Exam 23: Master Budgets and Planning

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?

Briefly describe a master budget and the sequence in which the individual budgets within the master budget are prepared.

Budgeting is an informal plan for future business activities.

A budget can be an effective means of communicating management's plans to the employees of a business.

The manufacturing budget shows only the direct materials needed for production.

The master budget is a small component of the comprehensive budget.

Keegan Company manufactures a single product and has a JIT policy that ending inventory must equal 10% of the next month's sales. It estimates that May's ending inventory will consist of 20,000 units. June and July sales are estimated to be 280,000 and 290,000 units, respectively. Compute the number of units to be produced that would appear on the company's production budget for the month of June.

Grafton sells a product for $700. Unit sales for May were 400 and a 3% growth in unit sales is forecasted for each month. Grafton pays a sales manager a monthly salary of $3,000 and a commission of 2% of sales in dollars. Compute the projected selling expense to be reported on the selling expense budget for the manager for month ended June 30.

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

A company's history indicates that 20% of its sales are for cash and the rest are on credit. Collections on credit sales are 30% in the month of the sale, 50% in the next month, and 15% the following month. Projected sales for January, February, and March are $60,000, $85,000 and $95,000, respectively. The March expected cash receipts from all current and prior credit sales is:

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.

Which of the following budgets must be completed before a cash budget can be prepared?

A plan that shows the expected cash inflows and cash outflows during the budget period, including receipts from loans needed to maintain a minimum cash balance and repayments of such loans, is called a(n):

The Palos Company expects sales for June, July, and August of $48,000, $54,000, and $44,000, respectively. Experience suggests that 40% of sales are for cash and 60% are on credit. The company collects 50% of its credit sales in the month following sale, 45% in the second month following sale, and 5% are not collected. What are the company's expected cash receipts for August from its current and past sales?

What is a cash budget? How can management use a cash budget?

The financial budgets of a business include the cash budget, the budgeted income statement, and the budgeted balance sheet.

Presented below are terms or phrases preceded by letters a through j and followed by a list of definitions 1 through 10. Match the correct definitions with the terms or phrases by placing the letter of the term or phrase in the answer space provided at the beginning of the definition.

The sales budget for Carmel shows that 20,000 units of Product A and 22,000 units of Product B are going to be sold for prices of $10 and $12, respectively. The desired ending inventory of Product A is 20% higher than its beginning inventory of 2,000 units. The beginning inventory of Product B is 2,500 units. The desired ending inventory of B is 3,000 units. Budgeted purchases of Product A for the year would be:

David, Inc., is preparing its master budget for the second quarter. The following sales and production data have been forecasted: Finished goods inventory on March 31: 120 units Raw materials inventory on March 31: 450 pounds Desired ending inventory each month: Finished goods: 30% of next month's sales Raw materials: 25% of next month's production needs Number of pounds of raw material required per finished unit: 4 lb. How many pounds of raw materials should be purchased in April?

The responsibility for coordinating the preparation of a master budget should be assigned to the Chief Executive Officer.