Exam 9: Budgeting

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: Variable cost per unit sold Monthly fixed cost Sales commissions \ 0.70 Shipping 1.10 Advertising 0.20 \1 4,000 Executive salaries 34,000 Depreciation on office equipment 11,000 Other 0.25 19,000 All expenses other than depreciation are paid in cash in the month they are incurred. -If the company has budgeted to sell 24,000 units of Product SW in September,what would be the total budgeted fixed selling and administrative expenses for September?

One of the distinct advantages of a budget is that it can help to uncover potential bottlenecks before they occur.

A sales budget is given below for one of the products manufactured by the Key Co.: Tanuary 21,000 units February 36,000 units March 61,000 units April 41,000 units May 31,000 units June 25,000 units The inventory of finished goods at the end of each month should 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 specialized electrical switches.Since the production of these specialized switches by Key'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 switches to be purchased each month for January,February,and March,and in total for the quarter.

O'Connors Inc., a small retail store, had the following results for May. The budgets for June and July are also given. May (actual) June (budget) July (budget) Sales \ 42,000 \ 40,000 \ 45,000 Cost of sales Gross margin 21,000 20,000 22,500 Operating expenses 20,000 20,000 20,000 Operating income \ 1,000 \ 0 \ 2,500 Sales are collected 70% 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 amount of cash collected during the month of June?

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

Pollitt Potato Packers has a flexible budget for manufacturing overhead that is based on direct labour hours. The following overhead costs appear on the flexible budget at the 200,000-hour level of activity: Variable overhead costs (total): Packing supplies \ 120,000 Indirect labour \ 180,000 Fixed overhead costs (total): Utilities \ 100,000 Insurance \ 40,000 Rent \ 20,000 -What amount would the flexible budget estimate for total variable overhead cost per direct labour hour?

Children Toys Limited makes and sells a single product. The company employs a flexible budgeting system that covers a relevant range from 25,000 units to 30,000 units and a just in time inventory system. Budget data for April, based on 27,000 units, are as follows: Prime costs \ 35 per unit Manufacturing overhead \ 137,000 plus \ 4 per unit Selling and administrative expenses \ 35,000 plus \ 3 per unit Selling price \ 75 per unit -What is the company's master budget operating income (loss)for April?

The two components of the static budget variance are the flexible budget variance and the sales volume variance.

The effect of responsibility accounting is to personalize the accounting system.

Pollitt Potato Packers has a flexible budget for manufacturing overhead that is based on direct labour hours. The following overhead costs appear on the flexible budget at the 200,000-hour level of activity: Variable overhead costs (total): Packing supplies \ 120,000 Indirect labour \ 180,000 Fixed overhead costs (total): Utilities \ 100,000 Insurance \ 40,000 Rent \ 20,000 -At an activity level of 160,000 direct labour hours,what amount would the flexible budget estimate for the utilities?

Children Toys Limited makes and sells a single product. The company employs a flexible budgeting system that covers a relevant range from 25,000 units to 30,000 units and a just in time inventory system. Budget data for April, based on 27,000 units, are as follows: Prime costs \ 35 per unit Manufacturing overhead \ 137,000 plus \ 4 per unit Selling and administrative expenses \ 35,000 plus \ 3 per unit Selling price \ 75 per unit -Suppose the company produces and sells 29,000 units instead of the original 27,000 units at an average selling price of $70.What is the company's flexible budget operating income (loss)for April,given the actual sales volume of 29,000 units?

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: Variable cost per unit sold Monthly fixed cost Sales commissions \ 0.70 Shipping 1.10 Advertising 0.20 \1 4,000 Executive salaries 34,000 Depreciation on office equipment 11,000 Other 0.25 19,000 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?

Windsor Limited makes and sells a single product. The company employs a flexible budgeting system that covers a relevant range from 20,000 units to 25,000 units and a just in time inventory system. Budget data for April, based on 22,000 units, are as follows: Prime costs \ 30 per unit Manufacturing overhead \ 132,000 plus \ 3 per unit Selling and administrative expenses \ 30,000 plus \ 2 per unit Selling price \ 60 per unit -What is the company's master budget operating income (loss)for April?

The master budget process usually begins with which of the following?

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: Expected Sales January \ 10,000 February 24,000 March 16,000 April 25,000 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. -In a budget of cash disbursements for March,what would be the total cash disbursements?

A static budget is geared toward a single level of activity.

The Waverly Company has budgeted sales for next year as follows: Quarter First Second Third Sales in Units 12,000 14,000 18,000 The ending inventory of finished goods for each quarter should equal 25% of the next quarter's budgeted sales in units.The finished goods inventory at the start of the year is 3,000 units.What should be the scheduled production for the third quarter?

Orion Corporation is preparing a cash budget for the six months beginning January 1.Shown below are the company's expected collection pattern and the budgeted sales for the period: Expected collection pattern: 65% collected in the month of sale 20% collected in the month after sale 10% collected in the second month after sale 4% collected in the third month after sale 1% uncollectible Budgeted Sales: Tanuary \ 160,000 February 185,000 March 190,000 April 170,000 May 200,000 June 180,000 What would be the estimated total cash collections during April from sales and accounts receivables?

Avril Company makes collections on sales according to the following schedule: 30% in the month of sale 60% in the month following sale 8% in the second month following sale The following sales are expected: Expected Sales Tanuary \ 100,000 February 120,000 March 110,000 What should be the budgeted cash collections in March?

KAB Inc., a small retail store, had the following results for May. The budgets for June and July are also given. May (actual) June (budget) July (budget) Sales \ 42,000 \ 40,000 \ 45,000 Cost of sales Gross margin 21,000 20,000 22,500 Operating expenses 20,000 20,000 20,000 Operating income \ 1,000 \ 0 \ 2,500 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?