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Chapter 22: 2SE (page 1228)

Budgeting types Consider the following budgets and budget types.

Cash Cost of Goods Sold

Flexible Master

Operational Sales

Static Strategic

Which budget or budget type should be used to meet the following needs?

a. Upper management is planning for the next five years.

b. A store manager wants to plan for different levels of sales.

c. The accountant wants to determine if the company will have sufficient funds to pay expenses.

d. The CEO wants to make companywide plans for the next year.

Short Answer

Expert verified
  1. Strategic budget
  2. Flexible budget
  3. Operational budget
  4. Master budget

Step by step solution

01

Upper management is planning for the next five years

The upper management’s need for planning for the next five years is a long-term goal that requires a strategic budget

02

A store manager wants to make a plan for different levels of sales.

If the store manager wants to plan for a different level of sales, then he should prepare aflexible budget.

03

The accountant wants to determine if the company will have sufficient funds to pay expenses.

To determine if the company will have sufficient funds to pay expenses the accountant should prepare anoperational budget.

04

The CEO wants to make companywide plans for the next year

If the CEO wants to make companywide plans for the next year they should prepare amaster budget.

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Most popular questions from this chapter

Using sensitivity analysis Holly Company prepared the following budgeted income statement for the first quarter of 2018:

Holly Company is considering two options. Option 1 is to increase advertising by \(700 per month. Option 2 is to use better-quality materials in the manufacturing process. The better materials will increase the cost of goods sold to 45% but will provide a better product at the same sales price. The marketing manager projects either option will result in sales increases of 30% per month rather than 20%.

Requirements

1. Prepare budgeted income statements for both options, assuming both options begin in January and January sales remain \)8,000. Round all calculations to the nearest dollar.

2. Which option should Holly choose? Explain your reasoning.

Preparing an operating budget—direct materials budget

Bell expects to produce 1,800 units in January and 2,155 units in February. The company budgets 3 pounds per unit of direct materials at a cost of $10 per pound. Indirect materials are insignificant and not considered for budgeting purposes. The balance in the Raw Materials Inventory account (all direct materials) on January 1 is 4,950 pounds. Bell desires the ending balance in Raw Materials Inventory to be 20% of the next month’s direct materials needed for production. Desired ending balance for February is 4,860 pounds. Prepare Bell’s direct materials budget for January and February.

What budgets are included in the financial budget for a merchandising company?

Preparing an operating budget—cost of goods sold budget

Refer to the budgets prepared in Exercise E22-24. Determine the cost per kit to manufacture the model airplane kits. Grady projects sales of 100, 150, 100, and 200 kits for the next four quarters. Prepare a cost of goods sold budget for the year. Grady has no kits in beginning inventory. Round amounts to two decimal places.

Connor Company began operations on January 1 and has projected the following selling and administrative expenses:

Rent Expense $ 1,000 per month, paid as incurred

Utilities Expense 500 per month, paid in month after incurred

Depreciation Expense 300 per month

Insurance Expense 100 per month, 6 months prepaid on January 1

Determine the cash payments for selling and administrative expenses for the first three months of operations.
See all solutions

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