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Exam 7: Master Budgets and Performance Planning

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Question 41

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Slim Corp.requires a minimum $8,000 cash balance.If necessary, loans are taken to meet this requirement at a cost of 1% interest per month (paid monthly).Loans are repaid at month's end from any excess cash.The cash balance on July 1 is $8,400.Cash receipts other than for loans received for July, August, and September are forecasted as $24,000, $32,000, and $40,000, respectively.Payments other than for loan or interest payments for the same period are planned at $28,000, $30,000, and $32,000, respectively.At July 1, there are no outstanding loans. Required: Prepare a cash budget for July, August, and September.

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* $3,600 x...

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Question 42

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

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Question 43

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What is a manufacturing budget?

A plan that shows the predicted costs for direct materials, direct labor, and overhead to be incurred in manufacturing the units in the production budget is called 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: $\begin{array}{lllll}& \underline { \text { April } }& \underline{ \text { May } } & \underline{ \text { Jurse } } & \underline{ \text { July } }\\\text { Sales in units }&800 & 1,000 & 600 & 1,200\end{array}$ 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 department store has budgeted sales of 12,000 men's suits in September.Management wants to have 6,000 suits in inventory at the end of the month to prepare for the winter season.Beginning inventory for September is expected to be 4,000 suits.What is the dollar amount of purchase of suits? Each suit has a cost of $75.

Budgeting is an informal plan for future business activities.

Describe at least five benefits of budgeting.

Stritch Company is trying to decide how many units of merchandise to order each month.The company's policy is to have 20% of the next month's sales in inventory at the end of each month.Projected sales for August, September, and October are 30,000 units, 20,000 units, and 40,000 units, respectively.How many units must be purchased in September?

Continuous budgeting is the practice of preparing a new budget for a selected number of future periods and revising those budgets as each period is completed.

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

Northern Company is preparing a cash budget for June.The company has $12,000 cash at the beginning of June and anticipates $30,000 in cash receipts and $34,500 in cash disbursements during June.Northern Company has an agreement with its bank to maintain a cash balance of at least $10,000.As of May 31, the company owes $15,000 to the bank.To maintain the $10,000 required balance, during June the company must:

Operating budgets include all the following budgets except the:

Budget preparation is best determined in a top-down managerial approach.

A comprehensive or overall formal plan for a business that includes specific plans for expected sales, the units of product to be produced, the merchandise or materials to be purchased, the expense to be incurred, the long-term assets to be purchased, and the amounts of cash to be borrowed or loans to be repaid, as well as a budgeted income statement and balance sheet, is called a:

Preparing a master budget is usually the responsibility of:

The task of preparing a budget should be the sole task of the most important department in an organization.

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.

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

The master budget includes: