Exam 13: Planning and Budgeting

Dalley Inc.has the following information for its first year of operations: Revenues (200,000 units) Manufacturing costs: Materials \ 168,000 Variable cash costs 142,400 Fixed cash costs 327,600 Depreciation (fixed) 999,000 Marketing \& administrative costs: Marketing (uariable) \ 22,400 Marketing depreciation 149,600 Administrative (fixed) 509,200 Administrative depreciation Total costs \ 2,793,000 Operating profits All depreciation charges are fixed and are expected to remain the same for year 2.Sales volume is expected to increase by 15%,but marketing prices are expected to fall by 4%.Material costs per unit are expected to decrease by 6%.Other unit variable manufacturing costs are expected to decrease by 2.5% per unit.Fixed manufacturing costs (other than depreciation)are expected to increase by 6%.Variable marketing costs per unit will remain constant.Administrative costs (other than depreciation)are expected to increase by 10%.Assume there are no inventories.Dalley operates on a cash basis.Required: Prepare a budgeted income statement for year 2.

Why does budgeting creates serious ethical issues for many people and give an example?

Which of the following statements is not correct?

Things Inc.is preparing its cash budget for April.The budgeted beginning cash balance is $19,000.Budgeted cash receipts total $105,000 and budgeted cash disbursements total $98,000.The desired ending cash balance is $50,000.The company can borrow up to $120,000 at any time from a local bank,with interest not due until the following month.Required: Prepare the company's cash budget for April in good form.Make sure to indicate what borrowing,if any,would be needed to attain the desired ending cash balance.

An organization's sales staff is more likely to provide a lower sales forecast than a forecast provided by market researchers.

Denton Company has 10,000 units on hand at the beginning of the year and plans to sell 100,000 units during the year.If the ending inventory needs to be twice the beginning inventory,Denton will need to produce 90,000 units during the year.

Both variable and fixed manufacturing overhead costs are included in the manufacturing overhead budget.

Which of the following budgets does not require the production budget?

Rockwell Company is a fast growing company with monthly sales for the current year estimated at a relatively steady upward trend.Past history has shown that all sales are collected within two months with negligible uncollectibles.The product for a given month is purchased partially in the month before sale and the rest during the month of sale and is paid for over a two month period.Property and income taxes are paid quarterly while other expenses are paid as incurred.The company has a desired ending cash balance for each month of $150,000 and,when necessary borrows to meet shortfalls and invests overages.The success of the company has been sudden and Ms.Harrison,the controller,is concerned about meeting the goals of the company without getting into serious short-term financial difficulties.As a result,she has been very conscientious about preparing the cash budget and keeping it up-to-date as conditions warrant.Required: Why is cash budgeting important for a rapidly expanding firm such as Rockwell Company?

The Variable Speed Company manufactures a line of high quality tools.The company sold 1,000,000 hammers at a price of $4 per unit last year.The company estimates that this volume represents a 20% share of the current hammers market.The market is expected to increase by 5%.Marketing specialists have determined that,as a result of a new advertising campaign and packaging,the company will increase its share of this larger market to 24%.Due to changes in prices,the new price for the hammer will be $4.30 per unit.This new price is expected to be in line with the competition and have no effect on the volume estimates.What are the estimated sales revenues in the coming year?

Which of the following terms is not an alternative for a master budget?

Merriweather Corporation is a manufacturer of tables sold to schools,restaurants,hotels,and other institutions.The table tops are manufactured by Merriweather,but the table legs are purchased from an outside supplier.The Assembly Department takes a manufactured table top and attaches the four purchased table legs.It takes 20 minutes of labor to assemble a table.The company follows a policy of producing enough tables to insure that 40% of next month's sales are in the finished goods inventory.Merriweather also purchases sufficient raw materials (legs)to insure that raw materials (legs)inventory is 60% of the following month's scheduled production needs.Merriweather's sales budget in units for the next quarter is as follows: (CMA adapted) July 2,300 August 2,500 September 2,100 Merriweather's ending inventories in units for June 30 are: Finished goods 1,900 Raw materials (legs) 4,000 Disregarding your response to the previous question,assume the required production for August and September is 1,600 and 1,800 units,respectively,and the July 31 raw materials (legs)inventory is 4,200 units.The number of table legs to be purchased in August is:

Ari,Inc.is working on its cash budget for December.The budgeted beginning cash balance is $14,000.Budgeted cash receipts total $127,000 and budgeted cash disbursements total $126,000.The desired ending cash balance is $40,000.To attain its desired ending cash balance for December,the company needs to borrow:

A master budget consists of (a)organizational goals, (b)strategic long-range profit plan,and (c)tactical short-range profit plan.

The Beatrice Manufacturing Company increased its merchandise inventory by $17,000 over the year.The company also granted its customers more liberal credit terms which increased the accounts receivable by $37,500.Sales were $975,000 and the accounts payable decreased by $27,500.The gross profit on sales is 45%.Marketing and administrative expenses were $145,000;this included depreciation expense of $4,000.What were the cash disbursements for the year?

Which of the following statements is true regarding ethical issues accompanying budgeting?

A master budget:

Kevin Montgomery Retail seeks your assistance to develop cash and other budget information for May,June,and July.At April 30,the company had cash of $5,500,accounts receivable of $437,000,inventories of $309,400,and accounts payable of $133,055.The budget is to be based on the following assumptions: SALES: Each month's sales are billed on the last day of the month.Customers are allowed a 3% discount if payment is made within 10 days after the billing date.Receivables are recorded in the accounts at their gross amounts (not net of discounts).55% of the billings are collected within the discount period;30% are collected by the end of the month;9% are collected by the end of the second month;and 6% turn out to be uncollectible.PURCHASES: 60% of all purchases of merchandise and the marketing,general,and administrative expenses are paid in the month purchased and the remainder in the following month.The number of units in each month's ending inventory is equal to 125% of the next month's units of sales.The cost of each unit of inventory is $30.Marketing,general,and administrative expenses,of which $3,000 is depreciation,are equal to 15% of the current month's sales.Actual and projected sales are as shown below: Dollars Unis March \ 472,000 11,800 April \ 484,000 12,100 May \ 476,000 11,900 June \ 466,000 11,400 Juby \ 480,000 12,000 August \ 480,000 12,200 What are the budgeted merchandise purchases (in dollars)for May?

A company is formulating its plans for the coming year,including the preparation of its cash budget.Historically,the company's sales are 30% cash.The remaining sales are on credit with the following collection pattern: Collections on Account Percentage In the month of sale 40\% In the month tollowing the sale 58\% Uncollectible 2\% Sales for the first 5 months of the coming year are forecast as follows: January \ 3,500,000 February 3,800,000 March 3,600,000 April 4,000,000 May 4,200,000 For the month of April,the total cash receipts from sales and collections on account would be: (CIA adapted)

A budget is the plan,stated in financial terms,of how an organization expects to carry out its activities and meet its goals.