135. Dengel Inc. is preparing its cash budget for November. The budgeted beginning cash
balance is $10,000. Budgeted cash receipts total $100,000 and budgeted cash disbursements total
$104,000. The desired ending cash balance is $30,000.
Required:
A. Calculate the excess (deficiency) of cash available over disbursements for November.
B. To attain its desired ending cash balance for November, how much should the company
borrow.
136. The Gomez Company, a merchandising firm, has budgeted its activity for December
according to the following information:
• Sales at $500,000, all for cash.
• Merchandise Inventory on November 30 was $250,000.
• The cash balance at December 1 was $20,000.
• Marketing and administrative expenses are budgeted at $50,000 for December and are paid for
in cash.
• Budgeted depreciation for December is $30,000.
• The planned merchandise inventory on December 31 is $260,000.
• The cost of goods sold represents 75% of the marketing price.
• All purchases are paid for in cash.
Required:
A. What are the budgeted cash receipts for December?
B. What are the budgeted cash disbursements for December?
137. Describe what is meant by
participative budgeting
and give an example of a benefit and a
drawback.
138. Describe the difference between the following sales forecasting techniques: Delphi
technique, trend analysis, and econometric models.
139. Why is it more difficult to prepare a marketing and administrative budget than it is to
prepare a production budget?
140. Why does a service organization not need to prepare a production budget or a cost of
goods sold budget?
141. What are the differences between strategic planning and the tactical planning process?
13-125
142. Carpon Lumber sells lumber and general building supplies to building contractors in a
medium-sized town in Montana. Data regarding the store’s operations follow:
o Sales are budgeted at $340,000 for November, $350,000 for December, and $370,000 for
January.
o Collections are expected to be 55% in the month of sale, 44% in the month following the sale,
and 1% uncollectible.
o The cost of goods sold is 75% of sales.
o 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.
o Other monthly expenses to be paid in cash are $21,100.
o Monthly depreciation is $19,000.
o Ignore taxes.
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.
13-127
143. Porl Corporation makes and sells a single product called a Yute. 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:
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 Yutes in November, what would the total budgeted
marketing and administrative expenses be for November?
B. If the company budgets to sell 19,000 Yutes 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 Yutes does the company plan to sell in October?
13-129
144. Randall 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:
Units are sold for $12 each. One fourth of all sales are paid for in the month of sale and the
balance are 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 are 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. There is no depreciation. 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.
Required:
a. Prepare a schedule of expected cash collections for each of the months of October, November,
and December.
b. Prepare a schedule showing expected cash disbursements for merchandise purchases and
marketing and administrative expenses for each of the months October, November, and
December.
c. Prepare a cash budget for each of the months October, November, and December. There is no
minimum required ending cash balance.
13-131
145. Welnor Industrial Gas Corporation supplies acetylene and other compressed gases to
industry. Data regarding the store’s operations follow:
o Sales are budgeted at $320,000 for November, $340,000 for December, and $330,000 for
January.
o Collections are expected to be 75% in the month of sale, 20% in the month following the sale,
and 5% uncollectible.
o The cost of goods sold is 65% of sales.
o 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.
o Other monthly expenses to be paid in cash are $21,000.
o Monthly depreciation is $16,000.
o Ignore taxes.
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.
13-133
146. Edwards Company has projected sales and production in units for the second quarter of
the year as follows:
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 Edwards 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 Edwards Company.
147. Capp Corporation is a wholesaler of industrial goods. Data regarding the store’s
operations follow:
o Sales are budgeted at $350,000 for November, $360,000 for December, and $340,000 for
January.
o Collections are expected to be 60% in the month of sale, 39% in the month following the sale,
and 1% uncollectible.
o The cost of goods sold is 75% of sales.
o 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.
o The November beginning balance in the accounts receivable account is $70,000.
o 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.
13-135
148. Kessler and Son is a small business that, after struggling for a while, has taken off. Mr.
Kessler 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 his father and him 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 Mr. Kessler bring up to get his idea accepted?
13-136
149. Adair 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. Adair, the CEO, and his
controller, Mr. Brown, have been developing the annual master budgets. To date, this approach
has worked well.
Adair 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. Horwitz, has suggested to Mr.
Adair that, since it was expected that his company would continue to grow, it adopt a
departmental budgeting system; a suggestion Mr. Adair agreed to readily. Mr. Horwitz explained to
Adair’s 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:
(1) What benefits will accrue to Adair under this new budgeting system?
(2) What behavioral issues might arise for departmental managers and for production workers.
(3) What is the most probable long-term reaction of Adair’s people to the participative budget
system.
150. Dierberg 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. Hatley, 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 Dierberg Company?