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Exam 20: Master Budgets and Performance Planning

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Question 31

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The selling expenses budget is normally prepared before the sales budget because selling expenses affect the amount of sales.

A) True
B) False

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Question 32

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Reference: 20_02 Julia's Candy Co. reports the following information from its sales account and sales budget: $\begin{array}{llr}\text { Sales } & \text { May } & \$ 105,000 \\& \text { June } & 93,000 \\& & \\\text { Expected } & \text { July } & \$ 90,000 \\\text { Sales: } & & \\& \text { August } & 110,000 \\& \text { September } & 120,000\end{array}$ Cash sales are normally 25% of total sales and all credit sales are expected to be collected in the month following the date of sale. -Based on the information from Julia's,the total amount of cash expected to be received from customers in July is:

A) $69,750
B) $90,000
C) $92,250
D) $22,500
E) $115,500

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

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Question 33

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In preparing financial budgets:

The budgets within the master budget must be prepared in a definite sequence as dictated by GAAP.

A cash budget is a plan that includes the expected cash receipts and cash expenditures during each of the periods that it covers.

When preparing the cash budget,all the following should be considered except:

The overall coordinating activity of the budget process is the responsibility of the:

Cambridge,Inc.is preparing its master budget for the quarter ended June 30.It sells a single product for $40 each.Sales are 60% cash and 40% on credit.All credit sales are collected in the month following the sale.At March 31,the balance in Accounts Receivable is $12,000,which represents the uncollected balance on March sales.Budgeted sales for the next four months follow: $\begin{array}{llr}&\text { April}&\text { May}&\text { June}&\text { July }\\\text { Sales in units } & 800 & 1,000 & 600 & 1,200\end{array}$ The product cost is $20 per unit,and desired ending inventory is 60% of the following month's sales in units.Inventory at March 31 is 480 units.Purchases are paid 50% in the month of purchase and 50% in the following month.At March 31,the balance in accounts payable is $11,000,which represents the unpaid purchases from March.Operating expenses are paid in the month incurred and consist of: Commissions (10% of sales) Shipping (3% of sales) Office salaries ($3,000 per month) Rent ($5,000 per month) Depreciation is $2,000 per month. Income taxes are 40% and will be paid on July 1.There are no taxes payable at March 31.A minimum cash balance of $12,000 is required,and the beginning cash balance is $12,000.Loans are obtained at the end of any month when a cash shortage occurs.Interest is 1% per month based on the beginning of the month loan balance and is paid at each month end.If an excess balance of cash exists,loans are repaid at the end of the month.At March 31,the loan balance is $2,000. Prepare the following master budget schedules (round all dollar amounts to the nearest whole dollar)for each of the months of April,May,and June that includes the: (a)Sales budget (b)Schedule of cash receipts (c)Merchandise purchases budget (d)Schedule of cash disbursements for purchases of merchandise (e)Schedule of cash disbursements for selling and administrative expenses (f)Cash budget,including information on the loan balance (g)Budgeted income statement

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

Assume the Freshii Company is preparing its master budget for the first quarter of its calendar year.The following forecasted data relate to the first quarter: $\begin{array}{l}\text { Unit sales: }\\\begin{array} { l l } \text { Jaruary } & 40,000 \\\text { February } & 60,000 \\\text { March } & 50,000 \\\text { Unit salesprice } & \$ 25 \\\text { Cost of goods sold per urnit } & \$ 14 \\\text { Expenses: } & \\\text { Commissions } & 10 \% \text { of sales } \\\text { Rent } & \$ 20,000 / \text { month } \\\text { Advertising } & 15 \% \text { of sales } \\\text { Office salaries } & \$ 75,000 / \text { month } \\\text { Depreciation } & \$ 50,000 / \text { month } \\\text { Interest } & 15 \% \text { annually on a } \$ 250,000 \text { note } \\& \text { payable } \\\text { Tax rate } & 40 \%\end{array}\end{array}$ Prepare a budgeted income statement for this first quarter.

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. -If each unit of Kyoto's product takes two hours to produce and the labor rate is expected to be $10 per hour,what is the budgeted labor cost for the second quarter?

A department store has budgeted cost of goods sold for August of $60,000 for its women's coats.Management wants to have $12,000 of coats in inventory at the end of the month to prepare for the winter season.Beginning inventory in August was $8,000.What dollar amount of coats should be purchased to meet the above plans?

If budgeted beginning inventory is $8,300,budgeted ending inventory is $9,400,and cost of goods sold is expected to be $10,260,then budgeted purchases should be $9,160.

A ________________________ is a continuously revised budget that adds future months or quarters to replace months or quarters that have lapsed.

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

The responsibility for coordinating the preparation of a master budget should be assigned to the chief executive officer.

A company expects its September sales to be 15% higher than its August sales of $140,000.Purchases were $75,000 in August and are expected to be $85,000 in September.All sales are on credit and are collected as follows: 30% in the month of the sale and 70% in the following month.Merchandise purchases are paid as follows: 25% in the month of purchase and 75% in the following month.The beginning cash balance on September 1 is $71,500.The ending cash balance on September 30 would be:

Pecan Company had March sales and purchases of $63,000 and $47,000 respectively.The company expects April sales to increase 12% above March sales and purchases to stay consistent with March amounts.Twenty percent of the company's sales are for cash.Credit sales are collected 20% in the month of the sale and 80% in the following month.All purchases are paid for in the month following the purchase.The beginning cash balance on April 1 is $42,000.What is Pecan Company's expected cash balance on April 30?

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?

The most useful budget figures are developed: