Exam 8: Profit Planning and Activity-Based Budgeting

A formal budget program will almost always result in:

Sushi House has budgeted sales revenues for 2012 as follows:

Dean and Delila Corporation has experienced a number of out-of-stock situations with respect to its finished-goods inventories. Inventory at the end of August, for example, was only 30 units-an all-time low. Management would like to implement a policy whereby finished-goods inventory is 50% of the following month's sales. Budgeted sales for September, October, and November are expected to be 6,000 units, 6,600 units, and 5,500 units, respectively. Required: Determine the number of units that Dean and Delila must produce in September and October

Drago 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 June, July, and August were $120,000, $160,000, and $220,000, respectively, what were the firm's budgeted collections for August and the company's budgeted receivables balance on August 31?

Which of the following would have no effect, either direct or indirect, on an organization's cash budget?

A company that uses activity-based budgeting performs the following: (1) plans activities for the budget period; (2) forecasts the demand for products and services as well as the customers to be served; (3) budgets the resources necessary to carry out activities. Which of the following denotes the proper order of the preceding activities?

Renson Corporation, a wholesaler, provided the following information: Merchandise January \ 142,000 \ 172,000 February 148,000 166,000 March 136,000 165,000 April 154,000 178,000 May 160,000 166,000 Customers pay 60% of their balances in the month of sale, 30% in the month following sale, and 10% in the second month following sale. The company pays all invoices in the month following purchase and takes advantage of a 3% discount on all amounts due. Cash payments for operating expenses in May will be $119,500; Renson's cash balance on May 1 was $127,800. Required: Calculate the following: A. Expected cash collections during May. B. Expected cash disbursements during May. C. Expected cash balance on May 31.

Melcher & Company had 3,000 units in finished-goods inventory on December 31. The following data are available for the upcoming year: February Units to be produced 9,400 10,200 Desired ending finished-goods inventory 2,500 2,100 The number of units Melcher expects to sell in January is:

The following selected data pertain to the Inborne Corporation: Cash operating expenses, July 1-31 \ 180,000 Depreciation 60,000 Merchandise purchases in July 560,000 listimated payments in July for purchases in June 220,000 Estimated payments in July for purchases prior to June 50,000 Estimated payments in July for purchases in July 40\% July's cash disbursements are expected to be:

Jacobs Company manufactures two products: A and B. The company predicts a sales volume of 10,000 units for product A and ending finished-goods inventory of 2,000 units. These numbers for product B are 12,000 and 3,000, respectively. Jacobs currently has 7,000 units of A in inventory and 9,000 units of B. The following raw materials are required to manufacture these products: $\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\text { Required for Product }$ Raw Cost per Pound A B Material \ 2.00 2 pounds 2.50 1 pound 1 pound 1.25 3 pounds Product A requires three hours of cutting time and two hours of finishing time; B requires one hour and three hours, respectively. The direct labour rate for cutting is $10 per hour and $18 per hour for finishing. Required: A. Prepare a production budget in units. B. Prepare a materials usage budget in pounds and dollars. C. Prepare a direct labour budget in hours and dollars for product A.

The budgeting technique that focuses on different phases of a product such as planning and concept design, testing, manufacturing, and distribution and customer service is known as:

Which of the following organizations is least likely to use budgets?

Diamonds Inc. distributes whole cut diamonds throughout southeastern Ontario. The following data were taken from the most recent quarterly sales forecast. Expected Sales End of Month Target Inventory July 2,000 200 units August 1,000 310 units September 1,500 260 Based upon the above, how many diamonds should the company purchase in August?

Singular Saw Corporation assembles circular saws by purchasing bolts, clamps, and other parts from various suppliers. Consider the following data: ▪ The company plans to sell 50,000 saws during each month of the year's first quarter. ▪ A review of the accounting records disclosed a finished-goods inventory of 2,400 saws on January 1 and an expected finished-goods inventory of 3,000 saws on January 31. ▪ Singular has 5,000 bolts in inventory on January 1, a level that is expected to drop by 6% at month-end. ▪ Assembly time totals 30 minutes per saw, and workers are paid $20 per hour. ▪ Singular accounts for employee benefits as a component of direct labour cost. Pension and insurance costs average $4 per hour (total); additionally, the company pays Payroll taxes that amount to 6% of gross wages earned. Required: A. How many saws does Singular expect to produce (i.e., assemble) in January? B. How many bolts must be purchased to satisfy production needs? C. Compute Singular's total direct labour cost. D. Explain how the company's purchasing activity would affect the end-of-period balance sheet.

At Lakeside Manufacturing, budgets are the responsibility of everyone. Each department collaborates in determining its expected needs, and sales personnel determine the likely sales volume. Ed Tucker, one of the production managers, believes in building plenty of slack into everything, including his estimates of ending inventory of work in process. Required: You are the accounting manager. Write a memo to Mr. Tucker. Explain why the ending inventory figure should be extremely accurate, with as little slack as possible.

Bowstrong Corporation has estimate the following collection pattern for its credit sales in the first year of operations: 80% collected in the month of sale 10% collected in the first month after the sale 5% collected in the second month after the sale 2% collected in the third month after the sale 3% uncollectible Budgeted credit sales for the first six months of the year follow. January \ 40,000 February 20,000 March 30,000 April 45,000 May 35,000 June 30,000 Required: A. Calculate the estimated total cash collections during April. B. Calculate the estimated total cash collections during the year's second quarter.

A company's plan for the acquisition of long-lived assets, such as buildings and equipment, is commonly called a:

A company's sales forecast would likely consider all of the following factors except:

Friedlan Inc. anticipates sales of 2,000 units, 8,000 units, and 5,000 units in July, August, and September, respectively. Company policy is to maintain an ending finished-goods inventory equal to 20% of the following month's sales. On the basis of this information, how many units would the company plan to produce in August?

The accounting records of Backspace, Inc., revealed an accounts receivable balance of $195,000 on January 1, 2012. Forty percent of the company's sales are for cash, and the remaining 60% are on account. Of the credit sales, 30% are collected in the month of sale and 70% are collected in the following month. Total sales in January and February are expected to amount to $500,000 and $530,000, respectively. Assume that in the latter half of 2012, Backspace hired a new sales manager who aggressively tried to maximize the company's market share. She implemented a compensation system for the sales force that was 100% commission based, with the commission calculated on the basis of gross sales dollars. Sales volume increased dramatically in a very short period of time, and the sales and collection patterns changed, as follows: Cash sales: 20\% Credit sales: 80\% Collected in the month of sale 15\% Collected in the month following sale 75\% Uncollectible 10\% Required: A. Compute the company's cash inflows for January and February, 2012. B. Determine the outstanding receivables balance at the end of February. C. Compare the sales and collection patterns before and after the arrival of the new sales manager. Have things improved or deteriorated? Explain. D. On the basis of the information presented, determine what likely caused the improvement or deterioration in collection patterns.