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Exam 10: Static and Flexible Budgets

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Question 1

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(Appendix 10A) Which of the following items is least likely to be included in a cash budget?

A) Accounts receivable collections
B) Cash paid for amortization
C) Short-term borrowing
D) Long-term debt repayments

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Question 2

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Which of the following is a new type of information technology project management that emphasizes communication between customers and information technology personnel?

A) Kaizen budgeting
B) Extreme programming
C) Activity-based budgeting
D) Flexible budgeting

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B

Question 3

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Kelita, Inc., projects sales for its first three months of operation as follows: October November December Credit sales $100,000 $150,000 $200,000 Cash sales 40,000 60,000 50,000 Total Sales $140,000 $210,000 $250,000 Inventory on October 1 is $40,000. Subsequent beginning inventories should be 40% of that month's cost of goods sold. Goods are priced at 140% of their cost. 50% of purchases are paid for in the month of purchase; the balance is paid in the following month. It is expected that 50% of credit sales will be collected in the month following sale, 30% in the second month following the sale, and the balance the third month. A 5% discount is given if payment is received in the month following sale. What is the projected cost of purchases for October?

(CA) The Dilly Company marks up all merchandise at 25% of gross purchase price. All purchases are made on account with terms of 1/10, (1% discount if paid in 10 days) net/60 (full amount due within 60 days) . Purchase discounts, which are recorded as miscellaneous income, are always taken. Normally, 60% of each month's purchases are paid for in the first month after purchase, whereas the other 40% are paid during the first 10 days of the first month after purchase. Inventories of merchandise at the end of each month are kept at 30% of the next month's forecasted cost of goods sold. Terms for sales on account are 2/10 (2% discount if paid within 10 days) , net/30 (full amount due in 30 days) . Cash sales are not subject to discount. Fifty percent of each month's sales on account are collected during the month of sale, 45% are collected in the succeeding month, and the remainder is usually uncollectible. Seventy percent of the collections in the month of sale are subject to discount, and 10% of the collections in the succeeding month are subject to discount (2%) . Forecasted sales data and cost of sales for selected months are as follows: Sales on Account (Gross) Cash Sales Cost of Goods sold December $1,900,000 $400,000 $1,840,000 January 1,500,000 250,000 1,400,000 February 1,700,000 350,000 1,640,000 March 1,600,000 300,000 1,520,000 (Appendix 10A) Forecasted total collections from customers during February are:

A financial budget is the master budget component that leads to all budgeted financial statements.

In a recent accounting period, Donio Company experienced a $12,000 unfavourable variance for variable production costs. Explain the meaning of an unfavourable variance. Suggest two possible reasons why a manufacturing company might experience an unfavourable variable production cost variance.

ATR Corporation's budgeted product costs for the third quarter of 20x2 were based on an expected volume of 1,500 units. The budgeted unit costs appear below: Direct material $ 1.50 Direct labour 2.25 Variable overhead 4.25 Fixed overhead 3.00 Total $11.00 If ATR had a budgeted volume of 2,000 units, the total budgeted product cost for the third quarter of 20x2 would have been:

If actual activities do not follow plans, a variance is likely to result.

(Appendix 10A) Taft Corporation collects cash from customers as follows: 60% in the month of sale, 20% in the month after sale, 19% in the second month after sale, and 1% is never collected. Bad debts are written off annually in December. Budgeted sales are all on credit and amount to: May $600,000 June 700,000 July 500,000 August 600,000 What is the budgeted amount of accounts receivable at the end of August?

At the end of 20x1, SWP Corporation prepared its master budget for 20x2. Selected amounts from that budget, along with actual results for 20x2, are presented below: Which items in the table have unfavourable variances?

(Appendix 10A) To prepare a cash budget, managers plan: I. Cash receipts II. Cash disbursements III. Short-term borrowing or investments

(CA) The Dilly Company marks up all merchandise at 25% of gross purchase price. All purchases are made on account with terms of 1/10, (1% discount if paid in 10 days) net/60 (full amount due within 60 days) . Purchase discounts, which are recorded as miscellaneous income, are always taken. Normally, 60% of each month's purchases are paid for in the first month after purchase, whereas the other 40% are paid during the first 10 days of the first month after purchase. Inventories of merchandise at the end of each month are kept at 30% of the next month's forecasted cost of goods sold. Terms for sales on account are 2/10 (2% discount if paid within 10 days) , net/30 (full amount due in 30 days) . Cash sales are not subject to discount. Fifty percent of each month's sales on account are collected during the month of sale, 45% are collected in the succeeding month, and the remainder is usually uncollectible. Seventy percent of the collections in the month of sale are subject to discount, and 10% of the collections in the succeeding month are subject to discount (2%) . Forecasted sales data and cost of sales for selected months are as follows: Sales on Account (Gross) Cash Sales Cost of Goods sold December $1,900,000 $400,000 $1,840,000 January 1,500,000 250,000 1,400,000 February 1,700,000 350,000 1,640,000 March 1,600,000 300,000 1,520,000 (Appendix 10A) Forecasted sales discounts to be taken by customers making remittances during February are:

The revenues budget:

Production and inventory budgets form the basis for developing the revenue budget.

How are budgets related to organizational strategies?

Activity based budgeting:

To prepare a budgeted income statement, managers draw data from the revenue budget, the cost of goods sold budget, and the cash budget.

An operating budget is the component of a master budget that contains management's plans for revenues, production, and operating costs.

Expected ending inventory volumes and costs need to be calculated to forecast:

ATR Corporation's budgeted product costs for the third quarter of 20x2 were based on an expected volume of 1,500 units. The budgeted unit costs appear below: Direct material $ 1.50 Direct labour 2.25 Variable overhead 4.25 Fixed overhead 3.00 Total $11.00 If ATR's actual volume for the third quarter of 20x2 was 15% above its expected volume: I. Actual total costs will be 15% greater than budgeted total costs II. Actual cost per unit will be 15% greater than budgeted cost per unit