Exam 13: Planning and Budgeting

Describe what is meant by participative budgeting and give an example of a benefit and a drawback.

Allentown Company has been busy over the first few years of its existence in penetrating its market and gaining a respectable market share.To facilitate this,Mr.Marks,the CEO,and his controller,Mr.Nance,have been developing the annual master budgets.To date,this approach has worked well.Allentown has been acquired by a company in a related business but will continue to operate as an independent subsidiary.The CFO of the acquiring company,Mr.Radisson,has suggested to Mr.Marks that,since it was expected that his company would continue to grow,it adopt a departmental budgeting system;a suggestion Mr.Marks agreed to readily.Mr.Radisson explained to Marks' departmental managers the concepts of a departmental participative budgeting system and their involvement.The managers were encouraged to take the information and come back with suggestions which could then be put into a formal budget process.Required: (1)What benefits will accrue to Mr.Marks under this new budgeting system? (2)What behavioral issues might arise for departmental managers and for production workers? (3)What is the most probable long-term reaction of Marks' people to the participative budget system?

Sensitivity analysis is more likely to be used for sales forecasts than for fixed overhead costs.

Rerun Manufacturing Company is in the process of preparing its 2016 budget and is anticipating the following changes: 30% increase in the number of units sold.20% increase in the direct material unit cost.15% increase in the direct labor cost per unit.10% increase in the manufacturing overhead cost per unit.14% increase in the marketing price.7% increase in the administrative expenses.Rerun does not keep any units in inventory.The composition of the cost of finished products during 2016 for materials,direct labor,and factory overhead,respectively,was in the ratio of 3:2:1.The condensed income statement for 2016 is as follows: Sales (30,000 units ) \ 460,000 Less sales returns Net sales 436,500 Cost of Goods Sold Gross Profit \ 130,500 Selling Expenses \ 60,000 Admin. Expenses 30,000 90,000 Net Income What is the estimated cost of goods sold for 2016 assuming the number of units sold does not change?

Washington Gas Corporation supplies acetylene and other compressed gases to industry.Data regarding the store's operations follow: • Sales are budgeted at $320,000 for November,$340,000 for December,and $330,000 for January.• Collections are expected to be 75% in the month of sale,20% in the month following the sale,and 5% uncollectible.• The cost of goods sold is 65% of sales.• The company purchases 80% of its merchandise in the month prior to the month of sale and 20% in the month of sale.Payment for merchandise is made in the month following the purchase.• Other monthly expenses to be paid in cash are $21,000.• Monthly depreciation is $16,000.• Ignore taxes. Required: a.Prepare a Schedule of Expected Cash Collections for November and December. b.Prepare a Merchandise Purchases Budget for November and December. c.Prepare Cash Budgets for November and December. d.Prepare Budgeted Income Statements for November and December. e.Prepare a Budgeted Balance Sheet for the end of December.

Center Company makes collections on sales according to the following schedule: 30 \% in the month of sale 60\% in the month following sale 8\% in the second month following sale The following sales are expected: Expected Sales January \ 100,000 February \ 120,000 March \ 110,000 Cash collections in March should be budgeted to be:

Which of the following represents the correct order in which the indicated budget documents for a manufacturing company would be prepared?

Atlanta Import Enterprises expects the following unit sales over the next five months: Month Unit Sales April 200,000 May 240,000 June 270,000 Juby 300,000 August 280,000 Atlanta Import's goal is to maintain an inventory equal to 10% of next month's sales requirements.March 31^st inventory is projected to be 18,000 units.Required: Prepare a purchases budget (in units)for Atlanta Import for as many months as is possible.Assume a 30-day month.

Tennison Corporation had the following transactions in its first year of operations: Sales(90\% collected in year) \ 1,500,00 Bad debt write-offs 60,000 Disbursements for costs and expenses 1,200,000 Disbursements for income taxes 90,000 Purchases of fixed assets 400,000 Depreciation of fred assets 80,000 Proceeds from issuance of common stock 500,000 Proceeds from short-tem borrowings 100,000 Payments on short-tern borrowings 50,000 What is the cash balance at year end?

The manufacturing overhead budget of Waverly Corporation is based on budgeted direct labor-hours.The June direct labor budget indicates that 5,800 direct labor-hours will be required in that month.The variable overhead rate is $7.70 per direct labor-hour.The company's budgeted fixed manufacturing overhead is $111,360 per month,which includes depreciation of $17,400.All other fixed manufacturing overhead costs represent current cash flows.Required: a.Determine the cash disbursement for manufacturing overhead for June.Show your work! b.Determine the predetermined overhead rate for June.Show your work!

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 number of inventory units that need to be purchased in July?

Budgeted sales in Washburn Company over the next four months are given below: September October November December Budgeted \ 100,000 \ 160,000 \ 180,000 \ 120,000 sales Twenty-five percent of the company's sales are for cash and 75% are on account.Collections for sales on account follow a stable pattern as follows: 50% of a month's credit sales are collected in the month of sale,30% are collected in the month following sale,and 15% are collected in the second month following sale.The remainder is uncollectible.Given these data,cash collections for December should be:

What does the phrase,"use it or lose it," mean in the context of budgeting?

Vargas Corporation is working on its direct labor budget for the next two months.Each unit of output requires 0.77 direct labor-hours.The direct labor rate is $11.20 per direct labor-hour.The production budget calls for producing 7,100 units in October and 6,900 units in November.The company guarantees its direct labor workers a 40-hour paid work week.With the number of workers currently employed,that means that the company is committed to paying its direct labor work force for at least 5,480 hours in total each month even if there is not enough work to keep them busy.What would be the total combined direct labor cost for the two months?

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 cash disbursements during the month of June?

Sales projections are often the most difficult part of the budgeting process because it involves a considerable amount of subjectivity.

The forecasting method in which individual forecasts of group members are submitted anonymously and evaluated by the group as a whole is called:

Parlour Company has the following sales budget for the coming year. Month Sales January \ 180,000 February \ 190,000 March \ 210,000 April \ 230,000 The marketing price per unit is $10;the cost of sales is 70% of sales.Parlour keeps inventory equal to double the coming month's budgeted sales requirements.It pays for purchases 65% in the month of purchase and 35% in the month after purchase.Inventory at the beginning of January is $204,400.Accounts Payable on January 1 is $43,000.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.

Davis Company has forecast its sales as follows: August \ 180,000 (actual) September \ 280,000 (actual) October \ 360,000 November \ 400,000 December \ 450,000 Davis has experienced collections of 40% during the month of sale,50% the month after the sale,and 10% the second month after the sale.Required: a.Prepare a schedule of cash receipts for the 3 month period October - December.b.What will the Accounts Receivable balance be on December 31?

Pouch Corporation is working on its direct labor budget for the next two months.Each unit of output requires 0.84 direct labor-hours.The direct labor rate is $9.40 per direct labor-hour.The production budget calls for producing 2,100 units in June and 1,900 units in July.If the direct labor work force is fully adjusted to the total direct labor-hours needed each month,what would be the total combined direct labor cost for the two months?