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Chapter 22: Q19SE (page 1232)

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.

Short Answer

Expert verified

Answer

Total cash receipts from the customers is $572,440 in the month of January and $423,060 in the month of February.

Step by step solution

01

Meaning of schedule of cash receipts

A systematic schedule created to record the money received from a customer is called a cash receipt schedule.

02

Preparation of schedule of cash receipts

Particulars

January

February

Total budgeted sales

$702,000

$349,000

Cash receipts from customers:



60 % in the month of sale

$421,200

$209,400

20% in the month after sale

$407,000*20% =$81,400

$702,000*20% =$140,400

18% two months after sales

$388,000*18% =$69,840

$407,000*18% =$73,260

Total cash receipts from customers

$572,440

$423,060

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Most popular questions from this chapter

Preparing a financial budget—schedule of cash receipts

Victors expects total sales of \(702,000 for January and \)349,000 for February. Assume that Victor'ssales are collected as follows:

50% in the month of the sale

30% in the month after the sale

16% two months after the sale

4% never collected

November sales totaled \(388,000, and December sales were \)407,000. Prepare a schedule of cash receipts from customers for January and February. Round answers to the nearest dollar.

Question: One benefit of budgeting is coordination and communication. Explain what this means.

How is the predetermined overhead allocation rate determined?

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.

Southeast Suites operates a regional hotel chain. Each hotel is operated by a manager and an assistant manager/controller. Many of the staff who run the front desk, clean the rooms, and prepare the breakfast buffet work part-time or have a second job, so employee turnover is high.

Assistant Manager/Controller Terry Dunn asked the new bookkeeper to help prepare the hotel’s master budget. The master budget is prepared once a year and is submitted to company headquarters for approval. Once approved, the master budget is used to evaluate the hotel’s performance. These performance evaluations affect hotel managers’ bonuses, and they also affect company decisions on which hotels deserve extra funds for capital improvements.

When the budget was almost complete, Dunn asked the bookkeeper to increase the amounts budgeted for labor and supplies by 15%. When asked why, Dunn responded that hotel manager Clay Murry told her to do this when she began working at the hotel. Murry explained that this budgetary cushion gave him flexibility in running the hotel. For example, because company headquarters tightly control capital improvement funds, Murry can use the extra money budgeted for labor and supplies to replace broken televisions or pay “bonuses” to keep valued employees. Dunn initially accepted this explanation because she had observed similar behavior at the hotel where she worked previously.

Requirements Put yourself in Dunn’s position. In deciding how to deal with the situation, answer the following questions:

1. What is the ethical issue?

2. What are the options?

3. What are the possible consequences?

4. What should you do?
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