Exam 9: Budgeting

Which of the following is NOT a benefit of budgeting?

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.

The following overhead data are for a department in a large company. Activity Costs Incurred Static Budget Activity Level (in units) 250 220 Variable costs: Indirect materials \ 8,745 \ 7,634 Power \ 2,065 \ 1,738 Fixed costs: Supervision \ 1,560 \ 1,600 Rent \ 7,210 \ 7,300 Required: Prepare a report that would be useful in assessing how well costs were controlled in this department.

In a performance report,actual costs should be compared to budgeted costs at the original budgeted activity level.

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.

The static budget is a good tool for assessing whether variable costs are under control or not.

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.) A zero amount is designated by a dash (-). The company requires a minimum cash balance of at least $10,000 to start a quarter. All data are in thousands of dollars. Carney Corporation Cash Budget -What are the collections from customers during the first quarter (item a),in thousands of dollars?

nformation on the actual sales and inventory purchases of the Law Company for the first quarter follow: Inventory Sales Purchases January \ 120,000 \ 60,000 February 100,000 78,000 March 130,000 90,000 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 balance on April 30?

Mandalay Hotel bases its budgets on guest-days. The hotel's static budget for August appears below: Budgeted number of guest-days 4,300 Budgeted variable overhead costs: Supplies (@0 per guest-day) \ 41,280 Laundry ( @9.40 per guest-day) Total variable overhead cost 81,700 Budgeted fixed overhead costs: Wages and salaries 57,190 Occupancy costs Total fixed overhead cost 109,220 Total budgeted overhead cost \ 190,920 -The total overhead cost at an activity level of 5,200 guest-days per month should be:

The Doley Company has planned the following sales for the next three months: January February March Budgeted Sales \ 40,000 \ 50,000 \ 70,000 Sales are made 20% for cash and 80% on account.From experience,the company has learned that a month's sales on account are collected according to the following pattern: Month of sale 60\% First month following sale 30\% Second month following sale 8\% Uncollectible 2\% The company requires a minimum cash balance of $5,000 to start a month.The beginning cash balance in March is budgeted to be $6,000. Required: a)Compute the budgeted cash receipts for March. b)The following additional information has been provided for March: Answer: \ 28,000 Inventory purchases (all paid in March) Operating expenses (all paid in March) 40,000 Depreciation expense for March 5,000 Dividends paid in March 4,000 Prepare a cash budget in good form for the month of March,using this information and the budgeted cash receipts you computed for part a)above.The company can borrow in any dollar amount and will not pay interest until April.

The LaPann Company has obtained the following sales forecast data: July August September October Cash Sales \ 80,000 \ 70,000 \ 50,000 \ 60,000 Credit Sales 240,000 220,000 180,000 200,000 The regular pattern of collection of credit sales is 20% in the month of sale, 70% in the month following the month of sale, and the remainder in the second month following the month of sale. There are no bad debts. -What is the budgeted accounts receivable balance on September 30?

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 receipts for March,what would be the total cash receipts?

Mandalay Hotel bases its budgets on guest-days. The hotel's static budget for August appears below: Budgeted number of guest-days 4,300 Budgeted variable overhead costs: Supplies (@0 per guest-day) \ 41,280 Laundry ( @9.40 per guest-day) Total variable overhead cost 81,700 Budgeted fixed overhead costs: Wages and salaries 57,190 Occupancy costs Total fixed overhead cost 109,220 Total budgeted overhead cost \ 190,920 -What is the expected total variable overhead cost at an activity level of 5,000 guest-days per month?

The following is a summarized master budget that Winnipeg Company prepared for January: Sales 9,000 units Sales revenue \ 450,000 Less variable costs: Manufacturing \ 270,000 Selling and administrative Contribution \ 162,000 Less fixed costs: Manufacturing 72,000 Selling and administrative Operating income \ 63,000 $\text { Actual results for January were as follows: }$ Units produced and sold 8,500 units Selling price per unit \ 55.00 Variable costs per unit: Manufacturing \ 32.00 Selling and administrative \ 1.50 Total fixed costs \ 99,000 -What was the flexible operating income for February?

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.) A zero amount is designated by a dash (-). The company requires a minimum cash balance of at least $10,000 to start a quarter. All data are in thousands of dollars. Carney Corporation Cash Budget -What is the borrowing required during the first quarter to meet the minimum cash balance (item b),in thousands of dollars?

Zero-based budgeting requires managers to justify all costs of programs as if these programs were being proposed for the first time.

nformation on the actual sales and inventory purchases of the Law Company for the first quarter follow: Inventory Sales Purchases January \ 120,000 \ 60,000 February 100,000 78,000 March 130,000 90,000 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 disbursements during April for inventory purchases?

Isadore Hospital bases its budgets on patient-visits. The hospital's static budget for July appears below: Actual number of patient-visits 7,800 Supplies \ 38,250 Laundry \ 61,240 Salaries \ 46,190 Occupancy costs \ 65,650 -What is the variance for laundry costs in the flexible budget performance report for the month?

Roberts Enterprises has budgeted sales in units for the next five months as follows: June 4,500 units July 7,100 units August 5,300 units September 6,700 units October 3,700 units Past experience has shown that the ending inventory for each month must be equal to 10% of the next month's sales in units. The inventory on May 31 contained 410 units. The company needs to prepare a production budget for the second quarter of the year. -What is the total number of units to be produced in July?

The following is a summarized master budget that Winnipeg Company prepared for January: Sales 9,000 units Sales revenue \ 450,000 Less variable costs: Manufacturing \ 270,000 Selling and administrative Contribution \ 162,000 Less fixed costs: Manufacturing 72,000 Selling and administrative Operating income \ 63,000 $\text { Actual results for January were as follows: }$ Units produced and sold 8,500 units Selling price per unit \ 55.00 Variable costs per unit: Manufacturing \ 32.00 Selling and administrative \ 1.50 Total fixed costs \ 99,000 -What were the total flexible budget expenses for January?