Exam 13: Planning and Budgeting

Individual managers' beliefs and expectations are incorporated into the budgeting process using grass roots budgeting procedures.

Oregon Inc.has the following information for its first year of operations: Revenues (250,000 units) Manutacturing costs: Materials \ 666,000 Variable cash costs 904,000 Fixed cash costs 360,000 Depreciation (fixed) 445,000 Marketing \& administrative costs: Marketing (variable) 475,000 Marketing depreciation \ 113,000 Administrative (fixed) \ 450,550 Administrative depreciation Total costs \ 3,454,550 Operating profits All depreciation charges are fixed and are expected to remain the same for year 2.Sales volume is expected to increase by 13%,and marketing prices are expected to increase by 4%.Material costs per unit are expected to increase by 8%.Other unit variable manufacturing costs are expected to increase by 10% 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 12%.Assume there are no inventories.Oregon operates on a cash basis.Required: Prepare a budgeted income statement for year 2.

Riff,Inc.is working on its cash budget for June.The budgeted beginning cash balance is $16,000.Budgeted cash receipts total $188,000 and budgeted cash disbursements total $187,000.The desired ending cash balance is $40,000.The excess (deficiency)of cash available over disbursements for June will be:

The Pizza Merchandise Company has budgeted $40,000 in sales for the month of December.The company's cost of goods sold is 30% of sales.If the company has budgeted to purchase $18,000 in merchandise during December,then the budgeted change in inventory levels over the month of December is:

Trevor Company expects sales of Product W to be 60,000 units in April,75,000 units in May,and 70,000 units in June.The company desires that the inventory on hand at the end of each month be equal to 40% of the next month's expected unit sales.Due to excessive production during March,on March 31 there were 25,000 units of Product W in the ending inventory.Given this information,Trevor Company's production of Product W for the month of April should be:

The manufacturing overhead budget at Rost Corporation is based on budgeted direct labor-hours.The direct labor budget indicates that 2,800 direct labor-hours will be required in September.The variable overhead rate is $7.00 per direct labor-hour.The company's budgeted fixed manufacturing overhead is $43,120 per month,which includes depreciation of $3,640.All other fixed manufacturing overhead costs represent current cash flows.The September cash disbursements for manufacturing overhead on the manufacturing overhead budget should be:

Krier Industries has just completed its sales forecasts and its marketing department estimates that the company will sell 36,000 units during the upcoming year.In the past,management has maintained inventories of finished goods at approximately three months' sales.However,the estimated inventory at the start of the year of the budget period is only 6,000 units.Sales occur evenly throughout the year.What is the estimated production level (units)for the first month of the upcoming budget year?

Acutron is a large securities dealer.Last year,the company made 120,000 trades with an average commission of $120.Because of the general economic climate,Acutron expects trade volume to decline by 20%.Fortunately,the average commission per trade is likely to increase by 10% because trades are expected to be large in the coming year.What are the estimated commission's revenues for Acutron in the coming year?

The following data have been taken from the budget reports of Kenyon Company,a merchandising company. Purchases Sales January \ 160,000 \ 100,000 February \ 160,000 \ 200,000 March \ 160,000 \ 240,000 April \ 140,000 \ 300,000 May \ 140,000 \ 260,000 June \ 120,000 \ 240,000 Forty percent of purchases are paid for in cash at the time of purchase,and 30% are paid for in each of the next two months.Purchases for the previous November and December were $150,000 per month.Employee wages are 10% of sales for the month in which the sales occur.Marketing and administrative expenses are 20% of the following month's sales.(July sales are budgeted to be $220,000. )Interest payments of $20,000 are paid quarterly in January and April.Kenyon's cash disbursements for the month of April would be: (CMA adapted)

Which of the following types of accounts would not be included on a budgeted balance sheet?

The manufacturing overhead budget requires that costs be separated into their fixed and variable components.Another budget that has this requirement is the:

A sales budget is given below for one of the products manufactured by Trumpet,Ltd. Month Sales Budget in Units July 28,000 August 30,000 September 34,000 October 36,000 November 29,000 December 26,000 The inventory of finished goods at the end of each month must be equal to 20% of the next month's sales.On June 30,the finished goods inventory totaled 6,800 units.Each unit of product requires ten ounces of a special chemical known as AQ-12.Sometimes the chemical is in short supply;for this reason,the company has a policy of maintaining an inventory at the end of each month equal to 75% of the next month's production needs.This requirement was met on July 1 of the current year.Required: Prepare a budget showing the quantity of AQ-12 to be purchased for October.

The starting point in preparing a comprehensive budget for a manufacturing company limited by its ability to produce and not by its ability to sell is

Long-range planning as a management function is more important:

Trini Inc.bases its manufacturing overhead budget on budgeted direct labor-hours.The direct labor budget indicates that 8,100 direct labor-hours will be required in May.The variable overhead rate is $1.40 per direct labor-hour.The company's budgeted fixed manufacturing overhead is $100,440 per month,which includes depreciation of $8,910.All other fixed manufacturing overhead costs represent current cash flows.The May cash disbursements for manufacturing overhead on the manufacturing overhead budget should be:

Italian Company has the following sales budget for the coming year. Month Sales January \ 300,000 February \ 315,000 March \ 345,000 April \ 367,500 The marketing price per unit is $15;the cost of sales is 60% of sales.Italian keeps inventory equal to the coming month's budgeted sales requirements.It pays for purchases 55% in the month of purchase and 45% in the month after purchase.Inventory at the beginning of January is $172,800.Accounts Payable on January 1 is $83,000.Required: a.Prepare a schedule of purchases,in units and in dollars,for the first three months of the year.b.Prepare a schedule of cash disbursements on account for the first three months of the year.c.Determine the accounts payable balance as of March 31.

A continuous (rolling)budget:

Denton Company wants to have 10,000 units on hand at the end of the year after marketing 100,000 units during the year.If the beginning inventory is 5,000 units,Denton needs to produce 105,000 units during the year.

What is the "curse of growth" with respect to budgeting and why is this a critical problem affecting new firms?

The use of sensitivity analysis techniques allows managers to ask "what-if" questions regarding budget assumptions and estimates.