Exam 22: The Budgeting Process

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.

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

The cash budget is derived exclusively from the sales and production budgets.

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. -If the expected 2014 expense for factory supervision and for utilities costs is $600,000 and $150,000,respectively,then the total for the 2014 overhead budget of Emerald is

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

Which of the following is true of the cash budget?

Operating budgets are plans used in daily operations.

The direct labor budget is needed to prepare the production budget.

James 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,50 percent are paid the following month,40 percent are paid in two months,and the remaining 10 percent are paid during the month of purchase. The sales force receives $1,500 a month base pay plus a 4 percent commission.Labor expenses are expected to be $4,000 a month.Other operating expenses are expected to run about $4,500 a month,including $500 for depreciation.The ending cash balance for 2013 was $18,000. a.Prepare a cash budget and determine the projected ending cash balances for the first three months of 2014. b.Determine the months that the company would either borrow or invest cash.

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

A budget can contain only financial information.

A master budget consists of a set of operating budgets and a set of financial budgets for a specific accounting period.

United Insurance Company specializes in term life insurance contracts.Cash collection experience shows that 30 percent of billed premiums are collected in the month before they are due,60 percent are collected in the month they are due,and 6 percent are collected in the month following their due date.Four percent of the billed premiums are collected late (in the second month following their due date).Total billing notices in January were $50,000;in February,$60,000;in March,$66,000;in April,$65,000;in May,$60,000;and in June,$70,000.How much cash does the company expect to collect in May?

The cost of goods manufactured of a company is $850,000.The beginning and ending finished goods inventory are $360,000 and 250,000,respectively.Determine the cost of goods sold.

All operating budgets should contain revenue and expense components.

List the contents of a master budget for a manufacturing organization by identifying the two major components and the budgets within each of them.

Which of the following is an advantage of budgeting?

When making decisions to purchase new equipment,managers look into the capital expenditure budget of an organization

Cellular Solutions Inc.had a very successful year in 2013.Based on a $125 average unit selling price,monthly sales during 2013 were as follows: Mr.James,vice president of sales,is preparing the sales budget for 2014.Increased manufacturing costs will make it necessary to increase the selling price by 12 percent.Even with this price increase,the unit volume of sales is expected to increase by 25 percent.The seasonal sales pattern shown for 2013 is expected to continue in 2014. a.Prepare the monthly sales unit and dollar budgets for the first quarter of 2014. b.Mr.Serene is considering the possibility of raising the average selling price by 20 percent in 2014.If this action is taken,he projects that the sales volume for the year will increase by only 10 percent.What would forecasted sales in units and dollars be in 2014 if his projection is correct?

Hang12 manufactures surfboards.During the upcoming quarter,it expects to sell 4,100 surfboards,after which it plans to have 500 surfboards remaining in inventory.If it currently has 200 surfboards on hand,how many surfboards will Hang12 have to produce for the upcoming quarter?