Exam 23: Operational Budgeting

Preparation of cash budget Use the following information to prepare a cash budget for Knightsbridge Corporation for the month of June 2012. In May, 30-day credit sales were $175,000; 80% of this amount is estimated to be collectible in June. June sales are estimated to be $425,000; cash sales are usually 25% of total sales. Only 10% of credit sales are collected in the month in which the sale is made. Total fixed expenses are $60,000 per month, including $26,000 depreciation. Variable expenses are 55% of sales. All expenses requiring payment are paid in cash when incurred. A $40,000 note payable must be paid on June 30. As of May 31, the cash balance is $94,000.

As budgeted output per the flexible budget increases, per-unit fixed costs (increase/decrease): ___________

The behavioral approach to budgeting has as its goal the complete elimination of inefficiency.

Budgeted collections from customers in December total:

Wateredge Corporation has budgeted a total of $361,800 in costs and expenses for the upcoming quarter. Of this amount, $45,000 represents depreciation expense and $7,300 represents the expiration of prepayments. Wateredge's current payables balance is $265,000 at the beginning of the quarter. Budgeted payments on current payables for the quarter amount to $370,000. The company's estimated current payables balance at the end of the quarter is:

Establishing budgeted amounts (a) The text discusses two basic philosophies as to the levels at which budgeted amounts should be set. Identify and describe briefly each of these two philosophies. (b) Which of the two management philosophies would be more likely to elicit the following comment? "At our company, budgeted revenue is set so high and budgeted costs so low that no department can ever meet the budget. This way, department managers can never relax; they are motivated to keep working harder no matter how well they are already doing."

Benefits derived from budgeting do not include:

Steps in the budgeting process Listed below are eight operating budget estimates. In the space provided, list which of these estimates is typically made first, second, third, etc. (a) ___ Operating expense budget (b) ___ Budgeted income statement (c) ___ Ending finished goods forecast (d) ___ Production schedule (in units) (e) ___ Manufacturing cost estimates (f) ___ Cost of goods sold budget (g) ___ Sales forecast (h) ___ Manufacturing cost budget

The master budget may be comprised of:

In a cash budget, the budgeted level of cash receipts depends on all of the following except:

In a flexible budget for a profit center, which of the following items would not be expected to vary with the level of activity?

Sherman has budgeted sales for the upcoming quarter as follows: The desired ending finished goods inventory for each month is one-half of next month's budgeted sales. Three pounds of direct material are required for each unit produced. If direct material costs $5 per pound, and must be paid for in the month of purchase, the budgeted direct materials purchases (in dollars) for April are:

The operating cycle is the average time required to manufacture products for sale.

The cost-volume relationship used to prepare Skelton's flexible budget for various production levels includes:

Bergen Corporation's accounts receivable remain outstanding approximately 42 days, whereas its inventory remains in stock approximately 12 days before it is sold. It takes suppliers approximately 7 days to deliver inventory to Bergen once an order is received. Jasper's operating cycle is: __________ days

The Mentha company currently has the following statistics: Days in inventory 80 Operating cycle 148 What is Mentha's days in accounts receivable?

A budget that adds a new month when the current month ends is called a:

If a budget is to provide a basis for evaluating departmental performance, departmental managers should not know what their budget targets are until after the budget period has ended.

A master budget actually includes a number of related budgets.

Which element of a master budget would normally be prepared first?