149) Goodnight and Son is a small business that, after struggling for a while, has taken
off. Goodnight, Jr. has been attending various seminars to improve his business knowledge and
has brought back several new ideas to see if they can be implemented in the company. One idea
that he felt was very urgent to implement was for he and his father, and others in managerial
positions, to sit down and develop a strategic plan and a budget process for the company. This
had not been done when the company started so he would have to do some persuading to get the
others accepting and involved. One other thing he had learned at one of his seminars was that
something like this had to be accepted at the top before others would accept it.
Required:
What kinds of issues should Goodnight, Jr. bring up to get his idea accepted?
150) Allentown Company has been busy over the first few years of its existence in penetrating its
market and gaining a respectable market share. To facilitate this, Mr. Marks, the CEO, and his
controller, Mr. Nance, have been developing the annual master budgets. To date, this approach
has worked well.
Allentown has been acquired by a company in a related business but will continue to operate as
an independent subsidiary. The CFO of the acquiring company, Mr. Radisson, has suggested to
Mr. Marks that, since it was expected that his company would continue to grow, it adopt a
departmental budgeting system; a suggestion Mr. Marks agreed to readily. Mr. Radisson
explained to Marks’ departmental managers the concepts of a departmental participative
budgeting system and their involvement. The managers were encouraged to take the information
and come back with suggestions which could then be put into a formal budget process.
Required:
a. What benefits will accrue to Mr. Marks under this new budgeting system?
b. What behavioral issues might arise for departmental managers and for production workers?
c. What is the most probable long-term reaction of Marks’ people to the participative budget
system?
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151) Autumn Corporation makes and sells a single product called a Security Surge. The
company is in the process of preparing its Marketing and Administrative Expense Budget for the
last quarter of the year. The following budget data are available:
Variable Cost Per Security Surge Sold
Monthly Fixed Cost
Sales commissions $ 1.50
Shipping $ 2.30
Advertising $ 4.50 $ 36,000
Executive salaries $ 146,000
Depreciation on office equipment $ 13,000
Other $ 0.60 $ 36,000
All of these expenses (except depreciation) are paid in cash in the month they are incurred.
Required:
a. If the company budgets to sell 22,000 Security Surges in November, what would the total
budgeted marketing and administrative expenses be for November?
b. If the company budgets to sell 19,000 Security Surges in December, what would the budgeted
total cash disbursements for marketing and administrative expenses be for December?
c. If the total budgeted marketing and administrative expense for October is $409,000, then how
many Security Surges does the company plan to sell in October?
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152) Lien Company is a merchandising company that sells a single product. The company’s
inventories, production, and sales in units for the next three months have been forecasted as
follows:
October November December
Beginning inventory 10,000 10,000 10,000
Merchandise purchases 60,000 70,000 35,000
Sales 60,000 70,000 40,000
Ending inventory 10,000 10,000 5,000
Units are sold for $12 each. One fourth of all sales are paid for in the month of sale and the
balance is paid for in the following month. Accounts receivable at September 30 totaled
$450,000.
Merchandise is purchased for $7 per unit. Half of the purchases are paid for in the month of the
purchase and the remainder is paid for in the month following purchase. Marketing and
administrative expenses are expected to total $120,000 each month. One half of these expenses
will be paid in the month in which they are incurred and the balance will be paid in the following
month. Accounts payable at September 30 totaled $290,000.
Cash at September 30 totaled $80,000. A payment of $300,000 for purchase of equipment is
scheduled for November, and a dividend of $200,000 is to be paid in December. Ignore
depreciation for purposes of preparing the schedules
Required:
a. Prepare a schedule of expected cash collections for each month October-December.
b. Prepare a schedule showing expected cash disbursements for merchandise purchases and
marketing and administrative expenses for each month October-December.
c. Prepare a cash budget for each month October—December. There is no minimum required
ending cash balance.
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153) Marino Company has projected sales and production in units for the second quarter of the
year as follows:
April May June
Sales 30,000 20,000 25,000
Production 25,000 25,000 30,000
Required:
a. Cash production costs are budgeted at $6 per unit produced. Of these production costs, 40%
are paid in the month in which they are incurred and the balance in the following month.
Marketing and administrative expenses (all paid in cash) amount to $60,000 per month. The
accounts payable balance on March 31 totals $96,000, all of which will be paid in April. Prepare
a schedule for each month showing budgeted cash disbursements for Marino Company.
b. Assume that all units will be sold on account for $15 each. Cash collections from sales are
budgeted at 60% in the month of sale, 30% in the month following the month of sale and the
remaining 10% in the second month following the month of sale. Accounts receivable on March
31 totaled $255,000 ($45,000 from February’s sales and the remainder from March.) Prepare a
schedule for each month showing budgeted cash receipts for Marino Company.
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154) Albert Corporation is a wholesaler of industrial goods. Data regarding the store’s operations
follow:
∙ Sales are budgeted at $350,000 for November, $360,000 for December, and $340,000 for
January.
∙ Collections are expected to be 60% in the month of sale, 39% in the month following the sale,
and 1% uncollectible.
∙ The cost of goods sold is 75% of sales.
∙ The company purchases 40% of its merchandise in the month prior to the month of sale and
60% in the month of sale. Payment for merchandise is made in the month following the
purchase.
∙ The November beginning balance in the accounts receivable account is $70,000.
∙ The November beginning balance in the accounts payable account is $257,000.
Required:
a. Prepare a Schedule of Expected Cash Collections for November and December.
b. Prepare a Merchandise Purchases Budget for November and December.
155) Rockwell Company is a fast-growing company with monthly sales for the current year
estimated at a relatively steady upward trend. Past history has shown that all sales are collected
within two months with negligible uncollectibles. The product for a given month is purchased
partially in the month before sale and the rest during the month of sale and is paid for over a two-
month period. Property and income taxes are paid quarterly while other expenses are paid as
incurred. The company has a desired ending cash balance for each month of $150,000, and when
necessary, borrows to meet shortfalls and invests overages.
The success of the company has been sudden and Ms. Harrison, the controller, is concerned
about meeting the goals of the company without getting into serious short-term financial
difficulties. As a result, she has been very conscientious about preparing the cash budget and
keeping it up-to-date as conditions warrant.
Required:
Why is cash budgeting important for a rapidly expanding firm such as Rockwell Company?
127
156) High Plains Lumber sells lumber and general building supplies to building contractors in a
medium-sized town in North Dakota. Data regarding the store’s operations follow:
∙ Sales are budgeted at $340,000 for November, $350,000 for December, and $370,000 for
January.
∙ Collections are expected to be 55% in the month of sale, 44% in the month following the sale,
and 1% uncollectible.
∙ The cost of goods sold is 75% of sales.
∙ The company purchases 60% of its merchandise in the month prior to the month of sale and
40% in the month of sale. Payment for merchandise is made in the month following the
purchase.
∙ Other monthly expenses to be paid in cash are $21,100.
∙ Monthly depreciation is $19,000.
∙ Ignore taxes.
Statement of Financial Position
October 31
Assets:
Cash $ 13,000
Accounts receivable (net of allowance for uncollectible accounts) 82,000
Inventory 153,000
Property, plant, and equipment (net of $598,000 accumulated depreciation)
1,138,000
Total assets $ 1,386,000
Liabilities and Stockholders’ Equity:
Accounts payable $ 257,000
Common stock 600,000
Retained earnings 529,000
Total liabilities and stockholders’ equity $ 1,386,000
Required:
a. Determine the net income for December.
b. Determine the cash balance at the end of December.
c. Calculate the accounts receivable balance, net of uncollectible accounts, at the end of
December.
d. Determine the accounts payable at the end of December.
e. Determine the balance in Retained earnings at the end of December.
130
157) Washington Gas Corporation supplies acetylene and other compressed gases to industry.
Data regarding the store’s operations follow:
∙ Sales are budgeted at $320,000 for November, $340,000 for December, and $330,000 for
January.
∙ Collections are expected to be 75% in the month of sale, 20% in the month following the sale,
and 5% uncollectible.
∙ The cost of goods sold is 65% of sales.
∙ The company purchases 80% of its merchandise in the month prior to the month of sale and
20% in the month of sale. Payment for merchandise is made in the month following the
purchase.
∙ Other monthly expenses to be paid in cash are $21,000.
∙ Monthly depreciation is $16,000.
∙ Ignore taxes.
Statement of Financial Position
October 31
Assets
Cash $ 22,000
Accounts receivable
(net of allowance for uncollectible accounts) 82,000
Inventory 166,400
Property, plant, and equipment
(net of $658,000 accumulated depreciation) 1,170,000
Total assets $ 1,440,400
Liabilities and Stockholders’ Equity
Accounts payable $ 199,000
Common stock 840,000
Retained earnings 401,400
Total liabilities and stockholders’ equity $ 1,440,400
Required:
a. Prepare a Schedule of Expected Cash Collections for November and December.
b. Prepare a Merchandise Purchases Budget for November and December.
c. Prepare Cash Budgets for November and December.
d. Prepare Budgeted Income Statements for November and December.
e. Prepare a Budgeted Balance Sheet for the end of December.
