Exam 13: Planning and Budgeting

In effect,the cash budget simply restates the budgeted income statement to the cash basis.

Folkes,Inc has prepared a sales budget for the second quarter as shown below: Budgeted Sales April \ 400,000 May 500,000 June 600,000 The company is in the process of preparing a cash budget for the second quarter.To this end,the following information has been assembled: Colections on Sales In month of sale 70\% In month following sale 25\% In second month following sale 5\% The company gives a 1% cash discount to customers paying in the month of their sale.Records show past sales to be: January $300,000,February $340,000,and March $360,000.Required: Prepare a cash receipts budget for the third quarter.

Shown below is the sales forecast for Kalin Inc.for the first four months of the coming year. Jan Feb Mar Apr Cash sales \ 15,000 \ 24,000 \ 18,000 \ 14,000 Credit sales \ 100,000 \ 120,000 \ 90,000 \ 70,000 On average,50% of credit sales are paid for in the month of the sale,30% in the month following sale,and the remainder are paid two months after the month of the sale.Assuming there are no bad debts,the expected cash inflow in March is: (CMA adapted)

The marketing and administrative expense budget of Kimble Corporation is based on the number of units sold,which are budgeted to be 2,500 units in January.The variable marketing and administrative expense is $4.40 per unit.The budgeted fixed marketing and administrative expense is $35,750 per month,which includes depreciation of $4,000.The remainder of the fixed marketing and administrative expense represents current cash flows.Required: Prepare a schedule showing total marketing and administrative expenses for January,as well as the cash disbursements for marketing and administrative expenses.

Bentonville Inc.bases its marketing and administrative expense budget on budgeted unit sales.The sales budget shows 3,200 units are planned to be sold in December.The variable marketing and administrative expense is $3.10 per unit.The budgeted fixed marketing and administrative expense is $60,800 per month,which includes depreciation of $6,720 per month.The remainder of the fixed marketing and administrative expense represents current cash flows.The cash disbursements for marketing and administrative expenses on the December marketing and administrative expense budget should be:

Which of the following budgets is not required in a wholesale organization?

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 June?

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 collections during the month of May?

Goodnight and Son is a small business that,after struggling for a while,has taken off.Mr.Goodnight,Jr.has been attending various seminars to improve his business knowledge and has brought back several new ideas to see if they can be implemented in the company.One idea that he felt was very urgent to implement was for his father and him and others in managerial positions to sit down and develop a strategic plan and a budget process for the company.This had not been done when the company started so he would have to do some persuading to get the others accepting and involved.One other thing he had learned at one of his seminars was that something like this had to be accepted at the top before others would accept it.Required: What kinds of issues should Mr.Goodnight bring up to get his idea accepted?

A friend of yours wants to plan a 5K fun-run for a local charity.He explains that his strategic objective is to maximize contributions and also develop numerous scenario budgets for the event due to several venue alternatives and weather uncertainties.He knows that you have taken a managerial accounting course and asks for your advice.Based on this information,what would you suggest to your friend?

Vermicelli Company plans to sell 200,000 units of finished product in July and anticipates a growth rate in sales of 5% per month.The desired monthly ending inventory in units of finished product is 80% of the next month's estimated sales.There are 150,000 finished units in inventory on June 30.Vermicelli Company's production requirement in units of finished product for the three-month period ending September 30 is: (CMA adapted)

Falcon Enterprises expects the following unit sales over the next five months: Month Unit Sales April 400,000 May 480,000 June 540,000 Juby 600,000 August 560,000 Falcon's goal is to maintain an inventory equal to 20% of next month's sales requirements.March 31^st inventory is projected to be 70,000 units.Required: Prepare a purchases budget (in units)for Falcon for as many months as is possible.Assume a 30-day month.

Which of the following is not a benefit of budgeting?

The cash budget is normally prepared before the budgeted income statement.

The Ralston Company manufactures a special line of graphic tubing items.The company estimates it will sell 75,000 units of this item in 2016.The beginning finished goods inventory contains 20,000 units.The target for each year's ending inventory is 10,000 units.Each unit requires five feet of plastic tubing.The tubing inventory currently includes 70,000 feet of the required tubing.Materials on hand are targeted to equal three months' production.Any shortage in materials will be made up by the immediate purchase of materials.Sales take place evenly throughout the year.What are the materials requirements (in feet)for 2016?

Why does a service organization not need to prepare a production budget or a cost of goods sold budget?

The Model Company is to begin operations in April.It has budgeted April sales of $30,000,May sales of $34,000,June sales of $40,000,July sales of $42,000,and August sales of $38,000.Note that 10% of each month's sales will represent cash sales;75% of the balance will be collected in the month following the sale,17% the second month,6% the third month,and the balance is bad debts.Assume the Model Company charges 1 1/2% on any balance that is not collected in the month following the month of sale.This charge will also change the collection percentages to 15% cash sales,80% of the balance collected in the month following the sale,16% the second month,and 3% the third month.This stricter credit policy will reduce the estimated sales budgets by 7% each month.What is the amount of cash to be collected in July?

A company has the following annual budget data: Beginning finished goods inventory 40,000 units Sales 70,000 units Ending finished goods inventory 30,000 units Direct materials \ 10 per unit Direct labor \ 20 per unit Variable factory ou erhead \ 5 per unit Selling costs \ 2 per unit Fixed factory overhead \ 80,000 What are total budgeted production costs for the year? (CIA adapted)

The Overland Company is preparing its cash budget for the month of June.The following information is available concerning its accounts receivable: Estimated credit sales for June \ 300,000 Actual credit sales tor May 225,000 Est. collections in June tor credit sales in June 25\% Est. collections in June for credit sales in May 65\% Est. collections in June tor credit sales prior to \ 18,000 May Est. write-offs in June for uncollectible credit sales 12,000 Est. prowision for bad debts in June for credit sales in June 10,000 What are the estimated cash receipts from accounts receivable collections in June?

Rack Inc.bases its manufacturing overhead budget on budgeted direct labor-hours.The direct labor budget indicates that 3,700 direct labor-hours will be required in September.The variable overhead rate is $5.70 per direct labor-hour.The company's budgeted fixed manufacturing overhead is $48,100 per month,which includes depreciation of $5,550.All other fixed manufacturing overhead costs represent current cash flows.The company recomputes its predetermined overhead rate every month.The predetermined overhead rate for September should be: