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Exam 20: Master Budgets and Performance Planning

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Question 21

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Bentels Co.desires a December 31 ending inventory of 2,840 units.Budgeted sales for December are 4,000 units.The November 30 inventory was 1,800 units.Budgeted purchases are:

A) 5,040 units
B) 1,240 units
C) 6,840 units
D) 4,000 units
E) 5,800 units

F) A) and B)
G) A) and C)

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Question 22

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Which of the following is not a benefit derived from budgeting?

A) Budgeting focuses management's attention on the future.
B) Budgeting provides coordination of departments.
C) Budgeting provides a basis for evaluating performance.
D) Budgeting provides motivation for managers and employees.
E) Budgeting ensures the achievement of all goals.

F) None of the above
G) C) and E)

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Question 23

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Sweeny Co.is preparing a cash budget for the second quarter of the coming year.The following data have been forecasted: $\begin{array}{lrr}&\text { April}&\text { ???}\\ \text { Sales } & \$ 150,000 & \$ 157,500 \\\text { Merchandise purchases } & 107,000 & 112,400 \\\text { Operating expenses: } & & \\\text { Payroll } & 13,600 & 14,280 \\\text { Advertising } & 5,400 & 5,700 \\\text { Rent } & 1,500 & 1,500 \\\text { Depreciation } & 7,500 & 7,500\\\text { End of April balances: } \\\text { Cash } & 40,000 \\\text { Bank loan payable } & 16,000\end{array}$ Additional data: (1)Sales are 40% cash and 60% credit.The collection pattern for credit sales is 50% in the month following the sale and 50% in the month thereafter.Total sales in March were $125,000. (2)Purchases are all on credit,with 40% paid in the month of purchase and the balance paid in the following month. (3)Operating expenses are paid in the month they are incurred. (4)A minimum cash balance of $40,000 is required at the end of each month. (5)Loans are used to maintain the minimum cash balance.At the end of each month,interest of 1% per month is paid on the outstanding loan balance as of the beginning of the month.Repayments are made whenever excess cash is available. Prepare the company's cash budget for May.Show the ending loan balance at May 31.

The usual starting point for preparing a master budget is forecasting or estimating:

Reference: 20_03 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? Round all calculations to full dollar amounts.

Reference: 20_01 Next year's sales forecast 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:

A plan that lists the types and amounts of selling expenses expected during the budget period is called a(n) :

Past performance is the best overall basis for evaluating current performance and assessing the need for corrective action.

Clic,Inc.provides the following data for the next four months: $\begin{array}{llllll}&\text { March }&\text {April }&\text {May }&\text {June }&\text {July }\\\text { Unit Sales } & & 500 & 580 & 530 & 600 \\\text { Ending Raw Materials Inventory } & 663 \mathrm{lbs} & & & & \\\text { Ending Finished Goods Inventory } & 174 \text { units } & & & &\end{array}$ Desired ending inventory: Raw materials = 30% of next month's production needs Finished goods = 20% of next month's sales Pounds of raw material required for each finished Unit = 5 lbs. Direct labor hours per unit = 0.5 hrs Direct labor rate = $12/hour Required: a.Calculate the budgeted production for April and May. b.Calculate the amount of purchases of raw materials in pounds for April and May. c.Calculate the cost of direct labor for May.

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 __________________________.

Ecology Co.sells a biodegradable product called Dissol and has predicted the following sales for the first four months of the current year: $\begin{array}{ccccc} & \text { Jan. } & \text { Feb. } & \text { March } & \text { April } \\\text { Sales in units } & 1,700 & 1,900 & 2,100 & 1,600\end{array}$ Ending inventory for each month should be 20% of the next month's sales,and the December 31 inventory is consistent with that policy.How many units should be purchased in February?

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

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

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.

Consulting the persons affected by a budget when it is prepared can provide an effective means of motivation and cooperation.

The sales budget is derived from the production budget.

Reference: 20_04 Kyoto, Inc. predicts the following sales in units for the coming four months: $\begin{array}{llr}&\text { April}&\text { May}&\text { June}&\text { July }\\\text { Sales in units } &240&280&300&240\\\end{array}$ Although each month's ending inventory of finished units should be 60% of the next month's sales, the March 31 finished goods inventory is only 100 units. A finished unit requires five pounds of raw material B. The March 31 raw materials inventory has 200 pounds of B. Each month's ending inventory of raw materials should be 30% of the following month's production needs. -Kyoto's budgeted production for the second quarter is:

A June sales forecast projects that 6,000 units are going to be sold at a price of $10.50 per unit.The desired ending inventory of units is 15% higher than the beginning inventory of 1,000 units.Total June sales are anticipated to be:

Reference: 20_01 Next year's sales forecast 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. -Total budgeted sales of both products for the year would be:

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