Exam 24: The Budgeting Process

Responsibility accounting authorizes managers to take control of and be held accountable for the revenues and expenses in their budgets.

Sarusse, Inc., produces two products in a single plant utilizing two departments: Shaping and Assembly. Direct labor hour and dollar requirements for 2010 are being projected using 2009 unit standard labor information. Departmental data and routing sequence information are shown below. Product Shaping Assembly R2D2 0.5 0.4 T3E3 0.7 0.6 Labor rate per hour \ 9 \ 12 Management has forecasted that 20,000 units of product R2D2 and 70,000 units of product T3E3 must be produced during 2010. Prepare a direct labor budget for 2010 that shows the budgeted direct labor cost for each department and the company as a whole.

Allan International is in the construction business. In 2010, it is expected that 30 percent of a month's sales will be received in cash, with the balance being received the following month. Of the purchases, 60 percent are paid the following month, 30 percent are paid in two months, and the remaining 10 percent are paid during the month of purchase. The sales force receives $2,000 a month base pay plus a 4 percent commission. Labor expenses are expected to be $6,000 a month. Other operating expenses are expected to run about $5,000 a month, including $1,000 for depreciation. The ending cash balance for 2009 was $28,000. Prepare a cash budget and determine the projected ending cash balances for the first three months of 2010.

A sales forecast is expressed in units and dollars.

Fantastic Futons manufactures futons. The estimated number of futon sales for the first three months of 2010 are as follows: January 40,000 February 50,000 March 60,000 Finished goods inventory at the end of 2009 was 12,000 units. On average, 25 percent of the futons are produced during the month before they are sold, which normally accounts for the ending balance in finished goods inventory. The planned selling price is $150 per unit. Fantastic Futons buys direct materials for the futons in cloth rolls priced at $80 each. Each roll provides direct material for 40 futons. There was one roll in the direct materials inventory at the beginning of January, and the company expects to have four rolls in inventory at the end of the month. Assuming the production budget calls for 60,000 units to be produced in January, what would be the amount of the cloth rolls direct materials purchases budget for that month?

The projections of direct materials purchases that follow are for the Sombo Corporation. Purchases on Account Cash Purchases December \ 40,000 \ 30,000 January 60,000 27,000 February 50,000 35,000 March 70,000 25,00 The company pays for 60 percent of purchases on account in the month of purchase and 40 percent in the month following the purchase. What is the expected cash payment for direct materials for the month of February?

A company pays for 25 percent of its purchases by credit terms n/60, 40 percent of its purchases by credit terms n/30, and the remaining 35 percent by a two-month advance payment. The sources for June's cash payments schedule for direct materials would not include which of the following?

The key factor to remember is that the sales unit forecast provides the catalyst for all the period budgets.

A company seeks to have as much cash as possible on hand. Cash budgeting helps to accomplish this.

Crosson Wineries & Bottling is preparing its budget for 2010 and has completed the sales budget for the first six months of the year. The projected volume is as follows: The desired ending inventory for each month must be equal to 30 percent of the next month's sales. The December 31, 2009, inventory was 15,000 bottles. a. Prepare the production budget for the first four months of 2010. b. Explain why Crosson Wineries & Bottling must produce more bottles than it sells in January and February, and why it must produce fewer bottles than it sells in March and April. c. Assume each finished bottle requires 25 ounces of wine and that the ending inventory each month must be equal to 20 percent of the next month's production needs. The December 31, 2009, inventory of wine was 265,000 ounces. Prepare the direct materials purchases budget for the first three months of 2010.

A cash budget

Total purchases that must be made in order to meet sales and inventory requirements for the quarter amount to

The main difference in the master budget process for the three types of organizations involves the preparation of the

The last step in a master budget is to prepare a

The following information was reported in a cash budget: How much cash will the company have to borrow in order to meet its required needs?

Sol Del , Inc., was preparing the master budget for 2010 when a computer virus deleted some of the data contained in the cash budget for the first quarter shown below: a. Determine the missing amounts. b. Should Sol Del, Inc., anticipate borrowing during the quarter? How much and when? What effect would this have on the cash budget shown? When will the company have sufficient funds available to pay back any loans?

Budgeting is the process of identifying, gathering, summarizing, and communicating financial and nonfinancial information about an organization's future activities.

The projections of direct materials purchases that follow are for the Sombo Corporation. Purchases on Account Cash Purchases December \ 40,000 \ 30,000 January 60,000 27,000 February 50,000 35,000 March 70,000 25,00 The company pays for 60 percent of purchases on account in the month of purchase and 40 percent in the month following the purchase. What is the expected cash payment for direct materials for the month of January?

A budget can contain nonfinancial information.

Which type of budgeting utilizes employees at all levels of the company?