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Chapter 22: Q1RQ (page 1228)
Question: List the four budgeting objectives.
Answer
Four budgeting objectives are:
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Preparing a financial budget—schedule of cash payments
Marcel Company has the following projected costs for manufacturing and selling and administrative expenses:
January February March Direct materials purchases \( 3,100 \) 3,500 $ 4,800 Direct labor costs 3,300 3,500 3,600 Depreciation on plant 550 550 550 Utilities for plant 650 650 650 Property taxes on plant 200 200 200 Depreciation on office 550 550 550 Utilities for office 250 250 250 Property taxes on office 170 170 170 Office salaries 3,500 3,500 3,500
All costs are paid in month incurred except: direct materials, which are paid in the month following the purchase; utilities, which are paid in the month after incurred; and property taxes, which are prepaid for the year on January 2. The Accounts Payable and Utilities Payable accounts have a zero balance on January 1. Prepare a schedule of cash payments for Marcel for January, February, and March. Determine the balances in Prepaid Property Taxes, Accounts Payable, and Utilities Payable as of March 31.
Preparing an operating budget—sales budget; inventory, purchases and COGS budget; and S&A expense budget Ballard Office Supply’s March 31, 2018, balance sheet follows:
The budget committee of Ballard Office Supply has assembled the following data.
a. Sales in April are expected to be \(160,000. Ballard forecasts that monthly sales will increase 2% over April sales in May. June’s sales will increase by 4% over April sales. July sales will increase 20% over April sales.
b. Ballard maintains inventory of \)7,000 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 \(3,000. Sales commissions equal 5% of sales for that month.
d. Other monthly expenses are as follows: • Rent: \)3,400 • Depreciation: \(800 • Insurance: \)300 • Income tax: $1,500
Requirements
1. Prepare Ballard’s sales budget for April and May 2018. Round all calculations to the nearest dollar.
2. Prepare Ballard’s inventory, purchases, and cost of goods sold budget for April and May.
3. Prepare Ballard’s selling and administrative expense budget for April and May.
Question: Preparing an operating budget—sales, production, direct materials, direct labor, overhead, COGS, and S&A expense budgets
The Langley Batting Company manufactures wood baseball bats. Langley’s two primary products are a youth bat, designed for children and young teens, and an adult bat, designed for high school and college-aged players. Langley sells the bats to sporting goods stores, and all sales are on account. The youth bat sells for \(40; the adult bat sells for \)65. Langley’s highest sales volume is in the first three months of the year as retailers prepare for the spring baseball season. Langley’s balance sheet for December 31, 2018, follows:
Other data for Langley Batting Company for the first quarter of 2019:
a. Budgeted sales are 1,200 youth bats and 2,600 adult bats.
b. Finished Goods Inventory on December 31, 2018, consists of 300 youth bats at \(14 each and 950 adult bats at \)18 each.
c. Desired ending Finished Goods Inventory is 350 youth bats and 300 adult bats; FIFO inventory costing method is used.
d. Direct materials requirements are 48 ounces of wood per youth bat and 56 ounces of wood per adult bat. The cost of wood is \(0.25 per ounce.
e. Raw Materials Inventory of December 31, 2018, consists of 24,000 ounces of wood at \)0.25 per ounce.
f. Desired ending Raw Materials Inventory is 24,000 ounces (indirect materials are insignificant and not considered for budgeting purposes).
g. Each bat requires 0.7 hours of direct labor; direct labor costs average \(18 per hour. h. Variable manufacturing overhead is \)0.30 per bat.
i. Fixed manufacturing overhead includes \(1,300 per quarter in depreciation and \)20,140 per quarter for other costs, such as insurance and property taxes.
j. Fixed selling and administrative expenses include \(9,000 per quarter for salaries; \)2,500 per quarter for rent; \(1,000 per quarter for insurance; and \)200 per quarter for depreciation.
k. Variable selling and administrative expenses include supplies at 2% of sales.
Requirements
1. Prepare Langley’s sales budget for the first quarter of 2019.
2. Prepare Langley’s production budget for the first quarter of 2019.
3. Prepare Langley’s direct materials budget, direct labor budget, and manufacturing overhead budget for the first quarter of 2019. Round the predetermined overhead allocation rate to two decimal places. The overhead allocation base is direct labor hours.
4. Prepare Langley’s cost of goods sold budget for the first quarter of 2019.
5. Prepare Langley’s selling and administrative expense budget for the first quarter of 2019.
What is the formula used to determine the amount of merchandise inventory to be purchased?
Question: Preparing a financial budget—schedule of cash receipts, schedule cash payments, cash budget
Baxter Company’s budget committee provides the following information: December 31, 2017, account balances:
1. Prepare the schedule of cash receipts from customers for January and February 2018. Assume cash receipts are 80% in the month of the sale and 20% in the month following the sale.
2. Prepare the schedule of cash payments for purchases for January and February 2018. Assume purchases are paid 60% in the month of purchase and 40% in the month following the purchase.
3. Prepare the schedule of cash payments for selling and administrative expenses for January and February 2018. Assume 40% of the accrual for Salaries and Commissions Payable is for commissions and 60% is for salaries. The December 31 balance will be paid in January. Salaries and commissions are paid 30% in the month incurred and 70% in the following month. Rent and income tax expenses are paid as incurred. Insurance expense is an expiration of the prepaid amount.
4. Prepare the cash budget for January and February 2018. Assume no financing took place.
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