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Chapter 22: 20RQ (page 1228)
What is sensitivity analysis? Why is it important for managers?
Sensitivity analysis is a what-if technique.
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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.
Crowley Company projects the following sales:
January February March
Cash sales (25%) \( 5,000 \) 5,500 \( 6,000
Sales on account (75%) 15,000 16,500 18,000
Total sales \) 20,000 \( 22,000 \) 24,000
Crowley collects sales on account in the month after the sale. The Accounts Receivable balance on January 1 is \(13,500, which represents December’s sales on account. Crowley projects the following cash receipts from customers:
January February March
Cash receipts from cash sales \) 5,000 \( 5,500 \) 6,000
Cash receipts from sales on account 13,500 15,000 16,500
Total cash receipts from customers \( 18,500 \) 20,500 $ 22,500
Recalculate cash receipts from customers if total sales remain the same but cash sales are only 20% of the total.
Using Excel for to prepare an operating budeget (manufacturing company)
Download an Excel template for this problem online in MyAccountingLab or athttp://www.pearsonhighered.com/Horngren.
Thunder Creek Company is preparing budgets for the first quarter of 2018. All relevant information is presented on the Excel template.
Requirements
1. Prepare a Sales Budget.
2. Prepare a Production Budget.
3. Prepare a Direct Materials Budget.
4. Prepare a Direct Labor Budget.
5. Prepare a Manufacturing Overhead Budget.
6. Prepare a Cost of Goods Sold Budget
7. Prepare a Selling and Administrative Expense Budget.
What is budgetary slack? Why might managers try to build slack into their budgets?
Preparing an operating budget—cost of goods sold budget Butler Company expects to sell 1,650 units in January and 1,550 units in February. The company expects to incur the following product costs:
Direct materials cost per unit \( 85
Direct labor cost per unit 60
Manufacturing overhead cost per unit 55
The beginning balance in Finished Goods Inventory is 250 units at \)200 each for a total of $50,000. Butler uses FIFO inventory costing method. Prepare the cost of goods sold budget for Butler for January and February.
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