Exam 14: Planning for Profit and Cost Control

The following budget information is available for Crescent Company for January 2014: Sales \ 800,000 Cost of goods sold 540,000 Freight out 2,500 Administrative salaries 100,000 Sales commissions 5\% of sales Advertising 20,000 Depreciation on store equipment 50,000 Rent on administration building 60,000 Miscellaneous administrative expenses 10,000 Percentage of sales on credit 80\% All operating expenses are paid in cash in the month incurred. The amount of expected cash outflow for selling and administrative expenses would be:

Sound Effects Audio Systems sells and installs car stereo systems. Managers need to prepare an inventory purchases budget for the first quarter of 2014. The company's sales budget for the first quarter is provided below: January February March Budgeted Sales \2 00,000 \1 96,000 \1 80,000 Based on past experience the company expects the cost of goods sold to equal 80% of sales. Furthermore, the ending inventory balance each month should be $8,000 plus 20% of the current period's cost of goods sold. The inventory balance on December 31, 2013 was $34,000. The company makes all purchases on account and pays 60% of accounts payable in the month of purchase and the remaining 40% in the next month. Accounts payable stood at $36,000 at December 31, 2013. Required: 1) Prepare an inventory purchases budget for January, February, and March of 2014. 2) Determine the amount of ending inventory and the accounts payable balance that will appear on the March 31, 2014 pro forma balance sheet. 3) Prepare a schedule of cash payments for inventory for January, February, and March, 2014.

When Vanguard Company district managers submitted their preliminary budget proposals, top management discovered that the southern district manager had requested a new project management information system. Unfortunately, the system is incompatible with the system used at headquarters. Which of the following advantages of budgeting reduces the likelihood that the company will end up with two incompatible systems?

Bright Minds Toy Company prepared the following sales budget for the second quarter. Projected sales for each of the first three months of operations are as follows: Sales Budget April May June Cash Sales 30,000 43,000 55,000 Sales on Account 370,000 432,000 405,000 400,000 475,000 460,000 Bright Minds expects to collect 70% of the sales on account in the month of sale, and 20% in the month following the sale, and the remainder in the second month following the sale. What is the ending accounts receivable balance that would be reported on the second quarter pro forma balance sheet?

Stuart's Electronics is a relatively small company that provides computer-assisted technology to manufacturing companies. During the last few years, the company has begun to take budgeting seriously. Each year, the budget is developed during a two-day retreat of the company's top management. Lower-level employees say that the budget reflects unrealistic targets that they cannot meet even with their best efforts. What problems are there with Stevenson's budgeting process, and what can be done about them?

Sentra Sporting Company sells tennis rackets and other sporting equipment. The purchasing department manager prepared the inventory purchases budget. Sentra's policy is to maintain an ending inventory balance equal to 15% of the following month's cost of goods sold. January's budgeted cost of goods sold is $70,000. What would be the required purchases (on account) for December?

A schedule of cash receipts is often prepared in conjunction with the sales budget.

Najimi Enterprises recently began selling on internet. Internet sales for the fourth quarter of 2014 totaled $600,000. The company's internet sales are expected to grow at a rate of 20% per quarter. All sales are made on account. The company's collection experience is that 70% of accounts receivable will be collected in the quarter of sale and 25% in the next quarter. Five percent of receivables will prove uncollectible and are written off during the quarter following the quarter of sale. The balance in accounts receivable at the end of December 2013 was $180,000. Required: a) Prepare a sales budget for internet sales for the four quarters of 2014; include a total column that shows total budgeted internet sales for the year. b) Compute the accounts receivable balance as of the end of 2014. c) Prepare a cash receipts schedule for all four quarters of 2014 and the year as a whole.

How might a company develop sales estimates to be used in preparing a sales budget?

Indicate whether each of the following statements is true or false. 1. The accuracy of sales forecasts is critical to the effectiveness of a business' overall budgeting process. 2. Sales estimates to be used in the budgeting process are usually prepared by the accounting department. 3. Sales forecasts often are prepared using sophisticated computer programs and statistical techniques. 4. A company's senior vice president for sales would be held responsible for the sales budget. 5. Accompanying the sales budget is a schedule of cash payments for inventory, which is used in preparing the cash budget.

Which of the following is a true statement?

Valley Farm Supply started the period with $80,000 cash. Cash receipts for January expected to total $350,000. Cash disbursements for January were expected to be $290,000. What is the expected cash balance at the end of January?

Which of the following is a benefit associated with budgeting?

What information does the sales budget provide for pro forma financial statements?

The basic cash budget format is total cash available - total cash disbursed = surplus or shortage of cash +/- the effects of financing = ending cash.

What budget is generally not included in a master budget?

Budgeted sales commissions would appear on the:

Select the correct equation format for the purchases budget.

The cash budget includes three sections: (1) operating activities, (2) investing activities, and (3) financing activities.

The master budget includes several individual budgets, which are interdependent. Provide at least two examples of connections (relationships) between budgets.