Chapter 22: Q13RQ (page 1228)
How is the predetermined overhead allocation rate determined?
It is estimated by dividing the estimated manufacturing costs by the activity base.
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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.
: Completing a comprehensive budgeting problem—merchandising company
Belton Printing Company of Baltimore has applied for a loan. Its bank has requested a budgeted income statement for the month of April 2018 and a balance sheet at April 30, 2018. The March 31, 2018, balance sheet follows:
As Belton Printing’s controller, you have assembled the following additional information:
a. April dividends of \(7,000 were declared and paid.
b. April capital expenditures of \)17,000 budgeted for cash purchase of equipment.
c. April depreciation expense, \(800.
d. Cost of goods sold, 55% of sales.
e. Desired ending inventory for April is \)24,800.
f. April selling and administrative expenses includes salaries of \(29,000, 20% of which will be paid in cash and the remainder paid next month.
g. Additional April selling and administrative expenses also include miscellaneous expenses of 10% of sales, all paid in April.
h. April budgeted sales, \)86,000, 80% collected in April and 20% in May.
i. April cash payments of March 31 liabilities incurred for March purchases of inventory, \(8,300.
j. April purchases of inventory, \)22,900 for cash and $37,200 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 a financial budget—schedule of cash receipts
Berry expects total sales of \(359,000 in January and \)405,000 in February. Assume that Berry’s sales are collected as follows:
80% in the month of the sale
10% in the month after the sale
6% two months after the sales
4% never collected
November sales totaled \(350,000, and December sales were \)325,000. Prepare a schedule of cash receipts from customers for January and February. Round answers to the nearest dollar.
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.
What budgets are included in the financial budget for a merchandising company?
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