CH09 Budgetary Planning

Which of the following represents the flow of budget data under participative budgeting?

(B) Department Manager to Plant Manager to Vice President of Production.

Length of budget period

- May be prepared for any period of time. - Most common - one year - Supplement with monthly and quarterly budgets. - Different budgets may cover different time periods. - Long enough to provide an attainable goal and minimize seasonal or cyclical estimates. - Short enough for reliable estimates. - Continuous twelve-month budget.

Home Health manufactures medical supplies. For the month of April, it projects the following selling and administrative expenses: sales commissions, 8% of sales; shipping expense, $12,800; advertising and marketing costs payable next month, $4,200; electric and water utilities, $1,900; equipment depreciation, $18,700; bad debt expense, $3,000. Sales for the month of April equal $694,000. What is the total of expenses that will be reported on the budgeted income statement?【$96,120】

All items are reported on the budgeted income statement for January.Sales commission = 0.08 x $694,000 = $55,520.Reported on the budgeted income statement = $55,520 + $12,800 + $4,200 + $1,900 + $18,700 + $3,000 = $96,120.

Coordinating the preparation of the budget is the responsibility assigned to the【budget committee.】

Budgets can have a positive or negative effect on human behavior depending on the manner in which the budget is developed and administered.【True】 A budget can facilitate the coordination of activities among the segments of a large company.【true】

Which one of the following is not a benefit of budgeting? It facilitates the coordination of activities. It provides definite objectives for evaluating performance. It provides assurance that the company will achieve its objectives. It requires all levels of management to plan ahead on a recurring basis

It provides assurance that the company will achieve its objectives.

A master budget consists of financial budgets and a long-term plan. an interrelated long-term plan and operating budgets. interrelated financial budgets and operating budgets. all the accounting journals and ledgers used by a company.

【interrelated financial budgets and operating budgets.】

How is the budgeting process for not-for-profit organizations different than the budgeting process for for-profit organizations?

The not-for-profit usually starts with expenditures rather than sales.

Why are budgets useful in the planning process? They provide management with information about the company's past performance. They help communicate goals and provide a basis for evaluation. They guarantee the company will be profitable if it meets its objectives. They enable the budget committee to earn their paycheck.

They help communicate goals and provide a basis for evaluation.

The starting point in preparing a master budget is the preparation of the production budget. sales budget. purchasing budget. personnel budget.

【sales budget.】

An unrealistic budget is more likely to result when it has been developed in a bottom up fashion. has been developed by all levels of management. is developed with performance appraisal usages in mind. has been developed in a top down fashion.

【has been developed in a top down fashion.】

A budget is a substitute for management. can operate or enforce itself. is the responsibility of the accounting department. is an aid to management.

【is an aid to management.】 预算不是会计部门的责任而是管理层的责任。 The budget itself and the administration of the budget, however, are entirely management responsibilities. accountants have the responsibility for presenting management's budgeting goals in financial terms.

In the first quarter of 20x6, Ava's Chocolates sold 15,000 units for a total of $180,000 in sales. Ava's Chocolates budgets 14% of the unit sale price for direct materials costs. If Ava's Chocolates expects to increase sales by 20% each quarter, how much do they need to budget for direct materials in the first quarter of 20x7? Assume that Ava's Chocolates keeps a raw materials inventory for 10% of the next quarter's sales in stock.

If Ava's Chocolates expects to have a 20% sales increase each quarter, then they should have sales of 15,000 × 1.2 in the second quarter of 20x6 (18,000 units), 18,000 × 1.2 in the third quarter of 20x6 (21,600), 21,600 × 1.2 in the fourth quarter of 20x6 (25,920), and 25,920 × 1.2 in the first quarter of 20x7 (31,104 units). Each unit sells for $12 ($180,000 / 15,000) and has direct materials costs of $1.68 ($12 × 0.14). At the beginning of 20x7, they should have 31,104 × 10% = 3,110 units in stock, and they want to have 31,104 × 1.2 × 0.1 = 3,732 units in stock at the end of the quarter. Therefore, they need to produce 31,104 - 3,110 + 3,732 = 31,726 units in the first quarter of 20x7. At a direct materials cost of 14%, this is equal to a direct materials budget of 31,726 × $1.68 = $53,300.

Will's Tooling Shop's cash budget for 20x5 shows a planned purchase of new machinery costing $175,000. Will's manufacturing overhead budget shows annual depreciation on machinery of $10,174. Will also owns office equipment that cost $52,000. Depreciation on that equipment is expected to be $6,595 in 20x5. Will's December 31, 20x4, balance sheet shows net machinery and equipment at $245,000. Calculate Will's net machinery and equipment balance on the budgeted balance sheet for December 31, 20x5.

Balance of net machinery = Beginning balance of net machinery + New purchase - Annual depreciation = ($245,000 + 52,000) + $175,000 - ($10,174 + 6,595) = $455,231.

【Glossary Review】 Budget--A formal written statement of management's plans for a specified future time period, expressed in financial terms. Budget committee--A group responsible for coordinating the preparation of the budget. Budgetary slack--The amount by which a manager intentionally underestimates budgeted revenues or overestimates budgeted expenses in order to make it easier to achieve budgetary goals. Budgeted balance sheet--A projection of financial position at the end of the budget period.

Budgeted income statement--An estimate of the expected profitability of operations for the budget period. Cash budget--A projection of anticipated cash flows. Direct labor budget--A projection of the quantity and cost of direct labor necessary to meet production requirements. Direct materials budget--An estimate of the quantity and cost of direct materials to be purchased.

In their "off" months, Sanford Accountants employs five full-time accountants who each work 40 hours per week. However, during tax season, Sanford hires additional accountants to help prepare tax returns for clients. In the month of March, Sanford will need to log 3,500 labor hours to complete tax returns. How many additional accountants does Sanford need to hire? Assume March has 22 work days.

If March has 22 work days and they need to log 3,500 hours, this equals 159 labor hours per day (3,500/22). If each accountant works 8 hours, the company will need 20 employees to produce 159 labor hours of work (159/8 = 19.89 employees). They already have 5 employees, so they will need an additional 15 employees (20 - 5) to reach the needed labor hours.

Which of the following is a characteristic of long-range planning?

It is used to review progress rather than as a basis for control.

Whiting Industries expects to produce and sell 3,180 units in May. Each unit costs $3.47 to produce and sells for $8.59. Whiting sells its products to retail stores in sets of four. Each set of four costs Whiting $1.00 to ship. In addition, sales commissions equal 3% of the net profit for each unit. What will Whiting's total selling and administrative variable expenses be for May?

Whiting's two variable expenses are sales commissions and freight-out. Freight-out costs will be (3,180/4)× $1.00 = $795. Sales commissions will be ($8.59 - $3.47) = $5.12 × 0.03 = 0.1536 × 3,180 = $488.45. The total variable costs will be $795 + $488.45 = $1,283.45.

Budgeting is usually most closely associated with which management function?【Planning】 The culmination of preparing operating budgets is the【budgeted income statement.】

Why are budgets useful in the planning process? 【They help communicate goals and provide a basis for evaluation.】 Budget【is an aid to management.】

Sophia, Inc., is preparing its cash budget for the fourth quarter. The inventory manager advises that materials purchases will be $40,000 in October and will increase by 25% for each month thereafter because of the holiday season. Sophia's purchases in September were $32,000. Sophia pays for purchases 50% in the month after sale and 50% in the second month after the sale. What are Sophia's budgeted cash payments for purchases in November?

【$36,000.】 November payments = 50% of October purchases + 50% of September purchases = $20,000 + $16,000 = $36,000.

The culmination of preparing operating budgets is the production budget. cash budget. budgeted income statement. budgeted balance sheet.

【budgeted income statement.】

CC Candy Manufacturers produces and sells a variety of candies, including fudge. In budgeting for production, the company requires that 20% of the next month's sales be on hand at the end of each month. Budgeted sales of fudge for the next four months are: Budgeted sales of fudge Feb $45000 Budgeted sales of fudge Mar $60000 Budgeted sales of fudge Apr $90000 Budgeted sales of fudge May $75000 The budgeted production for April would be ________ pounds.

Budgeted production = 90,000 + (75,000 x 20%) - (90,000 x 20%) = 87,000 pounds.

Nathan is working on the operating budgets for his company. He has already done the sales and production budgets, and he is now working on the direct materials, direct labor, and manufacturing overhead budgets. He decides to do the direct labor budget first, then the manufacturing overhead budget, then the direct materials budget. Do you think this is an appropriate way to prepare the budgets? Why or why not? A No, because the manufacturing overhead budget depends on the direct materials budget, so the direct materials budget should be prepared second. B Yes, because the direct materials budget depends on the direct labor and manufacturing overhead budgets, so it should always be prepared last. C Yes, because the manufacturing overhead budget depends on the direct labor budget, but none of the other budgets depend on the direct materials budget. D No, because the direct labor budget depends on the direct materials budget, so the direct materials budget should be prepared first.

C Yes, because the manufacturing overhead budget depends on the direct labor budget, but none of the other budgets depend on the direct materials budget. Explain: The variable cost portion of the manufacturing overhead budget is often based on direct labor hours, so the direct labor budget needs to be completed before the manufacturing overhead budget in order for the manufacturing overhead budget to be accurate. However, neither the direct labor budget nor the manufacturing overhead budget depend on the direct materials budget, so the direct materials budget can be completed anywhere in the sequence.

Which of the following statements is correct? A : The budgets of service companies are approved by voters. B : The production budget is derived from the direct materials and direct labor budget. C : In the budget process for not-for-profit organizations, the emphasis is on cash flow rather than on revenue and expenses. D : Service companies prepare budget data using an expected input approach while manufacturers prepare budget data using an expected output approach.

C : In the budget process for not-for-profit organizations, the emphasis is on cash flow rather than on revenue and expenses.

Ellen is a manager who helps develop sales promotions, targets customers for upselling, and searches for potential new customers. Which of the following budgets would Ellen most likely help develop? A : selling and administrative expense budget B : manufacturing overhead budget C : sales budget D : cash budget

C : sales budget

James Company determines that 13,500 pounds of direct materials are needed for production in July. There are 800 pounds of direct materials on hand at July 1 and the desired ending inventory is 700 pounds. If the cost per pound of direct materials is $3, what is the budgeted total cost of direct materials purchases? A : $41,400 B : $40,800 C : $39,600 D : $40,200

D : $40,200

【Glossary Review】 Financial budgets--Individual budgets that focus primarily on the cash resources needed to fund expected operations and planned capital expenditures. Long-range planning--A formalized process of identifying long-term goals, selecting strategies to achieve those goals, and developing policies and plans to implement the strategies. Manufacturing overhead budget--An estimate of expected manufacturing overhead costs for the budget period. Master budget--A set of interrelated budgets that constitutes a plan of action for a specific time period. Merchandise purchases budget--The estimated cost of goods to be purchased by a merchandiser to meet expected sales.

Operating budgets--Individual budgets that result in a budgeted income statement. Participative budgeting--A budgetary approach that starts with input from lower-level managers and works upward so that managers at all levels participate. Production budget--A projection of the units that must be produced to meet anticipated sales. Sales budget--An estimate of expected sales revenue for the budget period. Sales forecast--The projection of potential sales for the industry and the company's expected share of such sales. Selling and administrative expense budget--A projection of anticipated selling and administrative expenses for the budget period.

Crowley Grocers has a budgeted cost of goods sold of $87,000 for the month of June and $89,000 for the month of July. They currently have $4,350 in their merchandise inventory, and they want to have 5% of their next month's inventory in stock at the end of the month. How much merchandise will they need to purchase in June?

Required merchandise purchases = budgeted cost of goods sold ($87,000) + desired ending merchandise inventory ($89,000 × 0.05 = $4,450) - beginning merchandise inventory ($4,350) = $87,100.

If budgets are to be effective, all of the following must be present except research and analysis in setting realistic goals. stockholders' approval of the budget. sound organizational structure. acceptance at all levels of management.

【stockholders' approval of the budget.】