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Chapter 22: 19RQ (page 1228)
What budgets are included in the financial budget for a merchandising company?
The financial budget for a merchandising company includes a capital expenditure budget and a cash budget.
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What are the three sections of the cash budget?
Question: Preparing an operating budget—sales budget; inventory, purchases and COGS budget; and S&A expense budget Burton Office Supply’s March 31, 2018, balance sheet follows:
The budget committee of Burton Office Supply has assembled the following data: a. Sales in April are expected to be \(200,000. Burton forecasts that monthly sales will increase 2% over April sales in May. June’s sales will increase by 4% over April sales. July sales will increase 20% over April sales. b. Burton maintains inventory of \)15,000 plus 25% of the cost of goods sold budgeted for the following month. Cost of goods sold equal 50% of sales revenue. c. Monthly salaries amount to \(7,000. Sales commissions equal 5% of sales for that month. d. Other monthly expenses are as follows: • Rent: \)2,000 • Depreciation: \(200 • Insurance: \)100 • Income tax: $2,200
Requirements
1. Prepare Burton’s sales budget for April and May 2018. Round all calculations to the nearest dollar.
2. Prepare Burton’s inventory, purchases, and cost of goods sold budget for April and May.
3. Prepare Burton’s selling and administrative expense budget for April and May.
What is the formula used to determine the amount of merchandise inventory to be purchased?
Preparing a financial budget—schedule of cash payments
Barnes Company budgeted direct materials purchases of \(191,990 in January and \)138,610 in February. Assume Barnes pays for direct materials purchases 60% in the month of purchase and 40% in the month after purchase. The Accounts Payable balance on January 1 is $75,000. Prepare a schedule of cash payments for purchases for January and February. Round to the nearest dollar.
What is budgetary slack? Why might managers try to build slack into their budgets?
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