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Chapter 20: Q13DQ (page 913)

Does the manager of a Samsung distribution center participate in long-term budgeting? Explain.

Short Answer

Expert verified

The manager of the distribution center will not participatein long-term budgeting.

Step by step solution

01

Meaning of Budget

Budgeting is planning for the future to maintain control of the organization's operations and is prepared for a certain period.

02

Step 2: A detailed explanation regarding the involvement of the manager of a Samsung distribution center in long-term budgeting

No, the distribution center manager will not be involved in long-term budgeting.

  1. Long-term budgeting is costlier than short-term budgeting since it is planned for the long run. It frequently lasts more than a year. This budgeting is done to meet the company's long-term goals.
  2. Future sales, long-term capital expenditures, profit forecasts, and future production are all covered under long-term budgeting. It lowers the danger but does not eliminate it.
  3. The distribution center manager manages the daily activities of his distribution center, which also monitor inventory and supervises the people under his supervision. He must plan activities by the company's budget.

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Most popular questions from this chapter

The management of Nabar Manufacturing prepared the following estimated balance sheet for June 2017:

NABAR MANUFACTURING

Estimated Balance Sheet

June 30, 2017

Assets

Liabilities and Equity

Cash

\( 40,000

Accounts payable

\) 51,400

Accounts receivable

249,900

Income taxes payable.

10,000

Raw materials inventory

35,000

Short-term notes payable

24,000

Finished goods inventory

241,080

Total current liabilities

85,400

Total current assets

565,980

Long-term note payable

300,000

Equipment

720,000

Total liabilities

385,400

Accumulated depreciation

(240,000)

Common stock

600,000

Equipment, net.

480,000

Retained earnings

60,580

Total stockholders’ equity

660,580

Total assets.

\(1,045,980

Total liabilities and equity

\)1,045,980

To prepare a master budget for July, August, and September of 2017, management gathers the following information:

  1. Sales were 20,000 units in June. Forecasted sales in units are as follows: July, 21,000; August, 19,000; September, 20,000; and October, 24,000. The product’s selling price is \(17 per unit and its total product cost is \)14.35 per unit.
  2. Company policy calls for a given month’s ending finished goods inventory to equal 70% of the next month’s expected unit sales. The June 30 finished goods inventory is 16,800 units, which does not comply with the policy.
  3. Company policy calls for a given month’s ending raw materials inventory to equal 20% of the next month’s materials requirements. The June 30 raw materials inventory is 4,375 units (which also fails to meet the policy). The budgeted September 30 raw materials inventory is 1,980 units. Raw materials cost \(8 per unit. Each finished unit requires 0.50 units of raw materials.
  4. Each finished unit requires 0.50 hours of direct labor at a rate of \)16 per hour.
  5. Overhead is allocated based on direct labor hours. The predetermined variable overhead rate is \(2.70 per direct labor hour. Depreciation of \)20,000 per month is treated as fixed factory overhead.
  6. Monthly general and administrative expenses include \(9,000 administrative salaries and 0.9% monthly interest on the long-term note payable.
  7. Sales representatives’ commissions are 10% of sales and are paid in the month of the sales. The sales manager’s monthly salary is \)3,500.
  8. The company expects 30% of sales to be for cash and the remaining 70% on credit. Receivables are collected in full in the month following the sale (none are collected in the month of the sale).
  9. All raw materials purchases are on credit, and no payables arise from any other transactions. One month’s raw materials purchases are fully paid in the next month.
  10. Dividends of \(20,000 are to be declared and paid in August.
  11. Income taxes payable at June 30 will be paid in July. Income tax expense will be assessed at 35% in the quarter and paid in October.
  12. Equipment purchases of \)100,000 are budgeted for the last day of September.
  13. The minimum ending cash balance for all months is $40,000. If necessary, the company borrows enough cash using a short-term note to reach the minimum. Short-term notes require an interest payment of 1% at each month-end (before any repayment). If the ending cash balance exceeds the minimum, the excess will be applied to repaying the short-term notes payable balance.

Required

Prepare the following budgets and other financial information as required. All budgets and other financial information should be prepared for the third calendar quarter, except as otherwise noted below. Round calculations to the nearest whole dollar.

  1. Sales budget.
  2. Production budget.
  3. Raw materials budget.
  4. Direct labor budget.
  5. Factory overhead budget.
  6. Selling expense budget.
  7. General and administrative expense budget.
  8. Cash budget.
  9. Budgeted income statement for the entire quarter (not for each month separately).
  10. Budgeted balance sheet as of September 30, 2017.

During the last week of August, Oneida Company’s owner approaches the bank for a \(100,000 loan to be made on September 2 and repaid on November 30 with annual interest of 12%, for an interest cost of \)3,000. The owner plans to increase the store’s inventory by \(80,000 during September and needs the loan to pay for inventory acquisitions. The bank’s loan officer needs more information about Oneida’s ability to repay the loan and asks the owner to forecast the store’s November 30 cash position. On September 1, Oneida is expected to have a \)5,000 cash balance, \(159,100 of net accounts receivable, and \)125,000 of accounts payable. Its budgeted sales, merchandise purchases, and various cash payments for the next three months follow.

The budgeted September merchandise purchases include the inventory increase. All sales are on account. The company predicts that 25% of credit sales is collected in the month of the sale, 45% in the month following the sale, 20% in the second month, 9% in the third, and the remainder is uncollectible. Applying these percents to the August credit sales, for example, shows that \(96,750 of the \)215,000 will be collected in September, \(43,000 in October, and \)19,350 in November. All merchandise is purchased on credit; 80% of the balance is paid in the month following a purchase, and the remaining 20% is paid in the second month. For example, of the \(125,000 August purchases, \)100,000 will be paid in September and $25,000 in October. Required Prepare a cash budget for September, October, and November. Show supporting calculations as needed.

Scora, Inc., is preparing its master budget for the quarter ending March 31. It sells a single product for $50 per unit. Budgeted sales for the next three months follow. Prepare a sales budget for the months of January, February, and March.

Zisk Co. purchases raw materials on account. Budgeted purchase amounts are: April, \(80,000; May, \)110,000; and June, \(120,000. Payments are made as follows: 70% in the month of purchase and 30% in the month after purchase. The March 31 balance of accounts payable is \)22,000. Prepare a schedule of budgeted cash payments for April, May, and June

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.
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