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Chapter 22: 1SE (page 1228)
Budgeting benefits List the three key benefits companies get from preparing a budget.
The key benefits companies get from preparing a budget isplanning, coordination and communication, and benchmarking.
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Using sensitivity analysis in budgeting
Refer to the Berry’s schedule of cash receipts from customers that you prepared in Short Exercise S22-9. Now assume that Berry’s sales are collected as follows:
60% in the month of the sale
20% in the month after the sale
18% two months after the sale
2% never collected
Prepare a revised schedule of cash receipts for January and February.
Explain the difference between strategic and operational budgets
What are the three sections of the cash budget?
Patrick works for McGill’s Computer Repair, owned and operated by Frank McGill. As a computer technician, Patrick has grown accustomed to friends and family members asking for assistance with their personal computers. In an effort to increase his income, Patrick started a personal computer repair business that he operates out of his home on a part-time basis, working evenings and weekends. Because Patrick is doing this “on the side” for friends and family, he does not want to charge as much as McGill’s charges its customers. When Frank McGill assigned Patrick the task of developing the budget for his department, Patrick increased the amount budgeted for computer parts. When the budget was approved, Patrick purchased as many parts as the budget allowed, even when they were not needed. He then took the extra parts home to use in his personal business in an effort to keep his costs down and profits up. So far, no one at McGill’s has asked about the parts expense because Patrick has not allowed the actual amount spent to exceed the budgeted amount.
Requirements
1. Why would Patrick’s actions be considered fraudulent?
2. What can a company do to protect against this kind of business risk?
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.
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