Chapter 20: Q1DQ (page 912)
Question: Identify at least three benefits of budgeting in helping managers plan and control a business.
The main benefit of budgeting is to help the manager communicate the organization's plans to its employees.
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Question: Built-Tight is preparing its master budget for the quarter ended September 30, 2017. Budgeted sales and cash payments for product costs for the quarter follow:
Sales are 20% cash and 80% on credit. All credit sales are collected in the month following the sale. The June 30 balance sheet includes balances of \(15,000 in cash; \)45,000 in accounts receivable; \(4,500 in accounts payable; and a \)5,000 balance in loans payable. A minimum cash balance of \(15,000 is required. Loans are obtained at the end of any month when a cash shortage occurs. Interest is 1% per month based on the beginning-of-the-month loan balance and is paid at each month-end. If an excess balance of cash exists, loans are repaid at the end of the month. Operating expenses are paid in the month incurred and consist of sales commissions (10% of sales), office salaries (\)4,000 per month), and rent ($6,500 per month).
1. Prepare a cash receipts budget for July, August, and September.
2. Prepare a cash budget for each of the months of July, August, and September. (Round amounts to the dollar.)
For each of the following items 1 through 5, indicate yes if the item is an important budgeting guideline or no if it is not.
1. Employees should have the opportunity to explain differences from budgeted amounts.
2. Budgets should include budgetary slack.
3. Employees impacted by a budget should be consulted when it is prepared.
4. Goals in a budget should be set low so targets can be reached.
5. Budgetary goals should be attainable.
Question: How does a budget benefit management in its control function?
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
Blue Wave Co. predicts the following unit sales for the coming four months: September, 4,000 units; October, 5,000 units; November, 7,000 units; and December, 7,600 units. The company’s policy is to maintain finished goods inventory equal to 60% of the next month’s sales. At the end of August, the company had 2,400 finished units on hand. Prepare a production budget for each of the months of September, October, and November.
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