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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

Describing master budget components

Sarah Edwards, division manager for Pillows Plus, is speaking to the controller, Diana Rothman, about the budgeting process. Sarah states, “I’m not an accountant, so can you explain the three main parts of the master budget to me and tell me their purpose?” Answer Sarah’s question.

What are the two types of manufacturing overhead? How do they affect the manufacturing overhead budget calculations?

Preparing a financial budget—budgeted income statement and balance sheet

Ballentine Company has the following post-closing trial balance on December 31, 2018:

The company’s accounting department has gathered the following budgeting information for the first quarter of 2019:

Budgeted total sales, all on account $ 305,500 Budgeted direct materials to be purchased and used 40,000 Budgeted direct labor cost 12,500 Budgeted manufacturing overhead costs: Variable manufacturing overhead 2,600 Depreciation 800 Insurance and property taxes 1,100 Budgeted cost of goods sold 71,300 Budgeted selling and administrative expenses: Salaries expense7,000 Rent expense 3,500 Insurance expense 2,000 Depreciation expense 350 Supplies expense 3,055 Budgeted cash receipts from customers 263,500 Budgeted income tax expense 44,000 Budgeted purchase and payment for capital expenditures

(additional equipment) 34,000

Additional information:

a. Direct materials purchases are paid 50% in the quarter purchased and 50% in the next quarter.

b. Direct labor, ma following budgeted income statement manufacturing overhead, selling and administrative costs, and income tax expense are paid in the quarter incurred.

c. Accounts payable at December 31, 2018 are paid in the first quarter of 2019. Requirements

1. Prepare Ballentine Company’s budgeted income statement for the first quarter of 2019.

2. Prepare Ballentine Company’s budgeted balance sheet as of March 31, 2019.

Preparing an operating budget—direct materials, direct labor, and manufacturing overhead budgets

Grady, Inc. manufactures model airplane kits and projects production at 650, 500, 450, and 600 kits for the next four quarters. Direct materials are 4 ounces of plastic per kit and the plastic costs \(1 per ounce. Indirect materials are considered insignificant and are not included in the budgeting process. Beginning Raw Materials Inventory is 850 ounces, and the company desires to end each quarter with 10% of the materials needed for the next quarter’s production. Grady desires a balance of 200 ounces in Raw Materials Inventory at the end of the fourth quarter. Each kit requires 0.10 hours of direct labor at an average cost of \)10 per hour. Manufacturing overhead is allocated using direct labor hours as the allocation base. Variable overhead is \(0.20 per kit, and fixed overhead is \)165 per quarter. Prepare Grady’s direct materials budget, direct labor budget, and manufacturing overhead budget for the year. Round the direct labor hours needed for production, budgeted overhead costs, and predetermined overhead allocation rate to two decimal places. Round other amounts to the nearest whole number.

Match the following statements to the appropriate budgeting objective or benefit: developing strategies, planning, directing, controlling, coordinating and communicating, and benchmarking.

1. Managers are required to think about future business activities.

2. Managers use feedback to identify corrective action.

3. Managers use results to evaluate employees’ performance.

4. Managers work with managers in other divisions.
See all solutions

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