Exam 10: Strategy and the Master Budget

Boone Co.'s sales, based on past experience, are 20% cash and 80% credit. Credit sales are typically collected as follows: 40% in the month of sale, 50% in the month after the sale, and 10% in the second month following month of sale. On December 31, the accounts receivable balance is $54,000, of which $12,000 is from November sales. Total sales for January and February are budgeted to be $100,000 and $120,000, respectively. What are Boone Co.'s budgeted cash receipts for February?

List factors that should be considered in developing a sales forecast for an upcoming budget period.

Cripe Corporation maintains ending inventory for each month at 5% of the following month's sales.It predicted the following sales (in units) for the first four months of the coming year: How many units should be produced in March?

All of the following represent alternative approaches to the traditional budget-preparation process except which one of the following?

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 cash collection by Fresplanade Co. during August from July and August credit sales is:

Compare and contrast traditional budgeting and activity-based budgeting (ABB) along the following dimensions: budgeting unit; primary focus; time orientation; roles of suppliers and customers; and, control objective.

Transcript Company is preparing a cash budget for February. • The company has $150,000 cash at the beginning of February and anticipates total sales of $800,000, consisting of 25% cash sales and 75% bank credit-card sales. • The bank charges 3 percent for credit-card deposits. • The firm sets its selling price at 160 percent of the cost of purchases and pays the cost of each month's sales at the end of the month. • Operating expenses are $45,000 per month, of which $25,000 is depreciation expense.Selling expenses (commissions) amount to 4 percent of total sales dollars. • In addition, a $600,000 note will be due in February for equipment purchased last August.In addition to the principal amount, interest for one month (at 12% per annum) will be paid in February. • Transcript Company has an agreement with its bank to maintain a minimum cash balance of $100,000. Required: Prepare in good form a cash budget that shows the amount, if any, that the company must borrow during February.Separate your budget, at a minimum, into the following categories: Beginning Cash Balance Operating Cash Flows (Both Inflows and Outflows) Cash Balance before Financing Effects Financing Activity Ending Cash Balance

One of the behavioral considerations associated with the budgeting process relates to the difficulty level embodied in the budget (i.e., how difficult or easy it is to achieve budgeted results). 1.Explain the negative consequences of budgetary targets that are too easy or too difficult to achieve. 2.What is meant by the term "highly achievable (budget) target"? 3.What are the primary advantages of using "highly achievable targets" in terms of budgetary expectations?

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 January cash payments for December inventory purchases by Yekstop Corp. are:

Boone Co.'s sales, based on past experience, are 20% cash and 80% credit. Credit sales are typically collected as follows: 40% in the month of sale, 50% in the month after the sale, and 10% in the second month following month of sale. On December 31, the accounts receivable balance is $54,000, of which $12,000 is from November sales. Total sales for January and February are budgeted to be $100,000 and $120,000, respectively. What are Boone Co.'s budgeted cash receipts for January?

In both activity-based and time-driven activity-based systems we calculate cost-driver rates for support activities (e.g., the cost to ship an item or the cost to process a customer order) and it is asserted that these rates are best determined by dividing budgeted resource costs (for a given cost pool) by the practical capacity of resources supplied. Required: 1.What is the primary advantage of using practical capacity as the volume level for determining cost allocation rates in an ABC or TDABC system? 2.What is the appropriate accounting treatment for unused capacity costs for a given accounting period?

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 cash collections during July from credit sales made in July by Fresplanade Co. is:

Capital One produces a single product, which it sells for $8.00 per unit. Variable costs per unit equal $3.20. The company expects short-term fixed costs to be $7,200 for the coming month, at the projected sales level of 20,000 units. Management is considering several alternative actions designed to improve operating results. In conjunction with this, they have created a profit-planning (that is, a CVP) model, which can be used to evaluate different scenarios. Capital One's management believes that a 10% reduction in the selling price will increase sales volume by 10%. If this plan is implemented, then operating profit should:

General Manufacturing expects to have 40,000 pounds of raw materials inventory on hand on June 30, the end of the current year. The company has budgeted the following production for the first four months of the coming year:General Manufacturing desires each month's ending raw materials inventory to be 20% of the following month's production needs. A finished unit requires two pounds of raw materials. General Manufacturing's budgeted purchases of materials for September is:

One of the behavioral considerations in implementing a budgeting system has to do with the issue of budgetary slack.What are the positive and negative aspects of building slack into budgets from top management's point of view, and the employee's point of view (i.e., the individual responsible for building slack into the budget)?

Which of the following is not true regarding the use of linear compensation plans?

Grey Company is considering replacing its existing cutting machine with a new machine that, according to the manufacturer, is more efficient in terms of energy consumption-a variable cost of production.In this regard, it would like to do some financial planning, including "what-if" analysis.Budgeted information regarding the two machines is as follows: Required: 1.Determine the sales volume at which the costs are the same for both machines. 2.What amount of sales, in dollars, for the new machine would produce a 10% profit margin (i.e.ratio of operating profit to sales = 10%)?

Salich Manufacturing Corporation has provided the following sales budget information: Cash sales are normally 40% of total sales and the credit sales are expected to be collected in their entirety in the month following the month of sale.The amount of cash expected to be received from customers in September is:

What is the focus of activity-based budgeting (ABB)? What is the principal advantage of ABB?

Lovely Pet Store has budgeted cost of goods sold for May of $6,000 for flea collars.Management also wants to have $300 in inventory at the end of the month to prepare for the summer season.Beginning inventory in May was $200. Required: What dollar amount of flea collars should be purchased to meet the above objectives?