Exam 8: The Master Budget

Denton Company Denton Company manufactures three products (A,B,and C)from three raw materials (X,Y,and Z).The following table indicates the number of pounds of each material that is required to manufacture each type of product: $\text {\underline{ Product} }$           $\text {\underline{ Material X} }$      $\text {\underline{ Material Y } }$           $\text {\underline{ Material Z} }$ A                                 2                                3                          2 B                                  2                               1                          2 C                                  3                               2                           2 The company has a policy of maintaining an inventory of finished goods on all three products equal to 25 percent of the next month's budgeted sales.Listed below is the sales budget for the first quarter of the current year: Month Product A Product B Product C Jan. 10,000 11,000 12,000 Feb. 9,000 12,000 8,000 Mar. 11,000 10,000 10,000 Refer to Denton Company.Unit costs of materials X,Y,and Z are respectively $4,$3,and $5.The Denton Company has a policy of maintaining its raw material inventories at 50 percent of the next month's production needs.Assuming that this policy is satisfied,prepare a material purchases budget for all three materials in both pounds and dollars for January.

Explain why different types of organizations will have different sets of budgets.

A company that maintains a raw material inventory,which is based on the following month's production needs,will purchase less material than it uses in a month where

If revenues are intentionally underestimated during the budgeting process,______________________________ has been created.

Shannon Companies

	CASH BUDGET
	Company A	Company B	Company C
Beginning cash balance	$100	$300	$700
Cash collections	?	400	?
Cash disbursements	500	?	600
Cash excess (shortage)	?	?	400
Borrowing (repayments)	300	100	?
Ending cash	200	200	100

Refer to Shannon Companies.For Company B,what are the budgeted cash disbursements?

The preparation of an organization's budget

The financial budget is prepared before the operating budget.

The pro forma income statement is not a component of the

Budget slack is a condition in which

The master budget usually includes

In a manufacturing organization,the budget that is prepared after the sales budget is the ______________________________.

If the chief accountant of a firm has to prepare an operating budget for the coming year,the first budget to be prepared is the

Managers may be more willing to accept a budget if

Budgetary slack is an effective motivator for employees,because it reduces employee frustration when goals cannot be achieved.

Balances for Accounts Receivable and Sales Discounts are projected before the cash collections schedule is prepared.

The selling,general,and administrative expense budget is based on the ____ budget.

Sullivan Company Sullivan Company is preparing its Manufacturing Overhead budget for the second quarter of the year.Budgeted variable factory overhead is $3.00 per unit produced;budgeted fixed factory overhead is $75,000 per month,with $16,000 of this amount being factory depreciation. Refer to Sullivan Company.If the budgeted production for May is 5,000 units,then the total budgeted factory overhead per unit:

The budgeted amount of selling and administrative expense for a period can be found in the

Willborn Builders in the building construction business.In Year 2,it is expected that 40 percent of a month's sales will be collected in cash,with the balance being collected the following month.Of the purchases,50 percent are paid the following month,30 percent are paid in two months,and the remaining 20 percent are paid during the month of purchase.The sales force receives $2,000 a month base pay plus a 2 percent commission.Labor expenses are expected to be $4,000 a month.Other operating expenses are expected to run about $2,000 a month,including $500 for depreciation.The ending cash balance for Year 1 was $4,500. Year 1-Actual sales Purchases November \ 80,000 \ 70,000 December 90,000 80,000 Year 2-Bulgeted January 70,000 70,000 February 90,000 60,000 March 30,000 50,000 Required: a. Prepare a cash budget and determine the projected ending casil balances for the first three months of Year 2 b. Determine the months that the company would either borrow or invest cash.

The budget is an important source of feedback for an organization.