Exam 8: Profit Planning and Activity-Based Budgeting

Tara Pineno, new-accounts manager at East Bank of Clarion, has been asked to project how many new accounts she will open during 20 x 2. The local economy has been growing, and the bank has experienced a 10% increase in the number of new accounts over each of the past five years. In 20 x 1, the bank had 10,000 accounts. Tara is paid a salary, plus a bonus of $20 for every new account above the budgeted amount. Thus, if the annual budget calls for 1,000 new accounts, and 1,080 new accounts are obtained, her bonus will be $1,600 (80 x $20). Pineno believes that the local economy will continue to grow at the same rate in 20 x 2 as it has in recent years. She decided to submit a projection of 700 new accounts for 20 x 2. Required: Your consulting firm has been hired by the bank president to make recommendations for improving the bank's operation. Write a memorandum to the president defining and explaining the negative consequences of budgetary slack. Also discuss the bank's bonus system for the new-accounts manager and how the bonus program tends to encourage budgetary slack.

Cyreno Corporation makes all purchases on account under the following payment pattern: Paid in the month of purchase: 20% Paid in the first month following purchase: 30% Paid in the second month following purchase: 50% If purchases for April, May, and June were $400,000, $160,000, and $350,000, respectively, what was Cyreno's budgeted payables balance on June 30?

Core Windows Inc. makes all purchases on account, subject to the following payment pattern: Paid in the month of purchase: 40% Paid in the first month following purchase: 30% Paid in the second month following purchase: 30% If purchases for January, February, and March were $400,000, $280,000, and $300,000, respectively, what were the firm's budgeted payments in March?

Sherman Company provides services in the retail flooring industry. The following information is available for 2012: ▪ Twenty percent of the firm's services are for cash and the remaining 80% are on account. Of the credit services, 40% are collected in the month that the service is provided, with the remaining 60% collected in the following month. ▪ Services provided in January are expected to total $250,000 and grow at the rate of 5% per month thereafter. ▪ January's cash collections are expected to be $240,400, and month-end receivables are forecast at $120,000. ▪ Monthly cash operating costs and depreciation during the first quarter of the year are approximated at $250,000 and $15,000, respectively. ▪ Sherman's December 31, 2011 balance sheet revealed accounts payable balances of $28,000. This amount is related to the company's operating costs and is expected to grow to $36,000 by the end of the first quarter of 2012. All operating costs are paid within 30 days of incurrence. ▪ Company policy requires that a $20,000 minimum cash balance be maintained, and Sherman's 2011 year-end balance sheet showed that the firm was in compliance with policy by having cash of $23,000. Required: A. Determine the sales revenue earned that will appear on the income statement for the quarter ended March 31, 2012. B. Compute the company's first-quarter cash collections. C. Compute the cash balance that would appear on the March 31, 2012 balance sheet. D. What are some possible actions the company could pursue if, at any time during the quarter, it finds that the cash balance has fallen below the stated minimum?

Andrews McNeel Inc. plans to sell 200,000 units of finished product in July 2012. Management anticipates a growth rate in sales of 3% per month thereafter and desires a monthly ending finished-goods inventory (in units) of 60% of the following month's estimated sales. There are 200,000 completed units in the June 30, 2012 inventory. Each unit of finished product requires three pounds of direct material at a cost of $2.50 per pound. There are 600,000 pounds of direct material in inventory on June 30, 2012. Required: A. Prepare a production budget for the quarter ended September 30, 2012. Note: For both part "A" and part "B" of this problem, prepare your budget on a quarterly (not monthly) basis. B. Independent of your answer to part "A," assume that Andrews McNeel plans to produce 200,000 units of finished product for the quarter ended September 30. If the firm desires to stock direct materials at the end of this period equal to 20% of current production usage, compute the cost of direct material purchases for the quarter.

Campz Company began operations on January 1 of the current year with a $20,000 cash balance. Fifty percent of sales are collected in the month of sale; 50% are collected in the month following sale. Similarly, 25% of purchases are paid in the month of purchase, and 75% are paid in the month following purchase. The following data apply to January and February: January February Sales \ 50,000 \ 50,000 Purchases 20,000 25,000 Operating expenses 5,000 7,000 If operating expenses are paid in the month incurred and are inclusive of monthly depreciation charges of $2,500, determine the Campz's cash balance at the end of February.

Stiles Enterprises reported the following cash collections in July and August from credit sales: July August From June receivables \3 3,000 From July sales 105,000 \ 45,000 From August sales 168,000 The Company sells a single product for $20, and all sales are collected over a two-month period. Required: A. Determine the number of units that were sold in July. B. Determine the percent of credit sales collected in the month of sale and the percent of sales collected in the month following sale. C. How many units were sold in August? D. Determine the accounts receivable balance as of August 31.

Which of the following statements concerning the budget director is false?

Which of the following would depict the logical order for preparing (1) a production budget, (2) a cash budget, (3) a sales budget, and (4) a direct-labour budget?

Welland Corporation has a highly automated production facility. Which of the following correctly shows the two factors that would likely have the most direct influence on the company's manufacturing overhead budget?

In many companies, who is assigned the responsibility for approving the budget?

AlliCat Skateboards Inc. makes all sales on account, subject to the following collection pattern:30% are collected in the month of sale; 60% are collected in the first month after sale; and 10% are collected in the second month after sale. If sales for October, November, and December were $50,000, $40,000, and $60,000, respectively, what was the budgeted receivables balance on December 31?

Which of the following statements best describes the relationship between the sales-forecasting process and the master-budgeting process?

Which one of the following is an advantage of using participative budgeting?

The Grainger Company's budgeted income statement reflects the following amounts: Sales Purchases Expenses January \ 120,000 \ 78,000 \ 24,000 February 110,000 66,000 24,200 March 125,000 81,250 27,000 April 130,000 84,500 28,600 Sales are collected 50% in the month of sale, 30% in the month following sale, and 19% in the second month following sale. One percent of sales is uncollectible and expensed at the end of the year. Grainger pays for all purchases in the month following purchase and takes advantage of a 3% discount. The following balances are as of January 1: Cash $88,000; Accounts Receivable $58,000; Accounts Payable $72,000. Of the accounts receivable balance, $35,000 will be collected in January and the remaining amount will be collected in February. The monthly expense figures include $5,000 of depreciation. All expenses are paid in the month incurred. Grainger's budgeted cash payments in February are:

Turbo Manufacturing plans to produce 20,000 units, 24,000 units, and 30,000 units, respectively, in October, November, and December. Each of these units requires four units of part no. 879, which the company can purchase for $7 each. Turbo has 35,000 units of part no. 879 in stock on September 30. Required: Prepare a direct-material purchases budget for October and November if management desires to maintain an ending raw-material inventory equal to 40% of the following month's production usage.

Nguyen plans to sell 40,000 units of Product No. 75 in June, and each of these units requires five square feet of raw material. Pertinent data are as follows:. Product No. 75 Raw Material Actual June 1 inventory 5.500 18.000 square fect Estimated June 30 inventory 4,300 ? square feet If the company purchases 201,000 square feet of raw material during the month, the estimated raw-material inventory on June 30 would be:

Quattro makes all sales on account, subject to the following collection pattern: 30% are collected in the month of sale; 60% are collected in the first month after sale; and 10% are collected in the second month after sale. If sales for April, May, and June were $60,000, $80,000, and $70,000, respectively, what were the firm's budgeted collections for June?

An examination of Tall Corporation's inventory accounts revealed the following information: Raw materials inventory, September 1: 30,000 units Raw materials inventory, September 30: 41,000 units Purchases of raw materials during September: 200,000 units Tall's finished product requires four units of raw materials. On the basis of this information, how many finished products were manufactured during September?

If a manager builds slack into a budget, how would that manager handle estimates of revenues and expenses?