Chapter 8The Master Budget

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Why is budgeting important? How is strategic planning related to budgeting? What is the starting point of a master budget and why? How are the various components in a master budget prepared and how do they relate to one another? Why is the cash budget so important in the master budgeting process? What benefits are provided by a budget? $%ppendi&' How does a budget manual facilitate the budgeting process?

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32 33 34 #o$%letion

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!2

TRUE !ALSE 1* +trategic planning is focused on short,term goals of less than five years* %-+. / 01/. 2asy O34. 5,2

2* +trategic planning is focused on long,range goals of five to ten years* %-+. 6 01/. 2asy O34. 5,2

3* 6he budget is an important source of feedbac7 for an organi8ation* %-+. 6 01/. 2asy O34. 5,1

4* 9ost tactical plans are single use plans* %-+. 6 01/. 2asy O34. 5,2

!* %n annual budget is an e&ample of a strategic plan* %-+. / 01/. 2asy O34. 5,2

"* %n annual budget is an e&ample of a single use tactical plan* %-+. 6 01/. 2asy O34. 5,2

#* 6op management should be directly involved in strategic planning for an organi8ation* %-+. 6 01/. 2asy O34. 5,2

5* Operational management should be directly involved with the strategic planning of an organi8ation* %-+. / 01/. 9oderate O34. 5,2

(* 6he financial budget is prepared before the operating budget* %-+. / 01/. 2asy O34. 5,3

1)* 6he financial budget is prepared after the operating budget* %-+. 6 01/. 2asy O34. 5,3

11* 6he operating budget is e&pressed both in units and dollars* %-+. 6 01/. 2asy O34. 5,3

12* 6he first stage in the budgeting process is the preparation of a sales budget* %-+. 6 01/. 2asy O34. 5,3

13* 6he first stage in the budgeting process is the preparation of a cash collections budget* %-+. / 01/. 2asy O34. 5,3

!3

14* 1n a manufacturing organi8ation the cash budget is prepared immediately after the sales budget* %-+. / 01/. 9oderate O34. 5,3

1!* 1n a manufacturing organi8ation the production budget is prepared immediately after the sales budget* %-+. 6 01/. 9oderate O34. 5,3

1"* 6he amount of raw materials that must be purchased can be computed by the following formula. 3eginning inventory : 9aterials re;uired , 2nding inventory* %-+. / 01/. 9oderate O34. 5,4

1#* 6he amount of raw materials that must be purchased can be computed by the following formula. 2nding inventory : 9aterials re;uired , 3eginning inventory* %-+. 6 01/. 9oderate O34. 5,4

15* 1n estimating factory overhead it is necessary to separate costs into their fi&ed and variable components* %-+. 6 01/. 2asy O34. 5,4

1(* 1n estimating factory overhead it is necessary to subtract depreciation from total overhead costs* %-+. 6 01/. 2asy O34. 5,4

2)* 1n estimating factory overhead it is necessary to add depreciation to total overhead costs* %-+. / 01/. 2asy O34. 5,4

21* 6he effect of capital e&penditures on the master budget is reflected through periodic depreciation charges in the cash outflow portion* %-+. / 01/. 9oderate O34. 5,4

22* 6he effect of capital e&penditures on the master budget is reflected through cash payments made for ac;uisition of capital assets* %-+. 6 01/. 9oderate O34. 5,4

23* 6he cash budget is constructed after all other budgets have been completed* %-+. 6 01/. 2asy O34. 5,!

24* 3alances for %ccounts <eceivable and +ales 0iscounts are pro=ected before the cash collections schedule is prepared* %-+. / 01/. 9oderate O34. 5,!

!4

2!* 3alances for %ccounts <eceivable and +ales 0iscounts are pro=ected after the cash collections schedule is prepared* %-+. / 01/. 9oderate O34. 5,!

2"* 6he final step in constructing the master budget is the preparation of pro,forma financial statements for the period* %-+. 6 01/. 2asy O34. 5,!

2#* % continuous budget is prepared by adding a new budget month as each month e&pires* %-+. 6 01/. 2asy O34. 5,"

25* 3udgetary slac7 is an effective motivator for employees because it reduces employee frustration when goals cannot be achieved* %-+. / 01/. 2asy O34. 5,"

2(* 3udgetary slac7 is fre;uently found in imposed budgets* %-+. / 01/. 9oderate O34. 5,"

3)* % participatory budget is developed by both top management and operating personnel* %-+. 6 01/. 2asy O34. 5,"

31* % budget manual should include pro,forma financial statements for the upcoming period* %-+. / 01/. 9oderate O34. 5,#

32* % budget manual should include a statement of the budgetary purpose and its desired results** %-+. 6 01/. 9oderate O34. 5,#

33* % calendar of scheduled budgetary activities helps to coordinate the budgeting process* %-+. 6 01/. 2asy O34. 5,#

34* 6op management can reduce slac7 by using a bonus system to lin7 performance to the budget* %-+. 6 01/. 9oderate O34. 2asy

!!

COM"LETION 1* Long,range planning carried out by top management is referred to as >>>>>>>>>>>>>>>>>>>>>>>>>>>>>>* %-+. strategic planning 01/. 2asy O34. 5,2

2* +hort,term planning designed to address a specific set of circumstances is referred to as >>>>>>>>>>>>>>>>>>>>>>>>>>>>>* %-+. tactical planning 01/. 5,2 O34. 2asy

3* 6he final document resulting from the budgeting process is referred to as the >>>>>>>>>>>>>>>>>>>>>>* %-+. master budget 01/. 2asy O34. 5,2

4* % budget that is e&pressed in terms of both units and dollars is referred to a an >>>>>>>>>>>>>>>>>>>>>>>>* %-+. operating budget 01/. 2asy O34. 5,3

!* % budget that indicates the funds to be generated or consumed during the period is referred to as a >>>>>>>>>>>>>>>>>>>>>>>>>>* %-+. financial budget 01/. 2asy O34. 5,3

"* 6he starting point for any master budget is the >>>>>>>>>>>>>>>>>>>>>>>>>* %-+. sales budget 01/. 2asy O34. 5,3

#* 6he ending point in the budgetary process is the >>>>>>>>>>>>>>>>>>>>>>>>>>>>>* %-+. pro,forma financial statements 01/. 2asy O34. 5,4

!"

5* 1n a manufacturing organi8ation the budget that is prepared after the sales budget is the >>>>>>>>>>>>>>>>>>>>>>>>>* %-+. production budget* 01/. 2asy O34. 5,4

(* 1n a manufacturing organi8ation the budgets that are prepared after the production are the >>>>>>>>>>>>>>>>>>>>> >>>>>>>>>>>>>>>>>>>>> and >>>>>>>>>>>>>>>>>> budgets* %-+. direct materials direct labor overhead 01/. 2asy O34. 5,4

1)* 6he budget that focuses on an organi8ation?s long,term needs is referred to as a >>>>>>>>>>>>>>>>>>>>>>>>>>* %-+. capital budget 01/. 2asy O34. 5,4

11* % budget that is prepared by adding a new budget month as each month e&pires is referred to as a >>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>* %-+. continuous budget* 01/. 2asy O34. 5,"

12* % budget that is developed with little input from operating personnel is referred to as a$n' >>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>* %-+. imposed budget 01/. 2asy O34. 5,"

13* % budget that is developed by both top management and operating personnel is referred to as a$n' >>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>* %-+. participatory budget 01/. 2asy O34. 5,"

14* 1f revenues are intentionally underestimated during the budgeting process >>>>>>>>>>>>>>>>>>>>> has been created* %-+. budgetary slac7 01/. 2asy O34. 5,"

!#

MULTI"LE C#OICE 1* % budget aids in a* communication* b* motivation* c* coordination* d* all of the above* %-+. 0 01/. 2asy O34. 5,1

2* 9easuring the firm@s performance against established ob=ectives is part of which of the following functions? a* Alanning b* Bontrolling c* Organi8ing d* +taffing %-+. 3 01/. 2asy O34. 5,1

3* 6he preparation of an organi8ation@s budget a* forces management to loo7 ahead and try to see the future of the organi8ation* b* re;uires that the entire management team wor7 together to ma7e and carry out the yearly plan* c* ma7es performance review possible at all levels of management* d* all of the above* %-+. 0 01/. 2asy O34. 5,1

4* Which of the following is a basic element of effective budgetary control? a* cost behavior patterns b* cost,volume,profit analysis c* standard costing d* all of the above %-+. % 01/. 2asy O34. 5,1

!* When actual performance varies from the budgeted performance managers will be more li7ely to revise future budgets if the variances were a* controllable rather than uncontrollable* b* uncontrollable rather than controllable* c* favorable rather than unfavorable* d* small* %-+. 3 01/. 9oderate O34. 5,1

"* 2&ternal factors that cause the achievement of company goals are the a* annual budget* b* industry price and cost structure* c* talents possessed by its managers* d* board of directors* %-+. 3 01/. 2asy O34. 5,1

!5

#* % budget is a* a planning tool* b* a control tool* c* a means of communicating goals to the firm@s divisions* d* all of the above* %-+. 0 01/. 2asy O34. 5,1

5* 1neffective budgets andCor control systems are characteri8ed by the use of a* budgets as a planning tool only and disregarding them for control purposes* b* budgets for motivation* c* budgets for coordination* d* the budget for communication* %-+. % 01/. 2asy O34. 5,1

(* +trategic planning is a* planning activities for promoting products for the future* b* planning for appropriate assignments of resources* c* setting standards for the use of important but hard,to,find materials* d* stating and establishing long,term plans* %-+. 0 01/. 2asy O34. 5,2

1)* Dey variables that are identified in strategic planning are a* normally controllable if they are internal* b* seldom if ever controllable* c* normally controllable if they occur in a domestic mar7et* d* normally uncontrollable if they are internal* %-+. % 01/. 2asy O34. 5,2

11* 6actical planning usually involves which level of management? a* middle b* top c* middle and top d* operational %-+. B 01/. 2asy O34. 5,2

12* Which of the following statements is true? a* %ll organi8ations have the same set of budgets* b* %ll organi8ations are re;uired to budget* c* 3udgets are a ;uantitative e&pression of an organi8ation@s goals and ob=ectives* d* 3udgets should never be used to evaluate performance* %-+. B 01/. 2asy O34. 5,1

13* Which of the following is $%t an EoperatingE budget? a* sales budget b* production budget c* purchases budget d* capital budget %-+. 0 01/. 2asy O34. 5,3

!(

14* 6he master budget is a static budget because it a* is geared to only one level of production and sales* b* never changes from one year to the ne&t* c* covers a preset period of time* d* always contains the same operating and financial budgets* %-+. % 01/. 2asy O34. 5,3

1!* 6he master budget is a a* static budget* b* fle&ible budget* c* ;ualitative e&pression of a prior goal* d* ;ualitative e&pression of a future goal* %-+. % 01/. 2asy O34. 5,3

1"* 6he master budget usually includes a* an operating budget* b* a capital budget* c* pro forma financial statements* d* all of the above* %-+. 0 01/. 2asy O34. 5,3

1#* Which of the following is usually perceived as being the master budget@s greatest advantage to management? a* performance analysis b* increased communication c* increased coordination d* re;uired planning %-+. 0 01/. 2asy O34. 5,3

15* Bhronologically the first part of the master budget to be prepared would be the a* sales budget* b* production budget* c* cash budget* d* pro forma financial statements* %-+. % 01/. 2asy O34. 5,3

1(* %n e&ample of a recurring short,term plan is a* a probable product line change* b* e&pansion of plant and facilities* c* a unit sales forecast* d* a change in mar7eting strategies* %-+. B 01/. 2asy O34. 5,2

")

2)* 1f the chief accountant of a firm has to prepare an operating budget for the coming year the first budget to be prepared is the a* sales budget* b* cash budget* c* purchases budget* d* capital budget* %-+. % 01/. 2asy O34. 5,3

21* 1t is &east li7ely that a production budget revision would cause a revision in the a* capital budget* b* cash budget* c* purchases budget* d* pro forma balance sheet* %-+. % 01/. 2asy O34. 5,4

22* 3udgeted production for a period is e;ual to a* the beginning inventory : sales , the ending inventory* b* the ending inventory : sales , the beginning inventory* c* the ending inventory : the beginning inventory , sales* d* sales , the beginning inventory : purchases* %-+. 3 01/. 2asy O34. 5,4

23* Bhronologically in what order are the sales purchases and production budgets prepared? a* sales purchases production b* sales production purchases c* production sales purchases d* purchases sales production %-+. 3 01/. 2asy O34. 5,4

24* 6he material purchases budget tells a manager all of the following e'(ept the a* ;uantity of material to be purchased each period* b* ;uantity of material to be consumed each period* c* cost of material to be purchased each period* d* cash payment for material each period* %-+. 0 01/. 2asy O34. 5,4

2!* Of the following budgets which one is &east li7ely to be determined by the dictates of top management? a* sales b* material usage c* revenues d* general and administrative %-+. 3 01/. 2asy O34. 5,4

"1

2"* 6he amount of raw material purchased in a period may be different than the amount of material used that period because a* the number of units sold may be different from the number of units produced* b* finished goods inventory may fluctuate during the period* c* the raw material inventory may increaseCdecrease during the period* d* companies often pay for material in the period after it is purchased* %-+. B 01/. 9oderate O34. 5,4

2#* % purchases budget is a* not affected by the firm@s policy of granting credit to customers* b* the same thing as a production budget* c* needed only if a firm does not pay for its merchandise in the same period as it is purchased* d* affected by a firm@s inventory policy only if the firm purchases on credit* %-+. % 01/. 2asy O34. 5,4

25* Which of the following e;uations can be used to budget purchases? $31 F beginning inventory 21 F ending inventory desired BG+ F budgeted cost of goods sold A F budgeted purchases' a* A F BG+ : 31 , 21 b* A F BG+ : 31 c* A F BG+ : 21 : 31 d* A F BG+ : 21 , 31 %-+. 0 01/. 2asy O34. 5,4

2(* 3oth the budgeted ;uantity of material to be purchased and the budgeted ;uantity of material to be consumed can be found in the a* material purchases budget* b* production budget* c* pro forma income statement* d* cash budget* %-+. % 01/. 2asy O34. 5,4

3)* % company that maintains a raw material inventory which is based on the following month@s production needs will purchase less material than it uses in a month where a* sales e&ceed production* b* production e&ceeds sales* c* planned production e&ceeds the ne&t month@s planned production* d* planned production is less than the ne&t month@s planned production* %-+. B 01/. 9oderate O34. 5,4

"2

31* 1f a company has a policy of maintaining an inventory of finished goods at a specified percentage of the ne&t month@s budgeted sales budgeted production for 4anuary will e&ceed budgeted sales for 4anuary when budgeted a* /ebruary sales e&ceed budgeted 4anuary sales* b* 4anuary sales e&ceed budgeted 0ecember sales* c* 4anuary sales e&ceed budgeted /ebruary sales* d* 0ecember sales e&ceed budgeted 4anuary sales* %-+. % 01/. 9oderate O34. 5,4

32* 0epreciation on the production e;uipment would appear in which of the following budgets? a* cash budget b* production budget c* selling and administrative e&pense budget d* manufacturing overhead budget %-+. 0 01/. 2asy O34. 5,4

33* 6he selling general and administrative e&pense budget is based on the >>>>>>>>>>>>>>> budget* a* production b* sales c* cash d* purchases %-+. 3 01/. 2asy O34. 5,4

34* 6he budgeted amount of selling and administrative e&pense for a period can be found in the a* sales budget* b* cash budget* c* pro forma income statement* d* pro forma balance sheet* %-+. B 01/. 2asy O34. 5,4

3!* Which of the following represents a proper se;uencing in which the budgets below are prepared? a* 0irect 9aterial Aurchases Bash +ales b* Aroduction +ales 1ncome +tatement c* +ales 3alance +heet 0irect Labor d* +ales Aroduction 9anufacturing Overhead %-+. 0 01/. 2asy O34. 5,4

3"* 6he detailed plan for the ac;uisition and replacement of ma=or portions of property plant and e;uipment is 7nown as the a* capital budget* b* purchases budget* c* commitments budget* d* treasury budget* %-+. % 01/. 2asy O34. 5,4

"3

3#* 6he budgeted payment for labor cost each period would be found in the a* labor budget* b* pro forma income statement* c* selling general and administrative e&pense budget* d* cash budget* %-+. 0 01/. 2asy O34. 5,4

35* 6he cash budget ignores all a* dividend payments* b* sales of capital assets* c* noncash accounting accruals* d* sales of common stoc7* %-+. B 01/. 2asy O34. 5,!

3(* Which of the following items would $%t be found in the financing section of the cash budget? a* cash payments for debt retirement b* cash payments for interest c* dividend payments d* payment of accounts payable %-+. 0 01/. 2asy O34. 5,!

4)* 6he primary reason that managers impose a minimum cash balance in the cash budget is a* because management needs discretionary cash for unforeseen business opportunities* b* managers lac7 discipline to control their spending* c* that it protects the organi8ation from the uncertainty of the budgeting process* d* that it ma7es the financial statements loo7 more appealing to creditors* %-+. B 01/. 2asy O34. 5,!

41* Bhronologically the last part of the master budget to be prepared would be the a* pro forma financial statements* b* cash budget* c* capital budget d* production budget* %-+. % 01/. 2asy O34. 5,4

42* 6he pro forma income statement is $%t a component of the a* master budget* b* financial budgets* c* operating budgets* d* capital budget* %-+. B 01/. 2asy O34. 5,4

43* % pro forma financial statement is a* a financial statement for past periods* b* a pro=ected or budgeted financial statement* c* presented for the form but contains no dollar amounts* d* a statement of planned production* %-+. 3 01/. 2asy O34. 5,4

"4

44* % master budget contains which of the following? +ales a* b* c* d*

yes no no yes

Aroduction
yes no no no

Aro forma statements

yes yes no yes

%-+. %

01/. 2asy

O34. 5,3

4!* 6he budgeted cost of products to be sold in a future period would be found in the a* production budget* b* sales budget* c* purchases budget* d* pro forma income statement* %-+. 0 01/. 2asy O34. 5,4

4"* % budget that includes a 12,month planning period at all times is called a >>>>>>>>>>>> budget* a* pro forma b* fle&ible c* master d* continuous %-+. 0 01/. 2asy O34. 5,"

4#* 6he method of budgeting that adds one month@s budget to the end of the plan when the current month@s budget is dropped from the plan is called >>>>>>>>>>>> budgeting* a* long,term b* operations c* incremental d* continuous %-+. 0 01/. 2asy O34. 5,"

45* +lac7 in operating budgets a* results from unintentional managerial acts* b* ma7es an organi8ation more efficient and effective* c* re;uires managers to wor7 harder to achieve the budget* d* is greater when managers are allowed to participate in the budgeting process* %-+. 0 01/. 2asy O34. 5,"

4(* 3udget slac7 is a condition in which a* demand is low at various times of the year* b* e&cess machine capacity e&ists in some areas of the plant* c* there is an intentional overestimate of e&penses or an underestimate of revenues* d* managers grant favored employees e&tra time off* %-+. B 01/. 2asy O34. 5,"

"!

!)* 2bony Bompany has the following e&pected pattern of collections on credit sales. #) percent collected in the month of sale 1! percent in the month after the month of sale and 14 percent in the second month after the month of sale* 6he remaining 1 percent is never collected* %t the end of 9ay 2bony Bompany has the following accounts receivable balances. /rom %pril sales /rom 9ay sales
$21,000 48,000

2bony@s e&pected sales for 4une are H1!) )))* What were total sales for %pril? a* H1!) ))) b* H#2 414 c* H#) ))) d* H14) ))) %-+. 0 3alance in %C< from %pril sales. H21 )))C)*1! F H14) ))) 1!I represents the amount of %pril receivables uncollected at the end of 9ay* 01/. 9oderate O34. 5,4

!1* 3all Bompany has a policy of maintaining an inventory of finished goods e;ual to 3) percent of the following month@s sales* /or the forthcoming month of 9arch 3all has budgeted the beginning inventory at 3) ))) units and the ending inventory at 33 ))) units* 6his suggests that a* /ebruary sales are budgeted at 1) ))) units less than 9arch sales* b* 9arch sales are budgeted at 1) ))) units less than %pril sales* c* /ebruary sales are budgeted at 3 ))) units less than 9arch sales* d* 9arch sales are budgeted at 3 ))) units less than %pril sales* %-+. 3 1ncrease in inventory F 3 ))) units 3 )))C)*3) F 1) ))) increase for %pril over 9arch* 01/. 9oderate O34. 5,4

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!2* 3udgeted sales for the first si& months for Aorter Borp* are listed below. J-16+. 4%-J%<K " ))) /23<J%<K # ))) 9%<BH 5 ))) %A<1L # ))) 9%K ! ))) 4J-2 4 )))

Aorter Borp* has a policy of maintaining an inventory of finished goods e;ual to 4) percent of the ne&t month@s budgeted sales* 1f Aorter Borp* plans to produce " ))) units in 4une what are budgeted sales for 4uly? a* 3 ")) units b* 1 ))) units c* ( ))) units d* 5 ))) units %-+. B 3eginning 1nventory for 4une 1 ")) units $4 ))) L 4)I' Aroduced in 4une " ))) units 0educt. 4une sales $4 )))' units 2nding inventory for 4une 3 ")) units 3 "))C)*4) F ( ))) units 01/. 0ifficult O34. 5,4

!3* Weaver Bo* manufactures card tables* 6he company has a policy of maintaining a finished goods inventory e;ual to 4) percent of the ne&t month@s planned sales* 2ach card table re;uires 3 hours of labor* 6he budgeted labor rate for the coming year is H13 per hour* Alanned sales for the months of %pril 9ay and 4une are respectively 4 )))M ! )))M and 3 ))) units* 6he budgeted direct labor cost for 4une for Weaver Bo* is H13" !))* What are budgeted sales for 4uly for Weaver Bo*? a* 3 !)) units b* 4 2!) units c* 4 ))) units d* 3 #!) units %-+. 3 Bard tables to be produced in 4une. H13" !)) C H13 F 1) !)) hours 1) !)) hrsC3 hrsCtable F 3 !)) card tables 3eginning 1nventory for 4uly 1 2)) Aroduced in 4une 3 !)) 0educt. 4une sales $3 )))' 2nding inventory for 4une 1 #)) 1 #))C)*4) F 4 2!) units 01/. 0ifficult O34. 5,4 units $3 ))) L 4)I' units units units

"#

!4* 3udgeted sales for Dno& 1nc* for the first ;uarter the year are shown below. J-16+. 4%-J%<K 3! ))) /23<J%<K 2! ))) 9%<BH 32 )))

6he company has a policy that re;uires the ending inventory in each period to be 1) percent of the following period@s sales* %ssuming that the company follows this policy what ;uantity of production should be scheduled for /ebruary? a* 24 3)) units b* 24 #)) units c* 2! ))) units d* 2! #)) units %-+. 0 2nding 1nventory /ebruary /ebruary +ales <e;uirements for 9onth Less 3eginning 1nventory /ebruary Aroduction scheduled for /ebruary 01/. 9oderate O34. 5,4 3 2)) 2! ))) 25 2)) $2 !))' 2! #)) units units units units units

!!* 3udgeted sales for the first si& months the year for Gibson Borporation are listed below. J-16+. 4%-J%<K " ))) /23<J%<K # ))) 9%<BH 5 ))) %A<1L # ))) 9%K ! ))) 4J-2 4 )))

Gibson Borporation has a policy of maintaining an inventory of finished goods e;ual to 4) percent of the ne&t month@s budgeted sales* How many units has Gibson Borporation budgeted to produce in the first ;uarter of the year? a* 21 4)) units b* 2) ")) units c* 1( ))) units d* 23 ))) units %-+. % 0esired ending inventory 9arch 31 +ales. 1st ;uarter 1nventory needs 3eginning inventory 4anuary 1 Aroduction 01/. 0ifficult O34. 5,4 2 5)) units 21 ))) units 23 5)) units $2 4))' units 21 4)) units

"5

!"* Aroduction of Aroduct N has been budgeted at 2)) ))) units for 9ay* One unit of N re;uires 2 lbs* of raw material* 6he pro=ected beginning and ending materials inventory for 9ay are. 3eginning inventory. 2 ))) lbs* 2nding inventory. 1) ))) lbs* How many lbs* of material should be purchased during 9ay? a* 1(2 ))) b* 2)5 ))) c* 4)5 ))) d* 41" ))) %-+. B 2nding inventory,,9ay Aroduction needs. 2)) ))) units L 2 lbsCunit 1nventory needed 3eginning inventory,,9ay 6otal purchase re;uirements 01/. 9oderate O34. 5,4 1) ))) lbs* 4)) ))) lbs* 41) ))) lbs* $2 )))' lbs* 4)5 ))) lbs*

Nanadu Bompany manufactures toy airplanes* 1nformation on Nanadu Bompany@s labor costs follow. +ales commissions %dministration 1ndirect factory labor 0irect factory labor H! per plane H1) ))) per month H3 per plane H! per plane

6he following information applies to the upcoming month of 4uly for Nanadu Bompany. 3udgeted production 3udget sales 1 2)) units 1 ))) units

!#* <efer to Nanadu Bompany* What amount of budgeted labor cost would appear in the 4uly selling general and administrative e&pense budget? a* H1) ))) b* H1" ))) c* H1! ))) d* H23 ))) %-+. B +ales Bommissions $1 ))) units L H!Cplane %dministration Labor in +GO% 01/. 9oderate O34. 5,4 H ! ))) H1) ))) H1! )))

!5* <efer to Nanadu Bompany* What is Nanadu?s budgeted factory labor cost for 4uly? a* H5 ))) b* H1! ")) c* H2! ")) d* H( ")) %-+. 0

"(

0irect labor per unit 1ndirect labor per unit Jnits produced 6otal budgeted labor cost 01/. 9oderate O34. 5,4

H!*))Cunit 3*))Cunit 5*))Cunit 1 2)) units H( "))

!(* Harrison Bompany manufactures card tables* 6he company has a policy of maintaining a finished goods inventory e;ual to 4) percent of the ne&t month@s planned sales* 2ach card table re;uires 3 hours of labor* 6he budgeted labor rate for the coming year is H13 per hour* Alanned sales for the months of %pril 9ay and 4une are respectively 4 )))M ! )))M and 3 ))) units* What is Harrison Bompany?s budgeted direct labor cost for 9ay? a* H!4 ")) b* H1"3 5)) c* H22" 2)) d* H1#( 4)) %-+. 0 2nding 1nventory 9ay +ales. 9ay <e;uirements for 9ay Less. 3eginning 1nventory 9ay Jnits to be produced 1 2)) units ! ))) units " 2)) units 1 ")) units 4 ")) units 3 hrsCunit L H13Chr H1#( 4))

01/. 0ifficult

O34. 5,4

")* 2dwards Bompany has the following e&pected pattern of collections on credit sales. #) percent collected in the month of sale 1! percent in the month after the month of sale and 14 percent in the second month after the month of sale* 6he remaining 1 percent is never collected* %t the end of 9ay 2dwards Bompany has the following accounts receivable balances. /rom %pril sales /rom 9ay sales
$21,000 48,000

2dwards e&pected sales for 4une are H1!) )))* How much cash will 2dwards Bompany e&pect to collect in 4une? a* H12# 4)) b* H12( ))) c* H145 ")) d* H1!2 !2) %-+. B 4une sales $H1!) ))) L #)I' 9ay sales $1") ))) L 1!I' %pril sales $14) ))) L 14I' 6otal cash collections,,4une 01/. 0ifficult O34. 5,! H1)! ))) 24 ))) 1( ")) H145 "))

#)

"1* /or the month of October A Borp* predicts total cash collections to be H1 million* %lso for October A Borp* estimates that its beginning cash balance will be H!) ))) and that it will borrow cash in the amount of H#) )))* 1f A Borp* estimates an ending cash balance of H3) ))) for October what must its pro=ected cash disbursements be? a* H1 )() ))) b* H1 12) ))) c* H1 )#) ))) d* H1 )2) ))) %-+. % 3eginning Bash 3alance Bash Bollections 3orrowings Bash %vailable Less. 2nding Bash 3alance Aro=ected Bash 0isbursements 01/. 9oderate O34. 5,4 H !) ))) 1 ))) ))) #) ))) 1 12) ))) 3) ))) H1 )() )))

"2* 2sterwood Hospital has provided you with the following budget information for %pril. Bash collections %pril 1 cash balance Bash disbursements
$876,000 23,000 978,600

2sterwood has a policy of maintaining a minimum cash balance of H2) ))) and borrows only in H1 ))) increments* How much will 2sterwood borrow in %pril? a* H5) ))) b* H#( ")) c* H(( ))) d* H1)) ))) %-+. 0 %pril 1 balance %dd. Bash Bollections 0educt. Bash 0isbursements Bash 0eficit 9inimum Bash 3alance %mount to 3orrow H 23 ))) 5#" ))) H5(( ))) (#5 ")) H$#( "))' 2) ))) H (( ")) rounded up to H1)) )))

01/. 9oderate Tr)p&e " C%*pa$)es

O34. 5,! B%+H 3J0G26 Bompany 3 Bompany B

$300 400 ? ? 100 200 $700 ? 600 400 ? 100

Bompany % 3eginning cash balance Bash collections Bash disbursements Bash e&cess $shortage' 3orrowing $repayments' 2nding cash
$100 ? 500 ? 300 200

#1

"3* <efer to 6riple A Bompanies* /or Bompany % what are the budgeted cash collections? a* H#)) b* H!)) c* H3)) d* H4)) %-+. B 2nding Bash 0educt 3orrowings Bash +hortage %dd 0isbursements 0educt 3eginning cash 3udgeted cash collections 01/. 9oderate H 2)) $3))' H$1))' !)) $1))' H 3))

O34. 5,!

"4* <efer to 6riple A Bompanies* /or Bompany 3 what are the budgeted cash disbursements? a* H")) b* H#)) c* H!)) d* H4)) %-+. % 2nding Bash 0educt 3orrowings Bash 3alance 0educt collections 0educt 3eginning cash 3udgeted cash disbursements 01/. 9oderate H 2)) $1))' H 1)) $4))' $3))' H$"))'

O34. 5,!

"!* <efer to 6riple A Bompanies* /or Bompany B what are the budgeted cash collections? a* H2)) b* H3)) c* H4)) d* H!)) %-+. 3 2nding Bash %dd <epayments Bash 3alance %dd disbursements 0educt 3eginning cash 3udgeted cash collections 01/. 9oderate H 1)) 3)) H 4)) ")) $#))' H 3))

O34. 5,!

#2

""* 9anagers may be more willing to accept a budget if a* it is continuous* b* it is imposed* c* it is very hard to attain* d* they can participate in its development* %-+. 0 01/. 2asy O34. 5,"

"#* % budget manual should include which of the following? a* a list of specific budgetary activities to be performed b* original revised and approved budgets c* a calendar of scheduled budgetary activities d* all of the above %-+. 0 01/. 2asy O34. 5,#

"5* Which of the following is $%t true about an imposed budget? a* 1t reduces the budgeting process time frame* b* 1t uses the 7nowledge of top management as it relates to resource availability* c* 1t enhances coordination* d* 1t increases the feeling of teamwor7* %-+. 0 01/. 2asy O34. 5,"

"(* % disadvantage of participatory budgets is that a* there is a high degree of acceptance of the goals and ob=ectives by operating management* b* they are usually more realistic* c* they lead to better morale and higher motivation* d* they usually re;uire more time to prepare* %-+. 0 01/. 2asy O34. 5,"

#)* 6he master budget a* reflects the determination of an organi8ation@s cost of capital* b* serves as a managerial tool for the organi8ation* c* includes only an organi8ation@s pro forma financial statements* d* utili8es only information from the financial accounting system* %-+. 3 01/. 2asy O34. 5,3

#1* Which of the following items should -O6 be included in a company?s budget manual? a* sample budgetary forms b* a statement of desired results of the budget c* a listing of budgetary activities to be performed d* financial statements for the upcoming fiscal year %-+. 0 01/. 2asy O34. 5,#

#3

+re,s C%*pa$Drebs Bompany is preparing its 9anufacturing Overhead budget for the second ;uarter of the year* 3udgeted variable factory overhead is H3*)) per unit producedM budgeted fi&ed factory overhead is H#! ))) per month with H1" ))) of this amount being factory depreciation* #2* <efer to Drebs Bompany* 1f the budgeted production for %pril is " ))) units then the total budgeted factory overhead for %pril is. a* H## ))) b* H52 ))) c* H5! ))) d* H(3 ))) %-+. 0 $" ))) units L H3*))Cunit' : H#! ))) F H(3 ))) Pariable /i&ed 01/. 2asy O34. 5,4

#3* <efer to Drebs Bompany* 1f the budgeted production for 9ay is ! ))) units then the total budgeted factory overhead per unit. a* H1! b* H15 c* H2) d* H22 %-+. 3 H3*))Cunit : $H#! )))C! ))) units' F H15Cunit Pariable /i&ed 01/. 2asy O34. 5,4

#4* <efer to Drebs Bompany* 1f the budgeted cash disbursements for factory overhead for 4une are H5) ))) then the budgeted production for 4une must be. a* # 4)) units b* " 2)) units c* " !)) units d* # ))) units %-+. 0 H5) ))) : H1" ))) F H(" ))) 3udgeted /actory Overhead H(" ))) , H#! ))) F H21 ))) 3udgeted Pariable OverheadCH3*)) per unit F # ))) units 01/. 9oderate O34. 5,4

#4

E.)ta C%*pa$2vita Bompany a reseller of women?s fashions has budgeted its activity for 9arch* 6he budget information is presented below. 1* +ales are H!!) )))* %ll sales are cash* 11* 9erchandise inventory on /ebruary 25 is H3)) ))) 111* 3udgeted depreciation for 9arch is H3! )))* 1P* Bash in ban7 on 9arch 1 is H2! )))* P* +elling and administrative e&penses are budgeted at H") ))) for 9arch and are paid in cash* P1* 6he planned merchandise inventory on 9arch 31 is H2#) )))* P11* 6he invoice cost for merchandise purchases represents #!I of sales price* %ll purchases are paid for in cash* #!* <efer to 2vita Bompany* 6he budgeted cash receipts for 9arch are. a* H412 !)) c* H!5! ))) b* H13# !)) d* H!!) ))) %-+. 0 Bash sales F H!!) ))) 01/. 2asy O34. 5,!

#"* <efer to 2vita Bompany* 6he budgeted cash disbursements for 9arch are. a* H352 !)) c* H4#2 !)) b* H442 !)) d* H4## !)) %-+. 3 Bost of Goods +old F $H!!) ))) L *#!' F H412 !)) Aurchases F H$2#) ))) : 412 !)) , 3)) )))' F H352 !)) +O% 2&penses F H") ))) Bash disbursements F H352 !)) : H") ))) F H442 !))* 01/. 0ifficult O34. 5,!

##* <efer to 2vita Bompany* 6he budgeted net income for 0ecember is. a* H1)# !)) c* H 42 !)) b* H13# !)) d* H ## !)) %-+. B -et 1ncome F +ales , Bost of Goods +old , +O% 2&penses , 0epreciation F H$!!) ))) , 412 !)) , ") ))) , 3! )))' F H42 !)) 01/. 0ifficult O34. 5,!

#!

G&eas%$ C%*pa$Gleason Bompany prepared a cash budget by ;uarters for the upcoming year* 9issing data amounts are indicated with ;uestion mar7s or lower case lettersM these lower case letters will be referred to in the ;uestions that follow* Gleason re;uires a minimum balance of H1) ))) to start a ;uarter* %ll data are in thousands* Gleason Borporation Bash 3udget Q6< 1 H1" a ? 31 3! 1) ) "" # b ,, ? H1) FFFF Q6< 2 H e #) ? c 22 14 " ? 1# ,, d ? H? FFFF Q6< 3 Q6< 4 H13 H1) "# 5) 5) () 4) ? 1( ) f $2' 12 ,, 12 H1) FFFF 3! 1! ) ! !! 3! ,, $21' $21' H14 FFFF

Bash balance beginning %dd collections from customers 6otal cash available Less disbursements. Aurchase of inventory Operating e&penses 2;uipment purchases 0ividends 6otal disbursements 2&cess $deficiency' of cash available over disbursements /inancing. 3orrowings. <epayments $including interest' 6otal financing Bash balance ending

#5* <efer to Gleason Bompany* 6he collections from customers during the first ;uarter $item a' are. a* H!) c* H!# b* H") d* H#3 %-+. B 6otal cash available F 2&cess of cash available over disbursements : 6otal disbursements F H$# : ""' F H#3 6otal cash collections from customers F 6otal cash available , 3eginning cash balance F H$#3 , 1"' F H!# 01/. 9oderate O34. 5,!

#"

#(* <efer to Gleason Bompany* 6he borrowing re;uired during the first ;uarter to meet the minimum cash balance $item b' is. a* H) c* H1) b* H# d* H 3 %-+. 0 3orrowings re;uired F 2nding cash balance , 2&cess of cash over disbursements F H$1) , #' F H3 01/. 2asy O34. 5,!

5)* <efer to Gleason Bompany* 6he cash disbursed for purchases during the second ;uarter $item c' is. a* H13 c* H ( b* H!! d* H21 %-+. 0 6otal cash available F H5) 2&cess of cash available over disbursements F H1# 6herefore disbursements F H"3 H$& : 22 : 14 : "' F H"3 & F H21 51* <efer to Gleason Bompany* 6he repayment $including interest' of financing during the second ;uarter $item d' is. a* H 4 c* H1# b* H ) d* H # %-+. % 2nding balance of cash F H13 $same as beginning balance of 3rd ;uarter' 2&cess of cash available over disbursements F H1# <epayments F H4 01/. 9oderate O34. 5,!

52* <efer to Gleason Bompany* 6he cash balance at the beginning of the second ;uarter $item e' is. a* H1) c* H ) b* H14 d* H # %-+. % 3eginning cash balance for second ;uarter is the same as ending balance for first ;uarter. H1)* 01/. 2asy O34. 5,!

##

53* <efer to Gleason Bompany* 6he total disbursements during the third ;uarter $item f' is. a* H54 c* H52 b* H#5 d* H!( %-+. B 0eficiency of cash disbursements over cash available F H$2' Bash available FH5) Bash disbursements FH52 01/. 2asy S#ORT ANS/ER 1* 2&plain why managers might want to build slac7 into a budget* %-+. 3uilding slac7 into the budget allows managers to achieve the budgeted level of performance with less effort* 6hus they have a higher probability of achieving the budget and any bonus or compensation that may be tied to that performance standard* 01/. 9oderate O34. 5," O34. 5,!

2* What role does the budgeting activity play in managerial compensation and performance evaluation? %-+. Once set the budget is not only a plan for the organi8ation but it becomes a standard against which actual performance may be compared* <ecogni8ing the budget as a performance standard organi8ations may base employee compensation $to some e&tent' on how well actual performance compares to the budgeted performance* +uch a compensatory arrangement fre;uently involves a bonus plan that permits bonuses to go up as performance relative to the budget goes up* 01/. 9oderate O34. 5,"

3* Why will there fre;uently be a difference between the budgeted cost of material in the material purchases budget and the budgeted cash disbursement for material in the cash budget? %-+. 3ecause firms do not necessarily pay for material in the same period in which they are purchased the amounts in these two budgets will fre;uently differ* 6he material purchases budget is based on the cost of material purchased in a period while the cash budget only reflects e&pected actual payments for material in the period* 01/. 9oderate O34. 5,4

#5

4* 2&plain why different types of organi8ations will have different sets of budgets* %-+. We may thin7 of the set of budgets as the plan for producing outputs and ac;uiring inputs* %s different organi8ations have different inputs and outputs we would naturally e&pect them to have different budgets* /or e&ample a retailing firm would find no need for a production budget because it does not manufacture anything* On the other hand the need for a production budget in a manufacturing organi8ation is obvious* Li7ewise governmental organi8ations will have budgets that are different than private organi8ations* 01/. 9oderate O34. 5,3

!* Why have many managers in recent years moved toward emphasi8ing employee participation in the budgeting process rather than simply imposing the budget on the employees? %-+. 9any managers believe that the ;uality of the budget is enhanced through employee participation* 6his is attributable in part to the fact that many employees possess technical information that management does not have* 6hrough the budgeting process this technical information is imparted to management* /urther participation in the budgeting process may lead employees to be more attentive to the budget and feel li7e a more important part of the organi8ational team* 2mployees feel more committed to meeting a budget they helped prepare* Areparing a budget gives the preparer management training which ma7es him or her better prepared for advancement in the company* 01/. 9oderate O34. 5,"

"* What are some of the benefits of a well,prepared budget? %-+. 1* 6he budget help managers align activities and resource allocations with organi8ational goals* 2* 6he budget can help promote employee participation cooperation and departmental coordination* 3* 6he budget enhances conduct of the managerial functions of planning controlling problem solving and performance evaluation* 4* 6he budget can sharpen management?s responsiveness to changes in both e&ternal and internal factors* !* 6he budget is a model of future performance of a business in time to consider alternative measures* 01/. 9oderate O34. 5,"

#(

"ROBLEM 1* Bline Bompany has the following collection pattern for its accounts receivable. 4) percent in the month of sale !) percent in the month following the sale 5 percent in the second month following the sale 2 percent uncollectible 6he company has recent credit sales as follows. %pril. 9ay. 4une.
$200,000 420,000 350,000

How much should the company e&pect to collect on its receivables in 4une? %-+. 4J-2 BOLL2B61O-+ $200,000 .08 /rom %pril sales. 420,000 .50 /rom 9ay sales. 350,000 .40 /rom 4une sales. 6otal 01/. 9oderate O34. 5,4
$ 16,000 210,000 140,000 $366,000

Oa01%%d Mus)(2 I$(3 Oa7wood 9usic 1nc* sells 3aldwin pianos* 6he following information regarding operating costs has been e&tracted from budgets of Oa7wood 9usic for 0ecember of this year and the first few months of ne&t year. 0ec* Aayroll 1nsurance <ent 0epreciation 6a&es
$12,000 4,000 6,000 2,000 1,200

4an*
$13,000 4,000 6,000 2,000 1,400

/eb*
$22,000 4,000 6,000 2,000 2,300

9ar*
$16,000 4,000 6,000 2,000 2,000

1n addition to the above operating costs enough pianos are purchased each month to maintain the inventory at 4) percent of the pro=ected ne&t month@s sales* 6he firm is e&pected to be in compliance with this policy on 0ecember 1* 3udgeted sales are. 0ec* 3udgeted sales in units.
40

4an*
45

/eb*
60

9ar*
50

%pr*
40

5)

2* <efer to Oa7wood 9usic 1nc* 6he average cost of a piano is H!))* 9erchandise is paid for in the month following its purchase* %ll other e&penses are paid in the month in which they are incurred* On average a piano sells for H1 !))* Of each sale 4) percent of the sales price is collected in the month of sale* 6he balance is collected in the month following the sale* Arepare a cash budget for the first three months of ne&t year* 6he beginning cash balance on 4anuary 1 is budgeted to be H!) )))* %-+. B%+H 3J0G26 Oa7wood 9usic 1nc* 4an* 3eginning cash Bash collections. 0ec* sales 4an* sales /eb* sales 9ar* sales Bash available Less cash disb* 2nding cash 01/. 9oderate O34. 5,4
$ 50,000 36,000 27,000 36,000 113,000 (45,400) $ 67,600

/eb*
$ 67,600

9ar*
$ 84,300

40,500 54,000 144,100 (59,800) $ 84,300 30,000 168,300 (56,000) $112,300

3* <efer to Oa7wood 9usic 1nc* 6he average cost of a piano is H!))* 9erchandise is paid for in the month following its purchase* %ll other e&penses are paid in the month in which they are incurred* Arepare a budget of the cash disbursements for Oa7wood 9usic 1nc* for the first three months of ne&t year* /irst prepare a purchases budget for 0ecember through 9arch for the pianos* %-+. 0ec* <e;uired ending inventory Aro=ected sales 6otal pianos needed Less the beginning inventory Aianos to be purchased & the cost of the piano 3udgeted purchases
18 40 58 (16) 42 x $500 $21,000

4an*
24 45 69 (18) 51 x $500 $25,500

/eb*
20 60 80 (24) 56 x $500 $28,000

9ar*
16 50 66 (20) 46 x $500 $23,000

3udgeted cash disbursements 4an* /eb* 9ar* Aayroll 1nsurance <ent 6a&es 9erchandise purchases 6otal 01/. 9oderate O34. 5,4
$13,000 4,000 6,000 1,400 21,000 $45,400 $22,000 4,000 6,000 2,300 25,500 $59,800 $16,000 4,000 6,000 2,000 28,000 $56,000

/e$t1%rth C%*pa$-

51

Wentworth Bompany manufactures three products $% 3 and B' from three raw materials $N K and R'* 6he following table indicates the number of pounds of each material that is re;uired to manufacture each type of product. Aroduct % 3 B 9aterial N 2 2 3 9aterial K 3 1 2 9aterial R 2 2 2

6he company has a policy of maintaining an inventory of finished goods on all three products e;ual to 2! percent of the ne&t month@s budgeted sales* Listed below is the sales budget for the first ;uarter of 2))1. 9onth 4an* /eb* 9ar* Aroduct %
10,000 9,000 11,000

Aroduct 3
11,000 12,000 10,000

Aroduct B
12,000 8,000 10,000

4* <efer to Wentworth Bompany* %ssuming that the company meets its re;uired inventory policy prepare a production budget for the first 2 months of 2))1 for each of the three products* %-+. Aroduct % 4anuary /ebruary <e;uired ending inventory Aro=ected sales 6otal production needs Less the beginning inventory 3udgeted production
2,250 10,000 12,250 (2,500) 9,750 2,750 9,000 11,750 (2,250) 9,500

Aroduct 3 4anuary /ebruary <e;uired ending inventory Aro=ected sales 6otal production needs Less the beginning inventory 3udgeted production
3,000 11,000 14,000 (2,750) 11,250 2,500 12,000 14,500 (3,000) 11,500

Aroduct B 4anuary /ebruary <e;uired ending inventory Aro=ected sales 6otal production needs Less the beginning inventory 3udgeted production 01/. 9oderate O34. 5,4
2,000 12,000 14,000 (3,000) 11,000 2,500 8,000 10,500 (2,000) 8,500

52

!* <efer to Wentworth Bompany* Jnit costs of materials N K and R are respectively H4 H3 and H!* 6he Wentworth Bompany has a policy of maintaining its raw material inventories at !) percent of the ne&t month@s production needs* %ssuming that this policy is satisfied prepare a material purchases budget for all three materials in both pounds and dollars for 4anuary* %-+. Aroduct % 4an* /eb* Arod* lbs* 6ot*
9,750 x 2 19,500 9,500 x 2 19,000

9aterial N Aurchases Aroduct 3 4an* /eb*

11,250 x 2 22,500 11,500 x 2 23,000

Aroduct B 4an* /eb*

11,000 x 3 33,000 33,750 75,000 108,750 (37,500) 71,250 x $4 $285,000 8,500 x 3 25,500

<e;uired 21 $1( ))) : 23 ))) : 2! !))' *!) F -eeded. $1( !)) : 22 !)) : 33 )))' F 6otal raw material N needed. Less. 31 $#! ))) *!)' 9aterial N to be purchased in 4anuary $pounds'. 9ultiply by cost of 9aterial N per lb*. 3udgeted Bost of 9aterial N for 4anuary. Aroduct % 4an* /eb* Arod* lbs* 6ot*
9,750 x 3 29,250 9,500 x 3 28,500

9aterial K Aurchases Aroduct 3 4an* /eb*

11,250 x 1 11,250 11,500 x 1 11,500

Aroduct B 4an* /eb*

11,000 x 2 22,000 28,500 62,500 91,000 (31,250) 59,750 x $3 $179,250 8,500 x 2 17,000

<e;uired 21 $25 !)) : 11 !)) : 1# )))' *!) F -eeded. $2( 2!) : 11 2!) : 22 )))' F 6otal raw material K needed. Less 31 $"2 !)) *!)' 9aterial K to be purchased in 4anuary $pounds'. 9ultiply by cost of 9aterial K per lb*. 3udgeted Bost of 9aterial K for 4anuary. Aroduct % 4an* /eb* Arod* & lbs* 6ot*
9,750 x 2 19,500 9,500 x 2 19,000

9aterial R Aurchases Aroduct 3 4an* /eb*

11,250 x 2 22,500 11,500 x 2 23,000

Aroduct B 4an* /eb*

11,000 x 2 22,000 29,500 64,000 93,500 (32,000) 61,500 x 5 $307,500 8,500 x 2 17,000

<e;uired 21 $1( ))) : 23 ))) : 1# )))' *!) F -eeded. $1( !)) : 22 !)) : 22 )))' F 6otal raw material R needed. Less 31 $"4 ))) *!)' 9aterial R to be purchased in 4anuary $pounds'. 9ultiply by cost of 9aterial R per lb*. 3udgeted Bost of 9aterial R for 4anuary. 6he budgeted cost of all materials to be purchased in

53

4an* would be H25! ))) : H1#( 2!) : H3)# !)) F 01/. 0ifficult O34. 5,4

$771,750

"* +hown below are the totals from period budgets of 9iller Borporation for the current year. <evenue budget 9aterials usage from production budget Labor cost budget 9anufacturing overhead budget General and administrative budget Bapital e&penditure budget /%r0 )$ "r%gress I$.e$t%r)es. 3eginning of Kear 2nd of Kear !)$)shed G%%ds I$.e$t%r-. 3eginning of Kear 2nd of Kear 6a& <ate
$100,000 15,000 20,000 20,000 30,000 20,000 10,000 5,000 15,000 10,000 40%

Re4u)red5 Arepare a forecasted 1ncome +tatement for the current year. %-+. <evenue Less. BOG+ BOG9 <9 used $production budget' 0L $labor budget' 9fg* OH $OH budget' Burrent 9fg* costs Alus. 3eg* W1A 6otal 1n,Arocess Less. 2nd W1A BOG9 Alus. 3eg* /G Goods %vail* for +ale Less. 2nd /G BOG+ Gross 9argin Less. G O % e&pense budget 1ncome before income ta&es Less. ta&es S 4)I -et 1ncome 01/. 9oderate O34. 5,4
$100,000

$ 15,000 20,000 20,000 $ 55,000 10,000 $ 65,000 (5,000) $ 60,000 15,000 $ 75,000 (10,000) 65,000 $ 35,000 (30,000) $ 5,000 (2,000) $ 3,000

#* 6he following are forecasts of sales and purchases for Bhina Grove Bompany. +ales %pril 9ay 4une
$80,000 90,000 85,000

Aurchases
$30,000 40,000 30,000

54

%ll sales are on credit* <ecords show that #) percent of the customers pay the month of the sale 2) percent pay the month after the sale and the remaining 1) percent pay the second month after the sale* Aurchases are all paid the following month at a 2 percent discount* Bash disbursements for operating e&penses in 4une were H! )))* Re4u)red5 Arepare a schedule of cash receipts and disbursements for 4une* %-+. +chedules of Bash <eceipts and 0isbursements for 4une Cash Re(e)pts5 /rom current month sale $4une' /rom 1 month prior sale $9ay' /rom 2 month prior sale $%pril' 6otal cash receipts Cash D)s,urse*e$ts5 9ay purchases S (5I $less discount' Operating e&penses 6otal cash disbursements -et increase in cash for 4une 01/. 9oderate O34. 5,4 $*# 5! )))' $*2 () )))' $*1 5) )))'
$59,500 18,000 8,000 $85,500

$*(5 4) )))'

$39,200 5,000 $44,200 $41,300

5* %llen 3uilders in the building construction business* 1n Kear 2 it is e&pected that 4) percent of a month@s sales will be collected in cash with the balance being collected the following month* Of the purchases !) percent are paid the following month 3) percent are paid in two months and the remaining 2) percent are paid during the month of purchase* 6he sales force receives H2 ))) a month base pay plus a 2 percent commission* Labor e&penses are e&pected to be H4 ))) a month* Other operating e&penses are e&pected to run about H2 ))) a month including H!)) for depreciation* 6he ending cash balance for Kear 1 was H4 !))* +ales 6ear 78A(tua& -ovember 0ecember 6ear 98Budgeted 4anuary /ebruary 9arch
$80,000 90,000 70,000 90,000 30,000

Aurchases
$70,000 80,000 70,000 60,000 50,000

Re4u)red5 a* Arepare a cash budget and determine the pro=ected ending cash balances for the first three months of Kear 2* b* 0etermine the months that the company would either borrow or invest cash* %-+. a* Kear 1 -ov* +ales
$80,000

0ec*
$90,000

4an*
$70,000

Kear 2 /eb*
$90,000

9ar*
$30,000

5!

Aurchases

70,000

80,000

70,000

60,000

50,000

Cash Re(e)pts5 3eginning cash balance /rom current month sales /rom prior month sales 6otal cash receipts 6otal cash available Cash D)s,urse*e$ts5 /rom Aurchases. Burrent month S 2)I /rom 1 mo* prior purchases S !)I /rom 2 mo* prior purchases S 3)I 6otal payments on purchases Labor e&pense +ales salaries Bommissions S 2I of sales Other e&penses e&clude depr* $H!))' 6otal cash disbursements 2nding cash balance b* 3orrow,9archM invest,4anuary and /ebruary O34. 5,4

4an*
$ 4,500 $28,000 54,000 $82,000 $86,500

/eb*
$ 2,600 $36,000 42,000 $78,000 $80,600

9ar*
$ 300 $12,000 54,000 $66,000 $66,300

$14,000 40,000 21,000 $75,000 4,000 2,000 1,400 1,500 $83,900 $ 2,600

$12,000 35,000 24,000 $71,000 4,000 2,000 1,800 1,500 $80,300 $ 300

$10,000 30,000 21,000 $61,000 4,000 2,000 600 1,500 $69,100 $(2,800)

01/. 0ifficult

5"