Exam 20: The Budgeting Process

Green Garden Inc.bills and pays selling and administrative expenses the month after they occur.Selling and administrative expenses have both a fixed and a variable component.The fixed component is a constant $47,000 a month.The variable component equals 15 percent of revenues.Given revenues of $800,000 for March,$950,000 for April,and $925,000 for May,what would be the budgeted selling and administrative expenses that would be paid in April?

Fantastic Futons manufactures futons.The estimated number of futon sales for the first three months of 2014 are as follows: Finished goods inventory at the end of 2013 was 10,000 units.On average,25 percent of the futons to be sold in the next month are produced and kept as ending balance in finished goods inventory.The planned selling price is $150 per unit. -How many futons are budgeted to be produced in January by Fantastic Futons?

Managers do not need to know why a budget is being prepared,as these are prepared by higher authorities.

Which of the following budgets would be prepared immediately after the preparation of the overhead budget?

Purchases of buildings and equipment are formally planned in the

In estimating cash receipts and cash payments for the cash budget,many organizations prepare supporting schedules.

The expected sales for Uptown Clothing in the month of May are shown in the table below.Chelsea Rogers,the owner,gives credit to a select group of customers (20 percent of sales),but all others must pay cash.Of Chelsea's credit customers,80 percent pay her the month after the sale and 20 percent in the second month after sales. Chelsea pays cash for 10 percent of her purchases.The other 90 percent she pays off by the end of the next month.Chelsea's operating expenses are paid the month after incurrence.Her operating expenses are about $7,000 each month,$500 of which is depreciation.Selling expenses have a fixed and a variable component.The fixed is $1,500 a month,and the variable is 10 percent of sales.Chelsea began May with $9,000 in cash. Prepare a cash budget to determine Uptown Clothing's ending cash balance for May.

The following information is available from the controller's records for Penelope Ltd.: All sales are on credit.Records show that 80 percent of the customers pay during the month of the sale,15 percent pay the month after the sale,and the remaining 5 percent pay the second month after the sale.Purchases are all paid the following month at a 1 percent discount.Cash disbursements for operating expenses in July were $8,000. Prepare a cash budget for July.

Which of the following is not a guideline for budget preparation?

Fantastic Futons manufactures futons.The estimated number of futon sales for the first three months of 2014 are as follows: Finished goods inventory at the end of 2013 was 10,000 units.On average,25 percent of the futons to be sold in the next month are produced and kept as 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?

Once cash receipts and cash payments have been established,the cash increase or decrease is added to the period's beginning balance to arrive at a projected cash balance at period end.

Which of the following budgets is prepared soon after the preparation of sales budget in a master budget?

Great Lake Corporation wishes to prepare a cash budget for November 2014.Sales,purchases,and expenses for October (actual)and November and December (estimated)are as follows: Sales: All sales are on credit,and the company's experience shows that,on an average,80 percent of sales are collected in the month of sale and the balance in the following month.A 2 percent discount is allowed on all collections in the month of sale. Purchases: The company pays 60 percent of purchases in the month of purchase and the balance in the following month.The company is allowed an average discount of 1 percent on payments made in the month of purchase. Expenses: The monthly expenses for November include charges for depreciation amounting to $1,000 and $100 of prepaid expenses,which will expire.All other expenses are paid as incurred. Other: On September 1,2014,a new machine was purchased for $5,000.A down payment of $500 was made,and it was agreed that the balance would be paid in equal installments in the following three months. -The cash payments in November for purchases of Great Lake are expected to be

Static budgets are prepared on quarterly basis and require frequent change during the annual budget period.

Which of the following is true of budgets?

Operating budgets for the DiP Company reveal the following information: net sales,$400,000;beginning materials inventory,$23,000;materials purchased,$185,000;beginning work in process inventory,$64,700;beginning finished goods inventory,$21,600;direct labor costs,$34,000;overhead applied,$67,000;ending work in process inventory,$61,200;ending materials inventory,$18,700;and ending finished goods inventory,$16,300.Compute DiP Company's budgeted gross margin.

Crosson Wineries & Bottling is preparing its budget for 2014 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 31,2013,inventory was 15,000 bottles. a.Prepare the production budget for the first four months of 2014. 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 31,2013,inventory of wine was 265,000 ounces.Prepare the direct materials purchases budget for the first three months of 2014.

Fantastic Futons manufactures futons.The estimated number of futon sales for the first three months of 2014 are as follows: Finished goods inventory at the end of 2013 was 10,000 units.On average,25 percent of the futons to be sold in the next month are produced and kept as ending balance in finished goods inventory.The planned selling price is $150 per unit. -What would be the sales budget for March of Fantastic Futons?

Participative budgeting involves only personnel at top levels of the organization.

A company expects to begin the coming year with 6,000 ceramic pots in finished goods inventory.It expects to sell 85,000 ceramic pots and end the year with 8,000 pots in the finished goods inventory.Four pounds of clay go into each ceramic pot.The company expects to have 4,000 pounds of clay on hand at the beginning of the coming year and wishes to end the year with 6,000 pounds in inventory. a.Prepare a production budget showing the number ceramic pots that the company must manufacture to carry out these plans. b.Prepare a direct materials purchases budget showing the number of pounds of clay that the company must purchase during the year.