Exam 23: Master Budgets and Planning

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.

Lara Company's budget includes the following credit sales for the current year: September, $25,000; October, $36,000; November, $30,000; December, $32,000. Experience has shown that payment for the credit sales is received as follows: 15% in the month of sale, 60% in the first month after sale, 20% in the second month after sale, and 5% is uncollectible. How much cash can Lara Company expect to collect in November as a result of current and past credit sales?

A managerial accounting report that presents predicted amounts of the company's assets, liabilities, and equity as of the end of the budget period is called a(n):

The Lamb Company budgeted sales for January, February, and March of $96,000, $88,000, and $72,000, respectively. Seventy percent of sales are on credit. The company collects 60% of its credit sales in the month following sale, 35% in the second month following sale, and 5% is not collected. What are Lamb's expected cash receipts for March related to all current and past sales?

One of the major benefits of formal budgeting is the positive effect it can have on employee attitudes if applied correctly.

Use the following information to prepare a budgeted balance sheet Magee Company for the month of June. a. The budgeted net income for the month of June is $236,000. b. The beginning cash balance is $62,000; budgeted cash receipts are $1,660,000; budgeted cash disbursements are $1,580,000. c. Budgeted sales for May and June are $1,600,000 and $1,700,000 respectively. Collections are 40% in the month of sale and 60% in the month following. d. The projected inventory balance is 10% of the following month's sales. Sales for July are projected to be $1,750,000. e. Purchases of inventory are paid 80% in the month of purchase, and 20% in the month following. Budgeted purchases for June are $900,000. f. The equipment account balance is $1,400,000 on June 30. On May 31, the accumulated depreciation on equipment is $276,000. Depreciation expense for June is estimated to be $24,000. g. There is an outstanding loan balance of $800,000. h. Accrued income taxes payable for June 30 are $71,000; and accrued salaries payable are $50,000. i. The only other balance sheet accounts are: Common Stock, with a balance of $800,000 on May 31, and Retained Earnings with a balance of $300,000 on May 31.

The financial budgets include the cash budget and the capital expenditures budget.

Berkley Co.'s sales are 10% 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 are budgeted to be $50,000. What are the expected cash receipts for January from the current and past sales?

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

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

In preparing financial budgets:

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

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

Kent Company anticipates total sales for April, May, and June of $800,000, $900,000, and $950,000 respectively. Cash sales are normally 25% of total sales. Of the credit sales, 30% are collected in the same month as the sale, 65% are collected during the first month after the sale, and the remaining 5% are collected in the second month. Compute the amount of accounts receivable reported on the company's budgeted balance sheet for June 30.

Grafton budgets production of 300 units in June and 310 units in July. Each unit requires 1.5 hours of direct labor. The direct labor rate if $14 per hour. The indirect labor rate is $21.00 per hour. Compute the budgeted direct labor cost for July.

Kent Company anticipates total sales for April, May, and June of $800,000, $900,000, and $950,000 respectively. Cash sales are normally 25% of total sales. Of the credit sales, 30% are collected in the same month as the sale, 65% are collected during the first month after the sale, and the remaining 5% are not collected. Compute the amount of cash received from total sales for May.

What is a sales budget? How is the sales budget prepared?

A quantity of merchandise or materials over the minimum needed that reduces the risk of running short is called:

The budget that lists the dollar amounts to be both received from plant asset disposals and spent to purchase additional plant assets to carry out the budgeted business activities is the _________________________.

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.