Exam 9: Profit Planning

Varney Company makes rolling suitcases. Its sales budget for four months is: Varney's policy is that ending inventory of finished suitcases should equal 30% of the next month's sales. Beginning inventory (March 1) is 5,300 suitcases. Each suitcase required 1.5 yards of ballistic nylon. The ending inventory policy for nylon is that 20% of the following month's production needs must be on hand. On March 1, Varney had 10,450 yards of nylon in inventory.

The _______________ tells how many units must be produced to meet sales needs and to satisfy ending inventory requirements.

Trish Morrow owns and operates Yummy Bakery which sells a wide variety of cupcakes. She has compiled the following data and information in order to put together a cash budget for September and October. $\bullet$ Budgeted sales for September are 65,000 cupcakes and 98,000 in October. Each cupcake sells for $3.50. $\bullet$ On average 60% are cash sales and 40% are done on account. $\bullet$ The company expects to collect 75% of credit sales in the month of the sale and 20% in the month after the sale. $\bullet$ All necessary raw materials are purchased on account. Purchases are paid 85% in the month of the purchase and 15% in the following month. Purchases for September are estimated to be $200,000 and $290,000 in October. $\bullet$ Monthly expenses include: $\bullet$ Wages $10,000 $\bullet$ Rent $4,000 $\bullet$ Utilities $3,500 $\bullet$ Insurance $2,500 $\bullet$ Advertising $2,290 $\bullet$ Cash balance on September 1^st was $6,000. $\bullet$ The company has a policy to maintain a minimum cash balance of $5,000. If necessary the company will borrow to meet its short-term needs. All borrowing is done at the beginning of the month and all payments on principal and interest are made at the end of the next month. The annual interest rate is 7%. The company must borrow in multiples of $1,000. $\bullet$ August sales were 43,000 cupcakes and raw materials purchased equal $230,000. Prepare a cash budget for September and October.

Depreciation expense on sales equipment appears in a separate line on which of the following budgets?

It takes 30 minutes of direct labor time to make one unit. Direct labor wages average $17 per hour. Variable overhead is applied at the rate of $5 per direct labor hour. Fixed overhead is budgeted at $56,500 per month. -Refer to Figure 9-4. What is the budgeted overhead for November?

___________________ exists when a manager deliberately underestimates revenues or overestimates cost in an effort to make the future period appear less attractive in the budget than they think it will be in reality.

Which of the following is the most common starting point in the information gathering process for budgeting?

The master budget is composed of operating budgets and financial budgets.

Briefly describe the attributes of an ideal budgetary system. What features of budgeting have been identified that encourage positive behavior?

A large difference between actual and planned results is feedback that the system is providing adequate control.

Bank loan officers would find which of the following budgets to be one of the most important in determining whether or not to give a company a loan?

Percent paid in the month of sale 20\% Percent paid in the month after the sale 75\% Percent paid in the second month after the sale 2\% Cohlmia provided information on sales as follows: September \ 100,000 October \ 120,000 November \ 200,000 December (expected) \ 250,000 -Refer to Figure 9-8. What are the expected cash receipts in December?

Karam Inc. has compiled the following data in order to put together their first quarter operating budget for 20XX: January February March April Sales (units) 35,000 31,000 38,000 29,000 Additional information: Karam sells each unit for $95. Company policy is to have 30% of next month's sales (in units) in ending finished goods inventory. This policy was met in December. Company policy is to have 40% of next month's production needs in ending raw materials inventory. The production needs for April is 95,500. This policy was met in December. It takes three pounds of material to produce each unit and the cost is $2.75/pound. Required: A. Prepare a sales budget for the January, February and March and for the first quarter in total. B. Prepare a production budget for January, February and March and for the first quarter in total. C. Prepare a direct materials purchases budget for January, February and March and for the first quarter in total.

The following forecasted sales pertain to Micah Company: Month Sales Apri1 \ 200,000 May 250,000 June 150,000 July 100,000 Collection pattern: 60% in month of sale 40% in month following the sale The company has a selling price of $10 per unit and expects to maintain ending inventories equal to 20% of the next month's sales. How many units are expected to be produced in April?

Rodriquez Company budgeted the following sales in units: January 30,000 February 20,000 March 40,000 Rodriquez's policy is to have 20% of the following month's sales in inventory. On January 1, inventory equaled 7,500 units. February production in units is

Pseudoparticipation is one of the potential problems with participative budgeting.

Myopic behavior is one of the advantages of participative budgeting.

A production budget is most important for which of the following?

Candace Company produces and sells pillows. It expects to sell 10,000 pillows in the year 2015 and had 1,000 pillows in finished goods inventory at the end of 2014. Candace would like to complete operations in the year 2015 with at least 1,250 completed pillows in inventory. There is no ending work-in-process inventory. The pillows sell for $5 each. How many pillows would be produced in the year 2015?

Fredder Company usually sells about 20% of its merchandise during a month for cash with the remaining sales on account. The company's accounts receivable payment history is as follows: 30% in the month of sale, 50% in the month following, and 15% in the second month following sale. Total budgeted sales for the second quarter are as follows: April \ 100,000 May 120,000 June 80,000 Assume all questions relate to the month of June.