Chapter 20: 8DQ (page 912)
What is a selling expense budget? What is a capital expenditures budget?
A budget is prepared for estimating the future income and expenditure of the firm so that optimum usage of the organization's equity and debt fund can be made.
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Karim Corp. requires a minimum \(8,000 cash balance. If necessary, loans are taken to meet this requirement at a cost of 1% interest per month (paid monthly). Any excess cash is used to repay loans at month-end. The cash balance on July 1 is \)8,400, and the company has no outstanding loans. Forecasted cash receipts (other than for loans received) and forecasted cash payments (other than for loan or interest payments) follow. Prepare a cash budget for July, August, and September. (Round interest payments to the nearest whole dollar.)
Mike’s Motors Corp. manufactures motors for dirt bikes. The company requires a minimum \(30,000 cash balance at each month-end. If necessary, the company borrows to meet this requirement, at a cost of 2% interest per month (paid at the end of each month). Any cash balance above \)30,000 at month-end is used to repay loans. The cash balance on July 1 is $34,000, and the company has no outstanding loans at that time. Forecasted cash receipts and forecasted cash payments (other than for loan activity) are as follows. Prepare a cash budget for July, August, and September.
Addison Co. budgets production of 2,400 units during the second quarter. In addition, information on its direct labor and its variable and fixed overhead is shown below. For the second quarter, prepare (2) a factory overhead budget
Walker Company prepares monthly budgets. The current budget plans for a September ending merchandise inventory of 30,000 units. Company policy is to end each month with merchandise inventory equal to 15% of budgeted sales for the following month. Budgeted sales and merchandise purchases for the next three months follow. The company budgets sales of 200,000 units in October. Prepare the merchandise purchases budgets for the months of July, August, and September.
Big Sound, a merchandising company specializing in home computer speakers, budgets its monthly cost of goods sold to equal 70% of sales. Its inventory policy calls for ending inventory at the end of each month to equal 20% of the next month’s budgeted cost of goods sold. All purchases are on credit, and 25% of the purchases in a month is paid for in the same month. Another 60% is paid for during the first month after purchase, and the remaining 15% is paid for in the second month after purchase. The following sales budgets are set: July, \(350,000; August, \)290,000; September, \(320,000; October, \)275,000; and November, $265,000.
Compute the following:
(1) budgeted merchandise purchases for July, August, September, and October;
(2) budgeted payments on accounts payable for September and October; and
(3) budgeted ending balances of accounts payable for September and October. (Hint: For part 1, refer to Exhibits 20A.2 and 20A.3 for guidance, but note that budgeted sales are in dollars for this assignment.)
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