Chapter 20: Q3DQ (page 912)
Question: What is the benefit of continuous budgeting?
It helps the manager optimize the actual and the desired goals so that the funds can be managed effectively.
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Kayak Co. budgeted the following cash receipts (excluding cash receipts from loans received) and cash payments (excluding cash payments for loan principal and interest payments) for the first three months of next year.
According to a credit agreement with the company’s bank, Kayak promises to have a minimum cash balance of \(30,000 at each month-end. In return, the bank has agreed that the company can borrow up to \)150,000 at a monthly interest rate of 1%, paid on the last day of each month. The interest is computed based on the beginning balance of the loan for the month. The company repays loan principal with any cash in excess of \(30,000 on the last day of each month. The company has a cash balance of \)30,000 and a loan balance of $60,000 at January 1. Prepare monthly cash budgets for January, February, and March.
Google prepares a cash budget. What is a cash budget? Why must operating budgets and the capital expenditures budget be prepared before the cash budget?
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.)
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.
Coca-Cola recently redesigned its bottle to reduce its use of glass, thus lowering its bottle’s weight and CO2 emissions. Which budgets in the company’s master budget will this redesign impact?
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