Exam 9: Profit Planning

Budgets are used for planning rather than for control of operations.

Davie Corporation is preparing its Manufacturing Overhead Budget for the fourth quarter of the year. The budgeted variable factory overhead rate is $6.00 per direct labor-hour; the budgeted fixed factory overhead is $92,000 per month, of which $16,000 is factory depreciation. -If the budgeted direct labor time for October is 8,000 hours, then the total budgeted factory overhead for October is:

Crose Inc. is working on its cash budget for November. The budgeted beginning cash balance is $22,000. Budgeted cash receipts total $118,000 and budgeted cash disbursements total $116,000. The desired ending cash balance is $40,000. -The excess (deficiency) of cash available over disbursements for November will be:

The excess or deficiency of cash available over disbursements on the cash budget is calculated as follows:

Which of the following is not a benefit of budgeting?

Carner Lumber sells lumber and general building supplies to building contractors in a medium-sized town in Montana. Data regarding the store's operations follow: $\bullet$ Sales are budgeted at $370,000 for November, $360,000 for December, and $340,000 for January. $\bullet$ Collections are expected to be 85% in the month of sale, 13% in the month following the sale, and 2% uncollectible. $\bullet$ The cost of goods sold is 70% of sales. $\bullet$ The company purchases 30% of its merchandise in the month prior to the month of sale and 70% in the month of sale. Payment for merchandise is made in the month following the purchase. $\bullet$ Other monthly expenses to be paid in cash are $24,600. $\bullet$ Monthly depreciation is $17,000. $\bullet$ Ignore taxes. -Retained earnings at the end of December would be:

The Culver Company is preparing its Manufacturing Overhead Budget for the third quarter of the year. Budgeted variable factory overhead is $3.00 per unit produced; budgeted fixed factory overhead is $75,000 per month, with $16,000 of this amount being factory depreciation. -If the budgeted production for July is 6,000 units, then the total budgeted factory overhead for July is:

Noskey Corporation is a merchandising firm. Information pertaining to the company's sales revenue is presented in the following table. Management estimates that 5% of credit sales are uncollectible. Of the credit sales that are collectible, 60% are collected in the month of sale and the remainder in the month following the sale. Purchases of inventory are equal to next month's cost of goods sold. The cost of goods sold is 70% of the selling price. All purchases of inventory are on account; 25% are paid in the month of purchase, and the remainder is paid in the month following the purchase. -Noskey Corporation's budgeted total cash receipts in August are:

Pardise Company plans the following beginning and ending inventory levels (in units) for July: Two units of raw material are needed to produce each unit of finished product. -If 500,000 finished units were to be manufactured during July, the units of raw material needed to be purchased would be:

Carner Lumber sells lumber and general building supplies to building contractors in a medium-sized town in Montana. Data regarding the store's operations follow: $\bullet$ Sales are budgeted at $370,000 for November, $360,000 for December, and $340,000 for January. $\bullet$ Collections are expected to be 85% in the month of sale, 13% in the month following the sale, and 2% uncollectible. $\bullet$ The cost of goods sold is 70% of sales. $\bullet$ The company purchases 30% of its merchandise in the month prior to the month of sale and 70% in the month of sale. Payment for merchandise is made in the month following the purchase. $\bullet$ Other monthly expenses to be paid in cash are $24,600. $\bullet$ Monthly depreciation is $17,000. $\bullet$ Ignore taxes. -Accounts payable at the end of December would be:

One of the distinct advantages of a budget is that it can help to uncover potential bottlenecks before they occur.

The Charade Company is preparing its Manufacturing Overhead budget for the fourth quarter of the year. The budgeted variable factory overhead is $5.00 per direct labor-hour; the budgeted fixed factory overhead is $75,000 per month, of which $15,000 is factory depreciation. -If the budgeted direct labor time for November is 7,000 hours, then the total budgeted factory overhead for November is:

Dilom Farm Supply is located in a small town in the rural west. Data regarding the store's operations follow: Sales are budgeted at $260,000 for November, $230,000 for December, and $210,000 for January. Collections are expected to be 55% in the month of sale, 40% in the month following the sale, and 5% uncollectible. The cost of goods sold is 80% of sales. The company purchases 50% of its merchandise in the month prior to the month of sale and 50% 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 $21,700. Monthly depreciation is $17,000. Ignore taxes. -The cost of December merchandise purchases would be:

The PDQ Company makes collections on credit sales according to the following schedule: 25% in month of sale 70% in month following sale 4% in second month following sale 1% uncollectible The following sales have been budgeted: Cash collections in June would be:

Roufs Inc. bases its selling and administrative expense budget on budgeted unit sales. The sales budget shows 7,800 units are planned to be sold in April. The variable selling and administrative expense is $3.20 per unit. The budgeted fixed selling and administrative expense is $95,160 per month, which includes depreciation of $9,360 per month. The remainder of the fixed selling and administrative expense represents current cash flows. The cash disbursements for selling and administrative expenses on the April selling and administrative expense budget should be:

Tilson Company has projected sales and production in units for the second quarter of the coming year as follows: Cash-related production costs are budgeted at $7 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 will amount to $110,000 per month. The accounts payable balance on March 31 totals $193,000, which will be paid in April. All units are sold on account for $16 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 April 1 totaled $520,000 $(100,000 from February's sales and the remainder from March). Required: a. Prepare a schedule for each month showing budgeted cash disbursements for the Tilson Company. b. Prepare a schedule for each month showing budgeted cash receipts for Tilson Company.

Matuseski Corporation is preparing its cash budget for October. The budgeted beginning cash balance is $17,000. Budgeted cash receipts total $187,000 and budgeted cash disbursements total $177,000. The desired ending cash balance is $40,000. 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 October in good form.

The cash budget is developed from the budgeted income statement.

Coles Company, Inc. makes and sells a single product, Product R. Three yards of Material K are needed to make one unit of Product R. Budgeted production of Product R for the next five months is as follows: The company wants to maintain monthly ending inventories of Material K equal to 20% of the following month's production needs. On July 31, this requirement was not met since only 2,500 yards of Material K were on hand. The cost of Material K is $0.85 per yard. The company wants to prepare a Direct Materials Purchase Budget for the rest of the year. -The total cost of Material K to be purchased in August is:

Capid Corporation is a wholesaler of industrial goods. Data regarding the store's operations follow: $\bullet$ Sales are budgeted at $360,000 for November, $330,000 for December, and $320,000 for January. $\bullet$ Collections are expected to be 60% in the month of sale, 36% in the month following the sale, and 4% uncollectible. $\bullet$ The cost of goods sold is 75% of sales. $\bullet$ The company purchases 40% of its merchandise in the month prior to the month of sale and 60% in the month of sale. Payment for merchandise is made in the month following the purchase. $\bullet$ The November beginning balance in the accounts receivable account is $77,000. $\bullet$ The November beginning balance in the accounts payable account is $271,000. Required: a. Prepare a Schedule of Expected Cash Collections for November and December. b. Prepare a Merchandise Purchases Budget for November and December.