Chapter 22: 1SE (page 1228)
Budgeting benefits List the three key benefits companies get from preparing a budget.
The key benefits companies get from preparing a budget isplanning, coordination and communication, and benchmarking.
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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.
Crowley Company projects the following sales:
January February March
Cash sales (25%) \( 5,000 \) 5,500 \( 6,000
Sales on account (75%) 15,000 16,500 18,000
Total sales \) 20,000 \( 22,000 \) 24,000
Crowley collects sales on account in the month after the sale. The Accounts Receivable balance on January 1 is \(13,500, which represents December’s sales on account. Crowley projects the following cash receipts from customers:
January February March
Cash receipts from cash sales \) 5,000 \( 5,500 \) 6,000
Cash receipts from sales on account 13,500 15,000 16,500
Total cash receipts from customers \( 18,500 \) 20,500 $ 22,500
Recalculate cash receipts from customers if total sales remain the same but cash sales are only 20% of the total.
Preparing an operating budget—cost of goods sold budget Butler Company expects to sell 1,650 units in January and 1,550 units in February. The company expects to incur the following product costs:
Direct materials cost per unit \( 85
Direct labor cost per unit 60
Manufacturing overhead cost per unit 55
The beginning balance in Finished Goods Inventory is 250 units at \)200 each for a total of $50,000. Butler uses FIFO inventory costing method. Prepare the cost of goods sold budget for Butler for January and February.
Preparing the financial budget—cash budget Hoppy Company requires a minimum cash balance of $3,500. When the company expects a cash deficiency, it borrows the exact amount required on the first of the month. Expected excess cash is used to repay any amounts owed. Interest owed from the previous month’s principal balance is paid on the first of the month at 14% per year. The company has already completed the budgeting process for the first quarter for cash receipts and cash payments for all expenses except interest. Hoppy does not have any outstanding debt on January 1. Complete the cash budget for the first quarter for Hoppy Company. Round interest expense to the nearest whole dollar.
What budgets are included in the financial budget for a merchandising company?
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