Keggler’s Supply is a merchandiser of three different products. The company’s February 28 inventories are footwear, 20,000 units; sports equipment, 80,000 units; and apparel, 50,000 units. Management believes that excessive inventories have accumulated for all three products. As a result, a new policy dictates that ending inventory in any month should equal 30% of the expected unit sales for the following month. Expected sales in units for March, April, May, and June follow.
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| Budgeted Sales in Units | ||||
| March | April | May | June | |
| Footwear | 15,000 | 25,000 | 32,000 | 35,000 |
| Sports equipment | 70,000 | 90,000 | 95,000 | 90,000 |
| Apparel | 40,000 | 38,000 | 37,000 | 25,000 |
| Required: |
| 1. |
Prepare a merchandise purchases budget (in units) for each product for each of the months of March, April, and May.
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2.
Use the following information to prepare the July cash budget for Acco Co. It should show expected cash receipts and cash disbursements for the month and the cash balance expected on July 31.
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| a. | Beginning cash balance on July 1: $50,000. |
| b. |
Cash receipts from sales: 30% is collected in the month of sale, 50% in the next month, and 20% in the second month after sale (uncollectible accounts are negligible and can be ignored). Sales amounts are: May (actual), $1,720,000; June (actual), $1,200,000; and July (budgeted), $1,400,000.
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| c. |
Payments on merchandise purchases: 60% in the month of purchase and 40% in the month following purchase. Purchases amounts are: June (actual), $700,000; and July (budgeted), $750,000.
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| d. | Budgeted cash disbursements for salaries in July: $275,000. |
| e. | Budgeted depreciation expense for July: $36,000. |
| f. | Other cash expenses budgeted for July: $200,000. |
| g. | Accrued income taxes due in July: $80,000. |
| h. | Bank loan interest paid in July: $6,600. |
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3.
Following information relates to Acco Co.
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| a. | Beginning cash balance on July 1: $50,000. |
| b. |
Cash receipts from sales: 30% is collected in the month of sale, 50% in the next month, and 20% in the second month after sale (uncollectible accounts are negligible and can be ignored). Sales amounts are: May (actual), $1,720,000; June (actual), $1,200,000; and July (budgeted), $1,400,000.
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| c. |
Payments on merchandise purchases: 60% in the month of purchase and 40% in the month following purchase. Purchases amounts are: June (actual), $700,000; and July (budgeted), $750,000.
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| d. | Budgeted cash disbursements for salaries in July: $275,000. |
| e. | Budgeted depreciation expense for July: $36,000. |
| f. | Other cash expenses budgeted for July: $200,000. |
| g. | Accrued income taxes due in July: $80,000. |
| h. | Bank loan interest paid July 31: $6,600. |
| Additional Information: | |
| a. | Cost of goods sold is 55% of sales. |
| b. | Inventory at the end of June is $80,000 and at the end of July is $60,000. |
| c. | Salaries payable on June 30 are $50,000 and are expected to be $60,000 on July 31. |
| d. |
The equipment account balance is $1,600,000 on July 31. On June 30, the accumulated depreciation on equipment is $280,000.
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| e. |
The $6,600 cash payment of interest represents the 1% monthly expense on a bank loan of $660,000.
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| f. |
Income taxes payable on July 31 are $30,720, and the income tax rate applicable to the company is 30%.
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| g. |
The only other balance sheet accounts are: Common Stock, with a balance of $600,000 on June 30; and Retained Earnings, with a balance of $964,000 on June 30.
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Prepare a budgeted income statement for the month of July and a budgeted balance sheet for July 31.
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4.
| Hospitable Co. provides the following sales forecast for the next four months: |
| April | May | June | July | |
| Sales (units) | 500 | 580 | 540 | 620 |
The company wants to end each month with ending finished goods inventory equal to 25% of next month’s sales. Finished goods inventory on April 1 is 190 units. Assume July’s budgeted production is 540 units.
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Prepare a production budget for the months of April, May, and June.
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5.
Rida, Inc., a manufacturer in a seasonal industry, is preparing its direct materials budget for the second quarter. It plans production of 240,000 units in the second quarter and 52,500 units in the third quarter. Raw material inventory is 43,200 pounds at the beginning of the second quarter. Other information follows:
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| Direct materials | Each unit requires 0.60 pounds of a key raw material, priced at $175 per pound. The company plans to end each quarter with an ending inventory of materials equal to 30% of next quarter’s budgeted materials requirements. |
| Prepare a direct materials budget for the second quarter. |
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6.
Addison Co. budgets production of 2,400 units during the second quarter. Other information is as follows:
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| Direct labor | Each finished unit requires 4 direct labor hours, at a cost of $9 per hour. |
| Variable overhead | Applied at the rate of $11 per direct labor hour. |
| Fixed overhead | Budgeted at $450,000 per quarter |
| 1. | Prepare a direct labor budget. |
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| 2. | Prepare a factory overhead budget. |
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In preparing financial budgets:
The budgeted balance sheet is usually prepared last.
The master budget process usually ends with:
The budgeted balance sheet.
The master budget is a small component of the comprehensive budget.
False
Memphis Company's May sales budget calls for sales of $900,000. The store expects to begin May with $50,000 of inventory and to end the month with $55,000 of inventory. Gross margin is typically 45% of sales. Compute the budgeted cost of merchandise purchases for May.
$500,000.
Flagstaff Company has budgeted production units of 7,900 for July and 8,100 for August. The direct materials requirement per unit is 2 ounces. The company has determined that it wants to have safety stock of direct materials on hand at the end of each month to complete 20% of the units budgeted in the following month. There was 3,160 ounces of direct material in inventory at the start of July. The total cost of direct materials purchases for the July direct materials budget, assuming the materials cost $1.15 per ounce, is:
$18,262.
Budgeting is an informal plan for future business activities.
False
One of the major benefits of formal budgeting is the positive effect it can have on employee attitudes if applied correctly.
True
A July sales forecast projects that 6,000 units are going to be sold at a price of $10.50 per unit. The management forecasts 2% growth in sales each month. Total July sales are anticipated to be:
$63,000.
If budgeted beginning inventory is $8,300, budgeted ending inventory is $9,400, and budgeted cost of goods sold is $10,260, budgeted purchases should be:
$11,360
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 $11,360.
True
Memphis Company anticipates total sales for April, May, and June of $800,000, $900,000, and $950,000 respectively. Cash sales are normally 25% of total sales. Of the credit sales, 30% are collected in the same month as the sale, 65% are collected during the first month after the sale, and the remaining 5% are not collected. Compute the amount of cash received from credit sales for May.
$592,500.
The usual budget period for most companies is:
An annual period separated into quarterly and monthly budgets.
The master budgeting process typically begins with the sales budget and ends with a cash budget and:
Budgeted financial statements.
Operating budgets include all of the following budgets except the:
Cash budget.
A plan that lists dollar amounts to be received from disposing of plant assets and dollar amounts to be spent on purchasing additional plant assets is called a:
Capital expenditures budget.
A formal statement of future plans, usually expressed in monetary terms, is a:
Budget.
Flagstaff Company has budgeted production units for July of 7,900 units. Variable factory overhead is $1.20 per unit. Budgeted fixed factory overhead is $19,000, which includes $3,000 of factory equipment depreciation. Compute the total budgeted overhead to be reported on the factory overhead budget for the month.
$28,480.
A plan that shows the expected cash inflows and cash outflows during the budget period, including receipts from loans needed to maintain a minimum cash balance and repayments of such loans, is called a(n):
Cash budget.
Personnel who will have performance evaluated according to the budget standards should not be consulted and involved in preparing the budget.
False
Cameroon Corp. manufactures and sells electric staplers for $16 each. If 10,000 units were sold in December, and management forecasts 4% growth in sales each month, the number of electric stapler sales budgeted for March should be:
11,249
The master budget includes individual budgets for sales, production or purchases, various expenses, capital expenditures, and cash.
True
Zhang Industries budgets production of 300 units in June and 310 units in July. Each unit requires 1.5 hours of direct labor. The direct labor rate if $14 per hour. The indirect labor rate is $21.00 per hour. Compute the budgeted direct labor cost for July.
$6,510.
A budget system based on expected activities and their levels that enables management to plan for resources required to perform the activities is:
Activity-based budgeting.
Budgets are long term financial plans that generally cover more than a one-year period.
False
A quantity of inventory that provides protection against lost sales caused by unfulfilled demands from customers is called:
Safety stock.
The central guidance of the budget process is the responsibility of the:
Budget Committee.
All of the following are necessary for budgets to be effective except:
All budgeted amounts must be spent to ensure that budgets aren't reduced for the next period.
Southland Company is preparing a cash budget for August. The company has $17,000 cash at the beginning of August and anticipates $120,800 in cash receipts and $134,500 in cash disbursements during August. Southland Company wants to maintain a minimum cash balance of $10,000. To maintain the minimum cash balance of $10,000, the company must borrow:
$6,700.
A cash budget shows the expected cash receipts and cash expenditures during the budget period.
True
Budgets are normally more effective when all levels of management are involved in the budgeting process.
True
Which of the following would not be used in preparing a cash budget for October?
Estimated depreciation expense for October.
The responsibility for coordinating the preparation of a master budget should be assigned to the Chief Executive Officer.
False
Trago Company manufactures a single product and has a JIT policy that ending inventory must equal 5% of the next month's sales. It estimates that May's ending inventory will consist of 14,000 units. June and July sales are estimated to be 280,000 and 290,000 units, respectively. Compute the number of units to be produced that would appear on the company's production budget for the month of June.
280,500.
The sales budget for Modesto Corp. 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:
$464,000.
A company's history indicates that 20% of its sales are for cash and the remaining 80% are on credit. Collections on credit sales are 30% in the month of the sale and 70% the following month. Projected sales for January, February, and March are $75,000, $92,000 and $60,000, respectively. The March expected cash receipts are $80,500.
False
The Gardner Company expects sales for October of $248,000. Experience suggests that 45% of sales are for cash and 55% are on credit. The company collects 50% of its credit sales in the month of sale and 50% in the month following sale. Budgeted Accounts Receivable on September 30 is $67,000. What is the amount of cash expected to be collected in October?
$246,800.
Alliance Company's budgets production of 24,000 units in January and 28,000 units in the February. Each finished unit requires 4 pounds of raw material K that costs $2.50 per pound. Each month's ending raw materials inventory should equal 40% of the following month's budgeted materials. The January 1 inventory for this material is 38,400 pounds. What is the budgeted materials need in pounds for January?
102,400 pounds.
Which of the following factors is least likely to be considered in preparing a sales budget?
The capital expenditures budget.
Part of the budgeting process is summarizing the financial statement effects on the budgeted income statement and the budgeted balance sheet.
True
Walter Enterprises expects its September sales to be 20% higher than its August sales of $150,000. Purchases were $100,000 in August and are expected to be $120,000 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 $7,500. The ending cash balance on September 30 would be:
$61,500.
Zhang Industries sells a product for $700. Unit sales for May were 400 and each month's sales are expected to exceed the prior month's results by 3%. Zhang pays a sales manager a monthly salary of $3,000 and a commission of 2% of sales. Compute the projected selling expense to be reported on the selling expense budget for the manager for month ended June 30.
$8,768.
The budgeted balance sheet is prepared primarily from data contained in the previously prepared components of the master budget.
True
Traditional budgeting is generally better than activity-based budgeting when attempting to reduce costs by eliminating non-value-added activities.
False
Masterson Company's budgeted production calls for 56,000 liters in April and 52,000 liters in May of a key raw material that costs $1.85 per liter. Each month's ending raw materials inventory should equal 30% of the following month's budgeted materials. The January 1 inventory for this material is 16,800 liters. What is the budgeted cost of materials purchases for April?
$101,380.
Which of the following budgets is not an operating budget?
Cash budget.
Which of the following accounts would appear on a budgeted balance sheet?
Accounts receivable.
Cameroon Corp. manufactures and sells electric staplers for $16 each. If 10,000 units were sold in December, and management forecasts 4% growth in sales each month, the dollar amount of electric stapler sales budgeted for February should be:
$173,056
for #3 how did you get Cost of goods sold?
ReplyDeleteAdditional Information:
Deletea. Cost of goods sold is [55%] of sales.
Easy to understand.
ReplyDeleteOnce go through the article
Merchandise Purchase Budget
How did you figure out #5's budgeted ending inventory?
ReplyDelete