Exam 23: Master Budgets and Planning

A sporting goods store purchased $7,000 of ski boots in October. The store had $3,000 of ski boots in inventory at the beginning of October, and expects to have $2,000 of ski boots in inventory at the end of October to cover part of anticipated November sales. What is the budgeted cost of goods sold for October?

Use the following information to prepare the June cash budget for Arbor Company. It should show expected cash receipts and cash disbursement for the month and the cash balance expected on June 30. a. Beginning cash balance on June 1 is $52,000. b. Cash receipts from sales: 40% is collected in the month of sale, 50% in the next month, and 10% in the second month after sale (uncollectible accounts are negligible and can be ignored). Sales amounts are: April (actual), $1,450,000, May (actual), $1,600,000, and June (budgeted), $1,700,000. c. Payments on merchandise purchases: 80% in the month of purchase and 20% in the month following purchase. Purchases amounts are May (actual), $830,000; and June (budgeted), $867,000. d. Budgeted cash disbursements for salaries in June: $260,000. e. Budgeted depreciation expense for June: $24,000. f. Other cash expenses budgeted for June: $282,000. g. Accrued income taxes due in June: $48,000. h. Bank loan interest due in June: $8,000. i. Loan payment of $50,000 if the preliminary cash balance is greater than $100,000.

Use the following information to determine the ending cash balance to be reported on the month ended June 30 cash budget. A.Beginning cash balance on June 1, $94,000. B. Cash receipts from sales, $413,000. C.Budgeted cash disbursements for purchases, $268,000. D. Budgeted cash disbursements for salaries, $95,000. E. Other budgeted expenses, $57,000. F. Cash repayment of bank loan, $32,000. G. Budgeted depreciation expense, $34,000.

What is a production budget?

Berkley Co.'s sales are 10% for cash and 90% on credit. Credit sales are collected as follows: 30% in the month of sale, 50% in the next month, and 20% in the following month. On December 31, the accounts receivable balance includes $12,000 from November sales and $42,000 from December sales. Assume that total sales for January and February are budgeted to be $50,000 and $100,000, respectively. What are the expected cash receipts for February from current and past sales?

List the three important guidelines that should be followed in the budgeting process.

Fairway's April sales forecast projects that 6,000 units will sell at a price of $10.50 per unit. The desired ending inventory is 30% higher than the beginning inventory, which was 1,000 units. Budgeted purchases of units in April would be:

Why is the sales budget usually prepared first?

The budget process is a continuous activity of planning, revising, and evaluating business activities.

The following information is available for Hammel Company: a. The Cash Budget for March shows a bank loan of $10,000 and an ending cash balance of $48,000. b. The Sales Budget for March indicates sales of $120,000. Accounts receivable is expected to be 70% of the current-month sales. c. The Merchandise Purchases Budget indicates that $90,000 in merchandise will be purchased in March on account and ending inventory for March is predicted to be 600 units @ $35. Purchases on account are paid 100% in the month following the purchase. d. The Budgeted Income Statement shows a net income of $48,000 and $26,000 in income tax expense for the quarter ended March 31. Accrued taxes will be paid in April. e. The Balance Sheet for February shows equipment of $84,000 with accumulated depreciation of $30,000, common stock of $25,000 and ending retained earnings of $8,000. There are no changes budgeted in the equipment or common stock accounts. Prepare a budgeted balance sheet for March.

The budgets within the master budget must be prepared in a definite sequence as dictated by GAAP.

What is a merchandise purchases budget? How is the merchandise purchases budget constructed?

Stritch Company is trying to decide how many units of merchandise to order each month. The company's policy is to have 20% of the next month's sales in inventory at the end of each month. Projected sales for August, September, and October are 30,000 units, 20,000 units, and 40,000 units, respectively. How many units must be purchased in September?

A company's history indicates that 20% of its sales are for cash and the rest are on credit. Collections on credit sales are 20% in the month of the sale, 50% in the next month, 25% the following month, and 5% is uncollectible. Projected sales for December, January, and February are $60,000, $85,000 and $95,000, respectively. The February expected cash receipts from all current and prior credit sales is:

The master budget consists of three major groups of budget components: the operating budgets, the capital expenditures budgets, and the financial budgets.

Larger, more complex organizations usually require a longer time to prepare their budgets than smaller organizations because of the considerable effort to coordinate the different units within the business.

Tappet Corporation is preparing its master budget for the quarter ending March 31. It sells a single product for $25 a unit. Budgeted sales are 40% cash and 60% on credit. All credit sales are collected in the month following the sales. Budgeted sales for the next four months follow: At December 31, the balance in accounts receivable is $10,000, which represents the uncollected portion of December sales. The company desires merchandise inventory equal to 30% of the next month's sales in units. The December 31 balance of merchandise inventory is 340 units, and inventory cost is $10 per unit. Forty percent of the purchases are paid in the month of purchase and 60% are paid in the following month. At December 31, the balance of Accounts Payable is $8,000, which represents the unpaid portion of December's purchases. Operating expenses are paid in the month incurred and consist of: Sales commissions (10% of sales) Freight (2% of sales) Office salaries ($2,400 per month) Rent ($4,800 per month) Depreciation expense is $4,000 per month. The income tax rate is 40%, and income taxes will be paid on April 1. A minimum cash balance of $10,000 is required, and the cash balance at December 31 is $10,200. Loans are obtained at the end of a month in which a cash shortage occurs. Interest is 1% per month, based on the beginning of the month loan balance, and must be paid each month. If an excess of cash exists, loan repayments are made at the end of the month. At December 31, the loan balance is $0. Prepare a master budget (round all dollar amounts to the nearest whole dollar) for each of the months of January, February, and March that includes the: Sales budget Table of cash receipts Merchandise purchases budget Table of cash disbursements for merchandise purchases Table of cash disbursements for selling and administrative expenses Cash budget, including information on the loan balance Budgeted income statement

Which of the following would not be used in preparing a cash budget for October?

Which of the following is a benefit derived from budgeting?

What is activity-based budgeting?