Exam 7: Profit Planning

The master budget is a network consisting of many separate budgets that are interdependent.

Diltex Farm Supply is located in a small town in the rural west. Data regarding the store's operations follow: • Sales are budgeted at $220,000 for November, $200,000 for December, and $210,000 for January. • Collections are expected to be 70% in the month of sale, 27% in the month following the sale, and 3% uncollectible. • The cost of goods sold is 65% of sales. • The company desires to have an ending merchandise inventory at the end of each month equal to 50% of the next month's cost of goods sold. Payment for merchandise is made in the month following the purchase. • Other monthly expenses to be paid in cash are $22,500. • Monthly depreciation is $19,000. • Ignore taxes. -The cost of December merchandise purchases would be:

Budgeted production needs are determined by:

The manufacturing overhead budget at Mahapatra Corporation is based on budgeted direct labor-hours. The direct labor budget indicates that 7,900 direct labor-hours will be required in May. The variable overhead rate is $9.50 per direct labor-hour. The company's budgeted fixed manufacturing overhead is $112,970 per month, which includes depreciation of $18,170. All other fixed manufacturing overhead costs represent current cash flows. -The company recomputes its predetermined overhead rate every month.The predetermined overhead rate for May should be:

Davol Corporation is preparing its Manufacturing Overhead Budget for the fourth quarter of the year. The budgeted variable manufacturing overhead rate is $6.80 per direct labor-hour; the budgeted fixed manufacturing overhead is $72,000 per month, of which $20,000 is factory depreciation. -If the budgeted direct labor time for October is 5,000 hours,then the total budgeted manufacturing overhead for October is:

Brarin Corporation is a small wholesaler of gourmet food products. Data regarding the store's operations follow: • Sales are budgeted at $340,000 for November, $360,000 for December, and $350,000 for January. • Collections are expected to be 55% in the month of sale, 44% in the month following the sale, and 1% uncollectible. • The cost of goods sold is 80% of sales. • The company would like to maintain ending merchandise inventories equal to 70% of the next month's cost of goods sold. Payment for merchandise is made in the month following the purchase. • Other monthly expenses to be paid in cash are $23,100. • Monthly depreciation is $21,000. • Ignore taxes. -December cash disbursements for merchandise purchases would be:

Wehr Inc.is preparing its cash budget for April.The budgeted beginning cash balance is $19,000.Budgeted cash receipts total $105,000 and budgeted cash disbursements total $98,000.The desired ending cash balance is $50,000.The company can borrow up to $120,000 at any time from a local bank,with interest not due until the following month. Required: Prepare the company's cash budget for April in good form.Make sure to indicate what borrowing,if any,would be needed to attain the desired ending cash balance.

Balmforth Products, Inc. makes and sells a single product called a Bik. It takes three yards of Material A to make one Bik. Budgeted production of Biks for the next five months is as follows: The company wants to maintain monthly ending inventories of Material A equal to 20% of the following month's production needs. On January 31, this target had not been attained since only 2,000 yards of Material A were on hand. The cost of Material A is $0.80 per yard. The company wants to prepare a Direct Materials Purchases Budget. -The total cost of Material A to be purchased in February is:

Shown below is the sales forecast for Cooper Inc.for the first four months of the coming year. 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:

Capp Corporation is a wholesaler of industrial goods.Data regarding the store's operations follow: $\bullet$ Sales are budgeted at $350,000 for November,$360,000 for December,and $340,000 for January. $\bullet$ Collections are expected to be 60% in the month of sale,39% in the month following the sale,and 1% uncollectible. $\bullet$ The cost of goods sold is 75% of sales. $\bullet$ The company desires an ending merchandise inventory equal to 40% of the following month's cost of goods sold.Payment for merchandise is made in the month following the purchase. $\bullet$ The November beginning balance in the accounts receivable account is $70,000. $\bullet$ The November beginning balance in the accounts payable account is $257,000. Required: a.Prepare a Schedule of Expected Cash Collections for November and December. b.Prepare a Merchandise Purchases Budget for November and December.

The Willsey 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:

Young Enterprises has budgeted sales in units for the next five months as follows: Past experience has shown that the ending inventory for each month should be equal to 10% of the next month's sales in units. The inventory on May 31 fell short of this goal since it contained only 400 units. The company needs to prepare a Production Budget for the next five months. -The total number of units to be produced in July is:

Sales forecasts are drawn up after the cash budget has been completed because only then are the funds available for marketing known.

Mitchell Company had the following budgeted sales for the last half of last year: The company is in the process of preparing a cash budget and must determine the expected cash collections by month. To this end, the following information has been assembled: Collections on credit sales: 60% in month of sale 30% in month following sale 10% in second month following sale -Assume that the accounts receivable balance on July 1 was $75,000.Of this amount,$60,000 represented uncollected June sales and $15,000 represented uncollected May sales.Given these data,the total cash collected during July would be:

Diltex Farm Supply is located in a small town in the rural west. Data regarding the store's operations follow: • Sales are budgeted at $220,000 for November, $200,000 for December, and $210,000 for January. • Collections are expected to be 70% in the month of sale, 27% in the month following the sale, and 3% uncollectible. • The cost of goods sold is 65% of sales. • The company desires to have an ending merchandise inventory at the end of each month equal to 50% of the next month's cost of goods sold. Payment for merchandise is made in the month following the purchase. • Other monthly expenses to be paid in cash are $22,500. • Monthly depreciation is $19,000. • Ignore taxes. -Expected cash collections in December are:

Shuck 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:

National Telephone company has been forced by competition to put much more emphasis on planning and controlling its costs.Accordingly,the company's controller has suggested initiating a formal budgeting process.Which of the following steps will NOT help the company gain maximum acceptance by employees of the proposed budgeting system?

A continuous (or perpetual)budget:

Edwards Company has projected sales and production in units for the second quarter of the year as follows: Required: a.Cash production costs are budgeted at $6 per unit produced.Of these production costs,40% are paid in the month in which they are incurred and the balance in the following month.Selling and administrative expenses (all paid in cash)amount to $60,000 per month.The accounts payable balance on March 31 totals $96,000,all of which will be paid in April.Prepare a schedule for each month showing budgeted cash disbursements for Edwards Company. b.Assume that all units will be sold on account for $15 each.Cash collections from sales are budgeted at 60% in the month of sale,30% in the month following the month of sale and the remaining 10% in the second month following the month of sale.Accounts receivable on March 31 totaled $255,000 $(45,000 from February's sales and the remainder from March. )Prepare a schedule for each month showing budgeted cash receipts for Edwards Company.

Brarin Corporation is a small wholesaler of gourmet food products. Data regarding the store's operations follow: • Sales are budgeted at $340,000 for November, $360,000 for December, and $350,000 for January. • Collections are expected to be 55% in the month of sale, 44% in the month following the sale, and 1% uncollectible. • The cost of goods sold is 80% of sales. • The company would like to maintain ending merchandise inventories equal to 70% of the next month's cost of goods sold. Payment for merchandise is made in the month following the purchase. • Other monthly expenses to be paid in cash are $23,100. • Monthly depreciation is $21,000. • Ignore taxes. -The cost of December merchandise purchases would be: