Exam 9: Financial Planning and Analysis: the Master Budget

The accounting records of Backspace, Inc., revealed an accounts receivable balance of $195,000 on January 1, 20x6. Forty percent of the company's sales are for cash, and the remaining 60% are on account. Of the credit sales, 30% are collected in the month of sale and 70% are collected in the following month. Total sales in January and February are expected to amount to $500,000 and $530,000, respectively. Assume that in the latter half of 20x6, Backspace hired a new sales manager who aggressively tried to maximize the company's market share. She implemented a compensation system for the sales force that was 100% commission based, with the commission calculated on the basis of gross sales dollars. Sales volume increased dramatically in a very short period of time, and the sales and collection patterns changed, as follows: Cash sales: $20 \%$ Credit sales: $80 \%$ Collected in the month of sale 15\% Collected in the month following sale 75\% Uncollectible 10\% Required: A. Compute the company's cash inflows for January and February, 20x6. B. Determine the outstanding receivables balance at the end of February. C. Compare the sales and collection patterns before and after the arrival of the new sales manager. Have things improved or deteriorated? Explain. D. On the basis of the information presented, determine what likely caused the improvement or deterioration in collection patterns.

Atlantis Corporation assembles bicycles by purchasing frames, wheels, and other parts from various suppliers. Consider the following data: • The company plans to sell 25,000 bicycles during each month of the year's first quarter. • A review of the accounting records disclosed a finished-goods inventory of 1,400 bicycles on January 1 and an expected finished-goods inventory of 1,850 bicycles on January 31. • Atlantis has 4,300 wheels in inventory on January 1, a level that is expected to drop by 5% at month-end. • Assembly time totals 30 minutes per bicycle, and workers are paid $14 per hour. • Atlantis accounts for employee benefits as a component of direct labor cost. Pension and insurance costs average $2 per hour (total); additionally, the company pays Social Security taxes that amount to 8% of gross wages earned. Required: A. How many bicycles does Atlantis expect to produce (i.e., assemble) in January? B. How many wheels are budgeted to be purchased in January? C. Compute Atlantis's total direct labor cost for January. D. Briefly explain how the company's purchasing activity would affect the end-of-period balance sheet.

The budgeted income statement, budgeted balance sheet, and budgeted statement of cash flows comprise:

Swamp Fox has the following sales forecasts for its hip waders next year: What is Swamp Fox's estimated sales revenue for next year if each pair sells for an average of $30?

Coleman, Inc. anticipates sales of 50,000 units, 48,000 units, and 51,000 units in July, August, and September, respectively. Company policy is to maintain an ending finished-goods inventory equal to 40% of the following month's sales. On the basis of this information, how many units would the company plan to produce in August?

Which of the following outcomes is (are) sometimes associated with participative budgeting?

James Corporation, headquartered in Chicago, has a manufacturing plant in Dallas. Plant managers desire to participate in the company's budget efforts, which, for the past 10 years, have been handled solely by top executives in Chicago. Dallas managers feel that by becoming involved, they can make great strides in terms of improving operating performance of their aging facility. Required: Briefly discuss this situation, focusing on the benefits and problems of letting Dallas managers participate in the company's budgetary efforts.

If a manager builds slack into a budget, how would that manager handle estimates of revenues and expenses?

Consider the following statements about budget administration: I. The budgeting process is a very formal process in all organizations regardless of an organization's size. II. The budget manual is prepared to communicate budget procedures and deadlines to employees throughout an organization. III. Effective internal control procedures require that the budget director be an individual other than the controller. Which of the above statements is (are) true?

Nguyen plans to sell 40,000 units of product no. 75 in June, and each of these units requires five square feet of raw material. Pertinent data follow. If the company purchases 201,000 square feet of raw material during the month, the estimated raw-material inventory on June 30 would be:

Nonprofit organizations begin their budgeting process with:

Which of the following statements best describes the relationship between the sales-forecasting process and the master-budgeting process?

Which of the following would be considered when preparing a company's sales forecast?

Brooke-lyn makes all purchases on account, subject to the following payment pattern: Paid in the month of purchase: 30% Paid in the first month following purchase: 65% Paid in the second month following purchase: 5% If purchases for April, May, and June were $200,000, $160,000, and $250,000, respectively, what was the firm's budgeted payables balance on June 30?

Which of the following statements concerning the budget director is false?