billed 5,000 hours at $100 per hour for the year just completed.ETS, in planning next year's operations, is focusing on increasing the company's share of the market.It proposes to do that by hiring more tax specialists and by lowering its billing rate by 20% for work done by these new specialists.ETS estimates that revenues generated from existing staff would increase in total by 40% as a result of the new billing policy and that the additional specialists will provide additional billings of 3,000 hours (at the reduced rate) during the coming year. Required: Compute the budgeted revenue amount for next year based on ETS's plans and projections.

Fresplanade Co. had the following historical collection pattern for its credit sales: 75% collected in the month of sale 12% collected in the first month after month of sale 8% collected in the second month after month of sale 3% collected in the third month after month of sale 2% uncollectible The sales on open account (credit sales) have been budgeted for the last six months of the year as shown below: The estimated total cash collections by Fresplanade Co. during December from accounts receivable is:

Olde Corporation is preparing a cash budget for the first two months of the coming year.The following data have been forecasted: Additional data: (1) Sales are 40% cash and 60% credit.The term of credit sales is 2/10, n/30.The collection pattern for credit sales is 80% in the month following the month of sale (of which 75% are collected within 10 days), and 20% in the month thereafter.Total sales in December of the prior year were $1,000,000. (2) Purchases are all on credit, with 40% paid in the month of purchase and the balance the following month. (3) Operating expenses are paid in the month incurred. (4) The firm desires to maintain its cash balance at $150,000 at the end of each month. (5) Loans are used to maintain the minimum cash balance.At the end of each month, interest of 1% per month is paid on the outstanding loan balance as of the beginning of the month.Repayments are made (at the end of the month) whenever the cash balance exceeds $150,000. Required: Prepare the cash budget, in the form of a statement of cash flow, for February.What is the amount of the loan balance at the end of the month (after loan repayments, if any)?

Ardan Company's sales budget showed the following projections for the coming year: Inventory on December 31 of the current year is expected to be 3,000 units.The quantity of finished goods inventory at the end of each quarter was to equal five percent of the next quarter's budgeted units to be sold. Required: Calculate the units to be produced during the second quarter.