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Chapter 22: Q6TI (page 1219)

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.

Short Answer

Expert verified

The total selling and administrative expenses for January, February, and Marchare$2,400, $1,800, and $1,800, respectively.

Step by step solution

01

Meaning of Selling and Administrative Expense Budget

The selling and administrative expense budget is prepared to estimate the company’s selling and administrative expenses needed for projected sales.

02

 Step 2: Preparation of selling and administrative expense budget

Particulars

January

February

March

Rent expense

$1,000

$1,000

$1,000

Utilities expense

$500

$500

$500

Depreciation expense

$300

$300

$300

Insurance expense ($100*6)

$600

-

-

Total selling and administration expenses

$2,400

$1,800

$1,800

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Most popular questions from this chapter

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.

Using sensitivity analysis in budgeting

Refer to the Victors schedule of cash receipts from customers that you prepared in Short Exercise S22-15. Now assume that Victors’s sales are collected as follows:

40% in the month of the sale

20% in the month after the sale

39% two months after the sale

1% never collected

Prepare a revised schedule of cash receipts for January and February

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—selling and administrative expense budget

Consider the sales budget presented in Exercise E22-31. Slate’s selling and administrative expenses include the following:

Rent, \(2,000 per month

Salaries, \)4,000 per month

Commissions, 5% of sales

Depreciation, $1,000 per month

Miscellaneous expenses, 2% of sales

Prepare a selling and administrative expense budget for each of the three quarters of 2018 and totals for the nine-month period.

Preparing a financial budget—cash budget

Booth has \(12,500 in cash on hand on January 1 and has collected the following budget data:

January February

Sales \) 529,000 \( 568,000

Cash receipts from customers 443,000 502,200

Cash payments for direct materials purchases 180,624 160,284

Direct labor costs 135,010 113,348

Manufacturing overhead costs (includes

depreciation of \)900 per month) 55,058 53,922

Assume direct labor costs and manufacturing overhead costs are paid in the month incurred. Additionally, assume Booth has cash payments for selling and administrative expenses including salaries of \(40,000 per month plus commissions that are 1% of sales, all paid in the month of sale. The company requires a minimum cash balance of \)20,000. Prepare a cash budget for January and February. Round to the nearest dollar. Will Booth need to borrow cash by the end of February?
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