Chapter 22: 15RQ (page 1228)
What are the three sections of the cash budget?
Cash receipts, cash payments, and short-term financing are three sections of the cash budget.
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Using sensitivity analysis Holly Company prepared the following budgeted income statement for the first quarter of 2018:
Holly Company is considering two options. Option 1 is to increase advertising by \(700 per month. Option 2 is to use better-quality materials in the manufacturing process. The better materials will increase the cost of goods sold to 45% but will provide a better product at the same sales price. The marketing manager projects either option will result in sales increases of 30% per month rather than 20%.
Requirements
1. Prepare budgeted income statements for both options, assuming both options begin in January and January sales remain \)8,000. Round all calculations to the nearest dollar.
2. Which option should Holly choose? Explain your reasoning.
Preparing a financial budget—schedule of cash receipts
Victors expects total sales of \(702,000 for January and \)349,000 for February. Assume that Victor'ssales are collected as follows:
50% in the month of the sale
30% in the month after the sale
16% two months after the sale
4% never collected
November sales totaled \(388,000, and December sales were \)407,000. Prepare a schedule of cash receipts from customers for January and February. Round answers to the nearest dollar.
Preparing an operating budget—direct labor budget Baker Company expects to produce 2,050 units in January and 1,994 units in February. Baker budgets five direct labor hours per unit. Direct labor costs average $9 per hour. Prepare Baker’s direct labor budget for January and February.
Using sensitivity analysis Rucker Company prepared the following budgeted income statement for 2019:
Requirements
1. Prepare a budgeted income statement with columns for 700 units, 1,300 units, and 1,700 units sold.
2. How might managers use this type of budgeted income statement?
3. How might spreadsheet software such as Excel assist in this type of analysis?
Understanding the components of the master budgetThe following are some of the components included in the master budget of amerchandising company.
a. Budgeted balance sheet
b. Sales budget
c. Capital expenditures budget
d. Budgeted income statement
e. Cash budget
f. Inventory, purchases, and cost of goods sold budget
g. Selling and administrative expense budget
List the items of the master budget in order of preparation.
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