Exam 9: Budgeting

The Culver Company is preparing its Manufacturing Overhead Budget for the third 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. -If all cash expenses are paid for in the month incurred what is the budgeted cash disbursements for manufacturing overhead if 5,500 units are produced?

Alaska Company expressed the total expenses (Y) component of its master budget for February with the cost formula Y = $100,000 + $40*X, where X represents the expected number of units of its only product to be manufactured and sold. The budgeted average selling price per unit was $65 for budgeted sales volume 5,000 units. Reported actual results for February were as follows: -What was the flexible operating income for February?

When using the participative budget approach,it is generally best for top management to accept all budget estimates without question in order to minimize adverse behavioural responses from employees.

KAB Inc., a small retail store, had the following results for May. The budgets for June and July are also given. Sales are collected 80% in the month of the sale and the balance in the month following the sale. (There are no bad debts.) The goods that are sold are purchased in the month prior to sale. Suppliers of the goods are paid in the month following the purchase. The operating expenses are paid in the month of the sale. -What should be the cash disbursements during the month of June for goods purchased for resale and for operating expenses?

Information on the actual sales and inventory purchases of the Law Company for the first quarter follow: Collections from Law Company's customers are normally 60% in the month of sale, 30% in the month following sale, and 8% in the second month following sale. The balance is uncollectible. Law Company takes full advantage of the 3% discount allowed on purchases paid for by the end of the following month. The company expects sales in April of $150,000 and inventory purchases of $100,000. Operating expenses for the month of April are expected to be $38,000, of which $15,000 is salaries and $8,000 is depreciation. The remaining operating expenses are variable with respect to the amount of sales in dollars. Those operating expenses requiring a cash outlay are paid for during the month incurred. Law Company's cash balance on March 1 was $43,000, and on April 1 was $35,000 -What would be the expected cash collections from customers during April?

Justin's Plant Store, a retailer, started operations on January 1. On that date, the only assets were $16,000 in cash and $3,500 in merchandise inventory. For purposes of budget preparation, assume that the company's cost of goods sold is 60% of sales. Expected sales for the first four months appear below: The company desires that the merchandise inventory on hand at the end of each month be equal to 50% of the next month's merchandise sales (stated at cost). All purchases of merchandise inventory must be paid in the month of purchase. Sixty percent of all sales should be for cash; the balance will be on credit. Seventy-five percent of the credit sales should be collected in the month following the month of sale, with the balance collected in the following month. Variable operating expenses should be 10% of sales, and fixed expenses (all depreciation) should be $3,000 per month. Cash payments for the variable operating expenses are made during the month the expenses are incurred. -What would be the accounts receivable balance that would appear in the March 31 budgeted balance sheet?

The usual starting point in budgeting is to make a forecast of cash receipts and cash disbursements.

Fougere Realtors,Inc.,specializes in home re-sales.It earns revenue from selling fees.Fougere Realtors' major costs are commissions for salespersons,listing agents,and listing companies.Its business has improved steadily over the last ten years.As usual,Chris Fougere,the managing partner of Fougere Realtors,Inc.,received a report summarizing the performance for the most recent year. Required: a) Explain the major weakness of the performance report. b) Explain clearly why all the variances for the variable expenses are unfavourable (U). c) As a first step in helping Chris Fougere to evaluate cost/expense control in the organization, complete the following for the year ended December 31, 2007, assuming the only cost driver is the number of home re-sales. (Note: Indicate any variance as either favourable (F) or unfavourable (U).)

A comprehensive flexible budget prepared for performance evaluation should incorporate both fixed and variable costs,but not revenues.

A cash budget by quarters for the Carney Company is given below (note that some data are missing). Missing data amounts have been keyed with either question marks or lowercase letters (a, b, c, etc.); these lowercase letters will be referred to in the questions that follow. (It may be necessary to calculate a value for items where a question mark appears.) The company requires a minimum cash balance of at least $10,000 to start a quarter. All data are in thousands of dollars. -What are the collections from customers during the first quarter (item a),in thousands of dollars?

Budgeted sales in Allen Company over the next four months are given below: Twenty-five percent of the company's sales are for cash,and 75% are on account.Collections for sales on account follow a stable pattern as follows: 50% of a month's sales are collected in the month of sale,30% are collected in the month following sale,and 15% are collected in the second month following sale.The remainder is uncollectible.Given these data,what should be cash collections for December?

The International Company makes and sells only one product, Product SW. The company is in the process of preparing its Selling and Administrative Expense Budget for the last half of the year. The following budget data are available: All expenses other than depreciation are paid in cash in the month they are incurred. -If the company has budgeted to sell 25,000 units of Product SW in July,what will be the total budgeted selling and administrative expenses for July?

A flexible budget is "flexible" in the sense that a budget can be prepared for any level of activity,but once a budget is set the budget figures are not changed if actual activity later proves to be different than budgeted activity.

A sales budget is given below for one of the products manufactured by the OMI Co.: The inventory of finished goods at the end of each month must equal 20% of the next month's sales. However, on December 31, the finished goods inventory totalled only 4,000 units. Each unit of product requires three kilograms of specialized material. Since the production of this specialized material by OMI's suppliers is sometimes irregular, the company has a policy of maintaining an ending inventory at the end of each month equal to 30% of the next month's production needs. This requirement had been met on January 1 of the current year. Required: Prepare a budget showing the quantity of material to be purchased each month for January, February, and March, and in total for the quarter.