Chapter 22: 6RQ (page 1228)
Explain the difference between static and flexible budgets.
A static budget is prepared once and does not affect or change the actual volume of output. On the other hand, the Flexible budget changes with the actual output volume.
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Completing a comprehensive budgeting problem—merchandising company Alliance Printing Supply of Baltimore has applied for a loan. Its bank has requested a budgeted income statement for April 2018 and a balance sheet at April 30, 2018. The March 31, 2018, balance sheet follows:
As Alliance Printing Supply’s controller, you have assembled the following additional information:
a. April dividends of \(7,000 were declared and paid.
b. April capital expenditures of \)16,300 budgeted for cash purchase of equipment.
c. April depreciation expense, \(1,000.
d. Cost of goods sold, 40% of sales.
e. Desired ending inventory for April is \)22,400.
f. April selling and administrative expenses include salaries of \(37,000, 30% of which will be paid in cash and the remainder paid next month.
g. Additional April selling and administrative expenses also include miscellaneous expenses of 10% of sales, all paid in April.
h. April budgeted sales, \)89,000, 80% collected in April and 20% in May.
i. April cash payments of March 31 liabilities incurred for March purchases of inventory, \(8,600.
j. April purchases of inventory, \)8,600 for cash and $37,400 on account. Half the credit purchases will be paid in April and half in May.
Requirements
1. Prepare the sales budget for April.
2. Prepare the inventory, purchases, and cost of goods sold budget for April.
3. Prepare the selling and administrative expense budget for April.
4. Prepare the schedule of cash receipts from customers for April.
5. Prepare the schedule of cash payments for selling and administrative expenses for April.
6. Prepare the cash budget for April. Assume the company does not use short-term financing to maintain a minimum cash balance.
7. Prepare the budgeted income statement for April.
8. Prepare the budgeted balance sheet at April 30, 2018.
Preparing an operating budget—selling and administrative expense budget
Consider the sales budget presented in Exercise E22-31. Slate’s selling and administrative expenses include the following:
Rent, \(2,000 per month
Salaries, \)4,000 per month
Commissions, 5% of sales
Depreciation, $1,000 per month
Miscellaneous expenses, 2% of sales
Prepare a selling and administrative expense budget for each of the three quarters of 2018 and totals for the nine-month period.
What are the three sections of the cash budget?
Preparing an operating budget—sales budget Brown Company manufactures luggage sets. Brown sells its luggage sets to department stores. Brown expects to sell 1,700 luggage sets for \(180 each in January and 2,050 luggage sets for \)180 each in February. All sales are cash only. Prepare the sales budget for January and February.
In a manufacturing company, what are the three types of budgets included in the master budget? Describe each type.
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