Chapter 20: Q2DQ (page 912)
Question: How does a budget benefit management in its control function?
Abudget guides the top management in smoothly making the crucial financial decisions of an organization to avoid the risk of loss.
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Match the definitions 1 through 9 with the term or phrase a through i
a. Budget
b. Cash budget
c. Merchandise purchases budget
d. Safety stock
e. Budgeted income statement
f. General and administrative expense budget
g. Sales budget
h. Master budget
i. Budgeted balance sheet
1. A comprehensive business plan that includes specific plans for expected sales, the units of product to be produced, the merchandise or materials to be purchased, the expenses to be incurred, the long-term assets to be purchased, and the amounts of cash to be borrowed or loans to be repaid, as well as a budgeted income statement and balance sheet.
2. A quantity of inventory or materials over the minimum to reduce the risk of running short.
3. A plan showing the units of goods to be sold and the sales to be derived; the usual starting point in the budgeting process.
4. An accounting report that presents predicted amounts of the company’s revenues and expenses for the budgeting period.
5. An accounting report that presents predicted amounts of the company’s assets, liabilities, and equity balances at the end of the budget period.
6. A plan that shows the units or costs of merchandise to be purchased by a merchandising company during the budget period.
7. A formal statement of a company’s future plans, usually expressed in monetary terms.
8. A plan that shows predicted operating expenses not included in the selling expenses budget.
9. A plan that shows the expected cash inflows and cash outflows during the budget period, including receipts from any loans needed to maintain a minimum cash balance and repayments of such loans.
Black Diamond Company produces snow skis. Each ski requires 2 pounds of carbon fiber. The company’s management predicts that 5,000 skis and 6,000 pounds of carbon fiber will be in inventory on June 30 of the current year and that 150,000 skis will be sold during the next (third) quarter. A set of two skis sells for \(300. Management wants to end the third quarter with 3,500 skis and 4,000 pounds of carbon fiber in inventory. Carbon fiber can be purchased for \)15 per pound. Each ski requires 0.5 hours of direct labor at \(20 per hour. Variable overhead is applied at the rate of \)8 per direct labor hour. The company budgets fixed overhead of $1,782,000 for the quarter.
Required
1. Prepare the third-quarter production budget for skis.
2. Prepare the third-quarter direct materials (carbon fiber) budget; include the dollar cost of purchases.
3. Prepare the direct labor budget for the third quarter.
4. Prepare the factory overhead budget for the third quarter.
Use the following information to prepare a cash budget for the month ended on March 31 for Gado Company. The budget should show expected cash receipts and cash payments for the month of March and the balance expected on March 31.
a. Beginning cash balance on March 1, \(72,000.
b. Cash receipts from sales, \)300,000.
c. Budgeted cash payments for direct materials, \(140,000.
d. Budgeted cash payments for direct labor, \)80,000.
e. Other budgeted cash expenses, \(45,000.
f. Cash repayment of bank loan, \)20,000.
Torres Co. forecasts merchandise purchases of \(15,800 in January, \)18,600 in February, and \(20,200 in March; 40% of purchases are paid in the month of purchase and 60% are paid in the following month. At December 31 of the prior year, the balance of accounts payable (for December purchases) is \)22,000. Prepare a schedule of cash payments for merchandise for each of the months of January, February, and March.
Raider-X Company forecasts sales of 18,000 units for April. Beginning inventory is 3,000 units. The desired ending inventory is 30% higher than the beginning inventory. How many units should Raider-X purchase in April?
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