Chapter 22: Q4RQ (page 1228)
What is budgetary slack? Why might managers try to build slack into their budgets?
Budgetary slack means higher expectations for estimated expenses and least expectations for estimated revenues.
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Preparing an operating budget—direct materials budget
Bell expects to produce 1,800 units in January and 2,155 units in February. The company budgets 3 pounds per unit of direct materials at a cost of $10 per pound. Indirect materials are insignificant and not considered for budgeting purposes. The balance in the Raw Materials Inventory account (all direct materials) on January 1 is 4,950 pounds. Bell desires the ending balance in Raw Materials Inventory to be 20% of the next month’s direct materials needed for production. Desired ending balance for February is 4,860 pounds. Prepare Bell’s direct materials budget for January and February.
Preparing a financial budget—schedule of cash receipts, sensitivity analysis
Marcel Company projects the following sales for the first three months of the year: \(11,200 in January; \)12,300 in February; and $11,100 in March. The company expects 60% of the sales to be cash and the remainder on account. Sales on account are collected 50% in the month of the sale and 50% in the following month. The Accounts Receivable account has a zero balance on January 1. Round to the nearest dollar.
Requirements
1. Prepare a schedule of cash receipts for Marcel for January, February, and March. What is the balance in Accounts Receivable on March 31?
2. Prepare a revised schedule of cash receipts if receipts from sales on account are 60% in the month of the sale, 30% in the month following the sale, and 10% in the second month following the sale. What is the balance in Accounts Receivable on March 31?
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.
What is the formula used to determine the amount of direct materials to be purchased?
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.
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