Exam 20: The Budgeting Process

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 expenses of Great Lake are expected to be

Which of the following statements is true?

Budgetsare plans of action based on forecasted transactions,activities,and events.

Lee Carter Inc.forecast of sales is as follows: July,$50,000;August,$80,000;September,$150,000.Sales are normally 75 percent cash and 25 percent credit.Credit sales are collected in full in the following month.Merchandise cost averages 70 percent of sales price.The company desires an inventory as of September 30 of $50,000.The inventory as of June 30 was $30,000.The accounts receivable had zero balance on June 30. -Total cash receipts for August of Lee Carter will be

The projections of direct materials purchases that follow are for the Sombo Corporation. 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 of Sombo?

Seymore Company manufactures three products,Ace,Deuce,and Trey,requiring the following inputs of raw materials: Unit cost and inventory for each raw material: Prepare a direct materials purchases budget for the year ended December 31,2014.

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

The budget committee oversees each stage in the preparation of a master budget.

Emerald Corporation's overhead budget for 2013 was as follows: 750,000 units were produced in 2013. Direct labor cost is $42,000,000. For both 2013 and 2014,each unit required 4 direct labor hours at $14 per hour. In 2014,property taxes,insurance,and depreciation are expected to stay at 2013 levels. Utilities costs vary proportionally with units produced. Factory supervision increases by increments of $45,000 for every 300,000 increase in direct labor hours. The 2014 expected production is 1,200,000 units. -What will be the value for factory supervision of Emerald in the 2014 overhead budget?

Richard Inc.expects to sell 28,000 units.Each unit requires 4 pounds of direct materials at $15 per pound and 3 direct labor hours at $12 per direct labor hour.The overhead rate is $9 per direct labor hour.The beginning inventories are as follows: direct materials,2,500 pounds;finished goods,3,100 units.The planned ending inventories are as follows: direct materials,4,000 pounds;finished goods,3,200 units. -What is the planned production of Richard?

The projections of direct materials purchases that follow are for the Sombo Corporation. 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 of Sombo?

Describe three benefits budgeting provides to an organization's success.

A cash budget

Allan International is in the construction business.In 2014,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 2013 was $28,000. Prepare a cash budget and determine the projected ending cash balances for the first three months of 2014.

A budget can contain only financial information.

Emerald Corporation's overhead budget for 2013 was as follows: 750,000 units were produced in 2013. Direct labor cost is $42,000,000. For both 2013 and 2014,each unit required 4 direct labor hours at $14 per hour. In 2014,property taxes,insurance,and depreciation are expected to stay at 2013 levels. Utilities costs vary proportionally with units produced. Factory supervision increases by increments of $45,000 for every 300,000 increase in direct labor hours. The 2014 expected production is 1,200,000 units. -What will be the value for utilities of Emerald in the 2014 overhead budget?

Holman Company pays each of its three salespeople a base salary of $1,000 per month plus a commission of 10 percent of their sales.The base salary is paid each month as incurred;the 10 percent commission is paid the month following the month of sale.The total sales for the past four months are as follows: Total salary and commission cash payments for September total

Assume that the forecasted cost of goods sold is $800,000,budgeted selling and administrative expenses are $320,000,planned capital expenditures are $320,000,and the tax rate is 40 percent.What is the forecasted net income if 15,000 units are expected to be sold at $150 per unit?

Only the lowest levels of management can be evaluated using budgets.

Sales budget is the final product of the budgeting process.