Budgeting MAS

8/20/2019 Budgeting MAS

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BUDGETARY PLANNING

TRUE-FALSE STATEMENTS

1. Budgets represent management’s plans in financial terms.

2. Budgets promote efficiency and serve as a deterrent to waste.

3. A budget can be a means of communicating a company's objectives to external parties.

. A budget facilitates coordination of activities wit!in t!e business but is a poor tool for evaluating performance.

". A budget is more beneficial if accepted by lower level management.

#. $!e budget itself and t!e administration of t!e budget are t!e responsibility of management.

%. $!e most common budget period is one year.

&. $!e flow of input data for budgeting s!ould be from t!e lowest levels of responsibility tot!e !ig!est level.

. Budgets( by t!eir very nature( create a negative effect on !uman be!avior wit!incompanies because t!ey imply t!at management is trying to control.

1). A budget committee coordinates t!e budget activities of a company.

11. $!e s!orter t!e budget period( t!e more reliable t!e estimates of future outcomes.

12. *pper level managers are responsible for preparing t!e entire budget.

13. $!e last step in t!e budgeting process is developing a sales forecast.

1. Budgeting and long+range planning differ in t!e emp!asis and t!e time period involved.

1". ,ong+range plans are used primarily as an evaluation of specific results to be ac!ieved.

1#. ,ong+range plans reflect management's long+term plans encompassing five years or more.

1%. $!e master budget consists of a plan of action for a specified time period.

1&. -perating budgets must be completed before t!e financial budgets can be prepared.

1. $!e production budget must be completed before t!e materials purc!ases budgetbecause t!e number of units to be produced must be nown to determine !ow muc!material to buy.

2). $!e number of direct labor !ours needed for production is obtained from t!e direct labor budget.


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21. /ompanies can use eit!er a predetermined over!ead rate or a manufacturing over!eadbudget.

22. $!e manufacturing over!ead budget generally !as separate sections for variable andfixed costs.

23. A sales budget s!ould be prepared before t!e production budget.

2. $!e direct materials budget contains only 0uantity data so t!e purc!asing departmentnows !ow muc! materials s!ould be purc!ased.

2". $!e budgeted income statement indicates t!e expected amount of cas! expected to beac0uired from operations.

2#. /ompanies t!at do not prepare cas! budgets !ave significant cas! deficiencies.

2%. n preparing t!e budgeted balance s!eet( management s!ould not be concerned if it doesnot balance since it does not reflect actual results.

2&. $!e first budget prepared s!ould be t!e sales budget.

2. A merc!andiser !as a merc!andise purc!ases budget( and a manufacturer !as amaterials purc!ases budget.

3). A service company !as no purc!ases budget.

Answers to True-False Statements

tem Ans. tem Ans. tem Ans. tem Ans. tem Ans. tem Ans.1. $ #. $ 11. $ 1#. $ 21. 2#. 2. $ %. $ 12. 1%. $ 22. $ 2%.

3. &. $ 13. 1&. $ 23. $ 2&. $. . 1. $ 1. $ 2. 2. $". $ 1). $ 1". 2). $ 2". 3). $

MULTIPLE CHICE !UESTINS

31. At anuary 1( 2))( Barry( nc. !as beginning inventory of ())) widgets. Barry estimates itwill sell 3"())) units during t!e first 0uarter of 2)) wit! a 1)4 increase in sales eac!0uarter. Barry’s policy is to maintain an ending inventory e0ual to 2"4 of t!e next 0uarter’ssales. 5ac! widget costs 61 and is sold for 61."). 7ow muc! is budgeted sales revenue for t!e t!ird 0uarter of 2))8

a. 6"%("2" b. 6#3())) c. 6#3("2" d. 62(3")

32. 9aco’s 9idgets plans to sell 22())) widgets during :ay( 1())) units in une( and 2)()))during uly. 9aco eeps 1)4 of t!e next mont!’s sales as ending inventory. 7ow manyunits s!ould 9aco produce during une8

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Budgetary ;lanning

a. 1&())b. 21()))c. 1(1))d. 1()))

33.


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>epreciation expense 1&()))

7ow muc! is budgeted cas! disbursements for April8 a. 632())) b. 6213())) c. 63&())) d. 63##()))Use the following information for questions 38, 39, and 40.

,ivanos( nc.reports all its sales on credit( and pays operating costs in t!e mont! incurred. Amountsfor 2))" areC

:arc! April :ay une uly Budgeted sales 63))())) 62)())) 632)())) 62&)())) 621)())) Budgeted purc!ases 61())) 612)())) 612&())) 6132())) 6)()))

• /ustomer amounts on account are collected %)4 in t!e mont! of sale and 3)4 in t!e

following mont!.

• /ost of goods sold is #)4 of sales.• ,ivanos purc!ases and pays for merc!andise )4 in t!e mont! of ac0uisition and #)4 in

t!e following mont!.• -perating expenses areC alaries( 6")()))D >epreciation( 612()))D =ent( 61"()))D and

*tilities( 61()))D• Accounts payable is used only for inventory ac0uisitions.

3&. 7ow muc! cas! will ,ivanos receive during :ay from customers8 a. 63)&())) b. 6311())) c. 622())) d. 62()))

3. 7ow muc! is ,ivanos’ :ay 3)( 2))" budgeted Accounts =eceivable8a. 632)()))b. 6#()))c. 622()))d. 6311()))

). 7ow muc! is ,ivanos’ budgeted balance for Accounts ;ayable at :ay 3)( 2))"8a. 612(&))b. 6%2()))c. 6"1(2))d. 6%#(&))

1. -rr /orporation’s manufacturing costs for August w!en production was &)) units appears

belowC>irect material 61) per unit>irect labor 6(&))Eariable over!ead ()))actory depreciation 3()))actory supervisory salaries 2()))-t!er fixed factory costs 1()))

7ow muc! is t!e budgeted manufacturing cost for a mont! w!en )) units are produced8

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Budgetary ;lanning

a. 623(&))b. 61&())c. 62())

d. 62"(#")

2. ,ewis ;roduction is planning to sell 22) boxes of brics and produce 2)) boxes of bricsduring :ay. 5ac! box of brics re0uires 2) pounds of bric mix and a !alf !our of directlabor. Bric mix costs 6" per 1)) pounds and employees of t!e company are paid 612.))per !our. :anufacturing over!ead is applied at a rate of 12)4 of direct labor costs. ,ewis;roduction !as #)) pounds of bric mix in beginning inventory and wants to !ave &))pounds of bric mix in ending inventory. 9!at is t!e total amount to be budgeted for manufacturing over!ead for t!e mont!8

a. 61()b. 62(&&)

c. 62()) d. 61(2))

3. 7argrow( nc. maes and sells a single product( bucets. t taes 3) ounces of plastic tomae one bucet. Budgeted production of bucets for t!e next t!ree mont!s is as followsC August )())) units( eptember %"())) units( -ctober #"())) bucets. $!e companywants to maintain mont!ly ending inventories of plastic e0ual to 1)4 of t!e followingmont!'s production needs. -n August 31st( 1"())) ounces of plastic were on !and. $!ecost of plastic is 6).)3 per ounce. 7ow muc! is t!e ending inventory of plastic to bereported on t!e company’s balance s!eet at eptember 3)8a. 61"()))b. 6"(&")c. 6#(%")d. 6%("))

. =aFmataF /ompany maes and sells umbrellas. $!e company is in t!e process of preparing its elling and Administrative 5xpense Budget for t!e last !alf of t!e year. $!efollowing budget data are availableC

tem Eariable /ost ;er *nit old :ont!ly ixed /ostales commissions 6).#) 63()))!ipping 61.2)

Advertising 6).3)>epreciation on office e0uipment 6()))-t!er operating expenses 6).3" 63()))

5xpenses are paid in t!e mont! incurred. f t!e company !as budgeted to sell 2()))umbrellas in -ctober( !ow muc! is t!e total budgeted variable selling and administrative

expenses for -ctober8a. 61()))b. 6(#))c. 6"())d. 6())

". ,ea /ompany sells only on credit. t reported t!e following information for 2))#Ceptember -ctober ?ovember >ecember

Budgeted sales 6))())) 6&))())) 6&")())) 6#)()))

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/ustomer amounts on account are collected "4 in t!e mont! of sale and ""4 in t!efollowing mont!. 7ow muc! is t!e ?ovember 3)( 2))# budgeted Accounts =eceivable8a. 6#%("))b. 63&2("))c. 6&2%("))d. 6"2&()))

#. At anuary 1( 2))#( ae( nc. !as beginning inventory of 3())) surfboards. ae estimatesit will sell 1())) units during t!e first 0uarter of 2))# wit! a 1)4 increase in sales eac!0uarter. ae’s policy is to maintain an ending inventory e0ual to 2)4 of t!e next 0uarter’ssales. 5ac! surfboard costs 61) and is sold for 62)). 7ow many units s!ould aeproduce during t!e first 0uarter of 2))#8

a. 1()&) b. 1())) c. 1#(&)) d. 1(2))

%. At anuary 1( 2))#( ae( nc. !as beginning inventory of 3())) surfboards. ae estimatesit will sell 1())) units during t!e first 0uarter of 2))# wit! a 1)4 increase in sales eac!0uarter. ae’s policy is to maintain an ending inventory e0ual to 2)4 of t!e next 0uarter’ssales. 5ac! surfboard costs 61) and is sold for 62)). 7ow muc! is budgeted salesrevenue for t!e t!ird 0uarter of 2))#8

a. 61#() b. 63(3&&())) c. 63(3#)())) d. 63()&)()))

&. tems from ap /ompany’s budget for :arc! in w!ic! 2(1)) units were produced and soldappear belowC

>irect materials 612()))ndirect materials + variable 2()))

upervisor salaries 1)()))>epreciation on factory e0uipment &()))>irect labor %()));roperty taxes on factory 3()))$otal 62()))

At 2(2)) units( !ow muc! are budgeted variable manufacturing costs8a. 622()))

b. 63())) c. 621())) d. 61()"

. ?unnally :anufacturing /ompany !as furnis!ed t!e following information w!ic! occurred

during :ayC Accounts ;ayable balance at April 3) 6 2()));urc!ases on account during :ay 1")()))/as! payments for materials purc!ased in April &2()))/as! payments for materials purc!ased in :ay %#()))

$!e accounts payable account is used only for direct materials. 7ow muc! will ?unnallyreport as accounts payable on t!e balance s!eet at t!e end of :ay8a. 621()))b. 61)3()))c. 6&()))

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Budgetary ;lanning

d. 61"()))

"). 7arra! /ompany provided t!e following information for t!e mont! of -ctoberC

Beginning cas! balance 6 3"())) /as! receipts #)()))

/as! disbursements &"()))

7arra!’s policy is to eep a minimum end of t!e mont! cas! balance of 63)())). 7owmuc! will 7arra!’s need to borrow during August8a. 62)()))

b. 62"())) c. 61)())) d. 6)

"1. 5ac! production worer can produce wooden c!airs per !our. >uring t!e mont! of une(/!airs( nc. !as forecasted sales of 1))())) c!airs. $!e beginning inventory was 1()))c!airs( and desired ending inventory is 2(")) c!airs. 7ow many !ours of direct labor must

be budgeted to meet production needs8a. 2"(3%" b. 2"()))

c. 2#(")) d. 2(#2"

"2. elly Box( nc. budgeted t!e following manufacturing costs for 2"())) calculatorsC

ixed manufacturing costs 612())) per mont!Eariable manufacturing costs 61#.)) per unit

elly Box produced 2)())) calculators during :arc!. 7ow muc! is budgeted totalmanufacturing costs in :arc!8

a. 632)()))b. 612()))c. 6))()))d. 6332()))

"3. 9!ic! one of t!e following is correct concerning a budget8a. t can focus as a substitute for management.b. t is a written statement of managements’ plans for a specified future time period.c. t is re0uired for all business operations.d. t is used only by manufacturing companies.

". or w!ic! one of t!e following budgeting aspects does t!e budget committee generally

!ave t!e responsibility8a. 5nforcing t!e budgetb. 5xpressing t!e budget in financial termsc. etting company goalsd. erves as a review board w!ere managers can defend budget goals and re0uests

"". 9!ic! one of t!e following is not a benefit of budgeting8a. t facilitates t!e coordination of activities.b. t provides definite objectives for evaluating performance.c. t provides assurance t!at t!e company will ac!ieve its objectives.d. t re0uires all levels of management to plan a!ead on a recurring basis.

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"#. 9it! w!ic! management function is budgeting most closely related8a. :otivatingb. /ontrollingc. ;lanningd. >irecting

"%. 9!ic! of t!e following is not a benefit of budgeting8a. t promotes efficiency.b. t deters waste.c. t is a basis for performance evaluation.d. t assures t!e company t!at management will perform at a particular operational level.

"&. 9!ere do most companies start in t!e budgeting process8a. $!ey estimate expected profits.b. $!ey loo at past performance.c. $!ey loo at competitors’ future plans.

d. $!ey estimate !ow many units t!e production department is able to produce.

". 9!ic! one of t!e following is one of t!e factors t!at must be present if budgets are to beeffective8a. All upper level managers s!ould verify t!e validity of t!e amounts in t!e budgets.b. =esearc! and analysis s!ould occur in order to set realistic goals.c. $!e company must !ave t!e stoc!olders' approval of t!e budget.d. $!e budget committee must prepare t!e budget.

#). 9!ic! one of t!e following is necessary if a company expects its budget to be effective8a. $!e company must be operating at less t!an capacity.b. $!e budget period must cover more t!an one year.

c. $!e company’s organiFational structure must be sound.d. $!e company must !ave sufficient cas! for operations.

#1. 9!ic! of t!e following individuals s!ould accept t!e company’s budgets in order for t!ebudgets to be most effective8a. >ivision managers and customersb. >epartment !eads and division managersc. upervisors and clersd. >epartment !eads and creditors

#2. 9!ic! of t!e following approvals will mae t!e most effective environment for budgetacceptance8a. $!e budget is prepared by top management.

b. $!e budget preparation contains input from all levels of management.c. $!e budget is prepared by t!e department !eads.d. Acceptance !as not!ing to do wit! w!o prepares budgets.

#3. $!e performance report of t!e /anadian >ivision of idmund( nc. s!owed a differencebetween t!e budget and t!e actual results for t!e year. :anagement determines t!isdifference was controllable by t!e manager in c!arge. !ould t!e division manager be!eld responsible8a. ?o( since budget differences fluctuate over time.b. Ges( because managers are responsible for controllable costs for t!eir departments.

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Budgetary ;lanning

c. -nly if t!e difference is favorable.d. Ges( managers are responsible for all costs in t!eir division.

#. 9!ic! one of t!e following would most liely cause an unrealistic budget to result8a. All levels of management contributed to its development.

b. $!e budget !as been developed in a participative approac!.c. $!e budget was developed after considerable planning.d. $!e budget !as been developed in a top down fas!ion.

#". *nder w!at situation mig!t a budget be most effective8a. As a tool to assess blame w!en costs are too !ig!b. 9!en used to evaluate a manager's performancec. Budgets are e0ually effective in all situations.d. 9!en it is created by top management

##. n many companies( w!o is assigned t!e responsibility for coordinating t!e preparation of t!e budget8

a. A budget committeeb. $!e sales managers since t!e sales budget is t!e bacbone of t!e master budgetc. $!e company's board of directors since t!ey approve major corporate c!angesd. $!e company's independent certified public accountants

#%. 9!ic! one of t!e factors below is not a major influence of t!e lengt! of budget periods8a. $!e nature of t!e organiFationb. $!e type of budgetc. ;revailing business conditionsd. $!e profitability of t!e company

#&. 9!ic! one of t!e following is an advantage of using participative budgeting8

a. t is updated daily to reflect current activity.b. t assures t!e company is operating at t!e activity level of t!e master budget.c. t allows companies to compare t!e current wit! t!e previous year.d. ,ower level managers are more liely to perceive budgets as fair.

#. 9!ic! time period is t!e most common for budget periods8a. -ne mont!b. ive yearsc. -ne year d. $!ere is no common time period since companies use any period desired.

%). /rown( nc. administered its budget. 9!at did t!e company do8

a. t prepared t!e budget one year in advance.b. :anagement used t!e budget as an aid in ac!ieving projected goals.c. $!e company allowed eac! level of management to participate in creating t!e budget.d. :anagement estimated its sales for t!e budget period.

%1. 9!ic! one of t!e following includes people w!o normally mae up t!e budget committee8a. ales manager( company president( company treasurer b. /ompany treasurer( creditors( controller c. ales manager( controller( investorsd. 5xternal auditors( controller( treasurer

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%2. 9!ic! problem mig!t be a result of an unrealistic budget8a. ;rofitable operationsb. =educed employee moralec. avorable operating activityd. :inimal differences between actual and budgeted amounts

%3. 7ow does long+range planning compare to a master budget8a. t focuses on meeting profit objectives instead of strategies to ac!ieve t!ose goals.b. t is less detailed t!an an annual budget.c. t is prepared by t!e president( unlie a master budget w!ic! is prepared by a budget

committee.d. t generally encompasses a s!orter period of time t!an a master budget.

%. 9!at t!ree differences exist between long+range planning and budgeting8a. Amount of detail( content( and emp!asisb. $ime periods involved( amount of detail( and contentc. /ontent( emp!asis( and amount of detaild. 5mp!asis( time periods involved( and amount of detail

%". 9!ic! of t!e following is a proper matc!+up8

a. ,ong+range planning←→ 1 year

b. Budgeting←→ =eview of progress

c. Budgeting←→ Anticipated trends in economic environment

d. ,ong range planning←→ trategies

%#. >a>um/ompany desired 12())) pounds of raw material on !and on une 1 and 1)("))on une 3). $!e number of pounds re0uired for production for une totaled 2)()))pounds. 7ow many pounds of raw material s!ould >a>um purc!ase in une8a. 23&(")) pounds

b. 21(")) poundsc. 2")(")) poundsd. 22&())) pounds

%%. 9!ic! budget provides t!e information needed to prepare t!e direct labor budget8a. ncome budgetb. ;roduction budgetc. :aterials budgetd. ales budget

%& n preparing one of its budgets( 7artF( nc. used information from bot! t!e direct materialsand direct labor budgets. 9!ic! budget was 7artF preparing8

a. ales budgetb. ;roduction budgetc. :anufacturing over!ead budgetd. /as! budget

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Budgetary ;lanning

%. 7ow does a sales forecast differ from a sales budget8a. A sales forecast includes t!e company( w!ile a sales budget includes t!e industry.b. A sales forecast includes t!e company and t!e industry( w!ile a sales budget includes

only t!e industry.c. A sales forecast includes t!e company and t!e industry( w!ile a sales budget includes

only t!e company.d. $!ey are bot! t!e same.

&). 9!ic! one of t!e following is an operating budget8a. /as! budgetb. ales budgetc. Budgeted balance s!eetd. /apital expenditure budget

&1. 9!ic! one of t!e following is a financial budget8a. /apital expenditure budgetb. ;roduction budget

c. :anufacturing over!ead budgetd. ales budget

&2. 9!ic! one of t!e following !elps improve t!e reliability of t!e sales forecast8a. =eduction of differences between actual and estimated amountsb. /reation of management awarenessc. /onsideration of industry trendsd. 5xtension of t!e budget period

&3. 9!ic! one of t!e following sets includes only financial budgets8a. /as! budget and t!e operating budgetb. ales budget and t!e budgeted balance s!eet

c. Budgeted balance s!eet and t!e cas! budgetd. /as! budget and t!e sales budget

&. 9!ic! one of t!e following is t!e last step in preparing t!e operating budget8a. Budgeted income statementb. ;roduction budgetc. /as! budgetd. Budgeted balance s!eet

&". 9!at mig!t a very conservative sales budget cause8a. An decrease in selling pricesb. A s!ortage of inventories

c. ncreased sales during t!e year d. -verproduction of goods

. avy( nc. was preparing its production budget. 7ow s!ould t!e company determine t!enumber of units to be produced8a. $!e budgeted sales units plus beginning finis!ed goods unitsb. $!e budgeted sales units plus desired ending finis!ed goods unitsc. $!e budgeted sales units plus desired ending finis!ed goods units plus beginning

finis!ed goods unitsd. $!e budgeted sales units plus desired ending finis!ed goods units minus beginning

finis!ed goods units

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&%. 9!at information is found on t!e direct materials budget8

. 7ow many units of direct materials s!ould be purc!ased8. 7ow muc! is t!e cost of direct materials to be purc!ased8

a. onlyb. only

c. Bot! and d. ?eit!er nor

&&. urprise /ompany’s sales budget s!owed expected sales of 13()) widgets. Beginningfinis!ed goods contained 1(2)) widgets. $!e company determined t!at 1(1)) unitss!ould be produced. 7ow many widgets will t!e company !ave on !and at t!e end of t!eyear8a. "))b. 1(2))c. 1())d. %))

&. $!e production budget s!ows expected unit sales are 1(&)). $!e re0uired productionunits are 1(%)). 9!ic! of t!e following represents possible inventory balances8

Beginning *nits 5nding *nitsa. 2)) 1))b. 1)) 2))c. 2)) 2))d. ) 1))

). $!e production budget s!ows t!at expected unit sales are ())) for :ay and &%())) for une. $!e company desires to !ave units on !and at t!e end of t!e mont! e0ual to 1)4 of next mont!’s sales. 7ow many units s!ould t!e company produce during :ay8a. (1))

b. (#))c. &"())d. (%))

1. ?extel /ompany s!owed t!e following on its direct materials budget for uneC

*nits to be produced ")()))$otal pounds needed for production ()))$otal pounds of materials to be purc!ased "()))

$!e materials cost 62 per pound. 7ow muc! is t!e cost of direct materials per unit8a. 6).1#b. 62"c. 62)d. 6).2)

2. >rive( nc. determined its estimated production for t!e mont! are 3))())) units. 5ac! unitre0uires 2 pounds of material. $!e beginning direct materials are 14 of t!e currentmont!s expected needs. 5nding inventory desired is %(")) pounds. 7ow muc! areestimated direct materials purc!ases in pounds8a. #)1(")) poundsb. #)%(")) poundsc. 3)1(")) poundsd. "&(")) pounds

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Budgetary ;lanning

3. $!e direct materials budget s!owsC

>esired ending direct materials 2())) pounds:aterials purc!ased "1()) poundsBeginning inventory on !and 1(2)) pounds

7ow muc! is t!e total direct materials needed for production8a. ")(#)) poundsb. "2(#)) poundsc. "2(2)) poundsd. "1()) pounds

. 9!ic! one of t!e following expenses would most liely appear on a elling and Administrative 5xpense Budget8a. ndirect materialsb. :ac!ine depreciationc. ales commissionsd. ndirect labor

". 9!ic! of t!e following would most liely appear as a fixed expense on t!e elling and Administrative 5xpense Budget8a. >elivery expenseb. actory supervisor salaryc. ndirect labor d. >epreciation

#. 9!ic! one of t!e following best describes a master budget8a. t is an interrelated long+term plan and operating budgets.b. t includes financial budgets and a long+term plan.c. t includes interrelated financial budgets and operating budgets.

d. t is all t!e accounting journals and ledgers used by a company.

%. 9!at is t!e starting point in preparing a master budget8a. $!e production budgetb. $!e sales budgetc. $!e production budgetd. $!e purc!ases budget

&. 9!ic! one of t!e following is needed to prepare a production budget8a. Budgeted unit salesb. Budgeted raw materials to be purc!asedc. Beginning wor in process unitsd. 5stimated cost of goods sold

. pirit( nc. budgeted sales are 33())) units for anuary and 2)())) units for ebruary.$!e company’s policy re0uires maintaining units on !and at t!e end of eac! mont! e0ualto &4 of next mont!'s budgeted unit sales. 7ow many units s!ould t!e company producein anuary8a. 2(%)) unitsb. 23(3)) unitsc. ##(#)) unitsd. 31(#) units

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1)). ason /ompany determined t!at t!e budgeted cost of producing a product is 61.2) per unit. -n une 1( t!ere were 11())) units on !and. $!e sales department budgeted salesof 32)())) units in une. $!e company desires to !ave &())) units on !and on une 3).7ow muc! is t!e budgeted cost of goods manufactured for une8a. 63&)())b. 631%()))c. 6323()))d. 63&%(#))

Answers to Mult"#le C$o"%e !uest"ons

tem Ans. tem Ans. tem Ans. tem Ans.31. c "). a #. c &&. c32. c "1. a %). b &. a33. b "2. d %1. a ). a3. a "3. b %2. b 1. a3". b ". d %3. b 2. a3#. c "". c %. d 3. a3%. c "#. c %". d . c3&. b "%. d %#. a ". d3. b "&. b %%. b #. c). d ". b %&. d %. b1. c #). c %. c &. a2. a #1. b &). b . d3. b #2. b &1. a 1)). a. d #3. b &2. c". a #. d &3. c#. a #". b &. d%. b ##. a &". b

&. a #%. d . d. a #&. d &%. c

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Budgetary ;lanning

E&er%"se '()

/lingy /ompany budgeted t!e following unit salesC

anuary 1()))ebruary 12())):arc! 11()))

April 1#())):ay 13()))

5ac! unit re0uires 2 yards of fabric w!ic! is estimated to cost 63.") per yard. t is t!e company'spolicy to maintain a finis!ed goods inventory at t!e end of eac! mont! e0ual to 2)4 of nextmont!'s anticipated sales. /lingy /ompany also !ave a policy of maintaining a raw materialsinventory at t!e end of eac! mont! e0ual to 1)4 of t!e yards needed for t!e following mont!'sproduction. $!ere were 1(2)) yards of fabric on !and at :arc! 1.

Instru%t"ons

;repare a production budget and a direct materials budget for :arc!.

Solut"on E&er%"se '() H1)I12 min.J

/lingy /ompany;roduction Budget

or t!e :ont! 5nding :arc! 31

5xpected unit sales 11()))>esired ending finis!ed goods units H2)4 x 1#()))J 3(2))$otal re0uired units 1(2)),essC Beginning finis!ed goods units H2)4 x 11()))J 2(2))=e0uired production units 12()))

/lingy /ompany>irect :aterials Budget

or t!e :ont! 5nding :arc! 31

*nits to be produced 12()))>irect materials per unit K 2$otal yards needed for production 2()))>esired ending direct materials in yardsL 1(")$otal materials re0uired 2"("),essC Beginning direct materials in yards 1(2))>irect materials purc!ases 2(3)/ost per pound K 63.")

$otal cost of direct materials purc!ases 6&"(1)

L 1)4 x M1#())) N H2)4 x 13()))J O H2)4 x 1#()))JP

+1"


16/17

E&er%"se '(*

$!e aguars >ivision of ?, !as been re0uested to prepare a 0uarterly budgeted incomestatement for 2))#. $!e regional manager expects t!at sales in t!e first 0uarter of 2))# willincrease in volume by 1)4 over t!e same 0uarter of t!e preceding year and will t!en increase by"4 for eac! succeeding 0uarter in 2))#.

$!e corporate !ead office !as re0uested t!at t!e regional manager maintain an inventory indollars e0ual to 1#4 of t!e next 0uarter's sales. Quarterly purc!ases average "4 of 0uarterlysales. Budgeted ending inventory on >ecember 31( 2))" is 6&())). Quarterly salaries are 6%(2))plus 1)4 of sales. All salaries are classified as sales salaries. -t!er 0uarterly expenses areestimated to be as followsC

=ent expense 6())>epreciation on office e0uipment 62()))*tilities expense 61(&)):iscellaneous expenses 24 of sales

$!e income statement information for t!e first 0uarter of 2))" was as followsC

ales ............................................................................................. 61")()))/ost of goods sold ........................................................................ ##()))

Instru%t"ons;repare a budgeted 0uarterly income statement for t!e first 0uarter of 2))#. H!owcomputations.J

Solut"on E&er%"se '(* H12I1" min.J

?, + aguars >ivisionBudgeted ncome tatement

or t!e Quarter 5nding :arc! 31( 2))#ales H11)4 x 61")()))J..................................................................................... 61#"()))/ost of goods soldL.............................................................................................. "("3)


17/17

Budgetary ;lanning

E&er%"se '*+

us!i 7ouse !as budgeted sales revenues as followsC

une uly August /redit sales 6&"())) 6 &)())) 6 %2()))

/as! sales 1())) 2"())) 32()))$otal sales 6())) 61)"())) 61)()))

;ast experience indicates t!at %)4 of t!e credit sales will be collected in t!e mont! of sale andt!e remaining 3)4 will be collected in t!e following mont!. ;urc!ases of inventory are all oncredit and #)4 is paid in t!e mont! of purc!ase and )4 in t!e mont! following purc!ase.Budgeted inventory purc!ases areC

une 6"()))uly 3()))

August )()))-t!er cas! disbursements budgetedC selling and administrative expenses of 61())) eac!mont!( dividends of 63)())) will be paid in uly( and purc!ase of a computer in August for 63()))

cas!.

$!e company wis!es to maintain a minimum cas! balance of 62)())) at t!e end of eac! mont!.$!e company borrows money from t!e ban at 4 interest if necessary to maintain t!e minimumcas! balance. Borrowed money is repaid in mont!s w!en t!ere is an excess cas! balance. $!ebeginning cas! balance on uly 1 was 62"())). All amounts borrowed during a mont! areborrowed on t!e first day. $!e loan balance as of uly 1 is 62#())).

Instru%t"ons;repare a cas! budget for t!e mont! of uly. ;repare separate sc!edules for expected collectionsfrom customers and expected payments for purc!ases of inventory.

Solut"on E&er%"se '*+ H12I1# min.Jus!i 7ouse( nc.

/as! Budgetor t!e :ont! 5nding uly 31

Beginning cas! balance 62"())) AddC =eceipts

/ollections from customersC uly sales M62"())) N H6&)())) x %)4JP 6&1())) une sales M6&"())) x 3)4P 2"("))$otal receipts 1)#("))

$otal available cas! 131(")),essC >isbursements

;urc!ases during uly H#)4 x 63()))J 62"(&));urc!ases during une H)4 x 6"()))J 1&()))elling and administrative expenses 1()))>ividends 3)()))$otal disbursements &%(&))

5xcess of available cas! over disbursements 3(%))inancing

=epayments I interest H.)S12 x 62#()))J H1"J=epayments Iprincipal H623(%)) excess + 61" interestJ H23(")"J

5nding cas! balance 62)()))

+1%

Budgeting MAS

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