52. Mi Casa Corporation wishes to prepare a cash budget for November 2010. Sales, purchases, and
expenses for October (actual) and November and December (estimated) are as follows:
Sales
Purchases
Expenses
October
$48,000
$35,000
$14,000
November
40,000
30,000
11,000
December
45,000
22,000
9,500
Sales: All sales are on credit, and the company’s experience shows that, on the average, 80 percent of
sales are collected in the month of sale and the balance in the following month. A 2 percent discount is
allowed on all collections in the month of sale.
Purchases: The company pays 60 percent of purchases in the month of purchase and the balance in the
following month. The company is allowed an average discount of 1 percent on payments made in the
month of purchase.
Expenses: The monthly expenses for November include charges for depreciation amounting to $1,000
and $100 of prepaid expenses, which will expire. All other expenses are paid as incurred.
Other: On September 1, 2010, a new machine was purchased for $5,000. A down payment of $500
was made, and it was agreed that the balance would be paid in equal installments in the following three
months.
The cash payments in November for purchases are expected to be
a.
$32,000.
b.
$18,000.
c.
$17,820.
d.
$31,820.
53. Mi Casa Corporation wishes to prepare a cash budget for November 2010. Sales, purchases, and
expenses for October (actual) and November and December (estimated) are as follows:
Sales
Purchases
Expenses
October
$48,000
$35,000
$14,000
November
40,000
30,000
11,000
December
45,000
22,000
9,500
Sales: All sales are on credit, and the company’s experience shows that, on the average, 80 percent of
sales are collected in the month of sale and the balance in the following month. A 2 percent discount is
allowed on all collections in the month of sale.
Purchases: The company pays 60 percent of purchases in the month of purchase and the balance in the
following month. The company is allowed an average discount of 1 percent on payments made in the
month of purchase.
Expenses: The monthly expenses for November include charges for depreciation amounting to $1,000
and $100 of prepaid expenses, which will expire. All other expenses are paid as incurred.
Other: On September 1, 2010, a new machine was purchased for $5,000. A down payment of $500
was made, and it was agreed that the balance would be paid in equal installments in the following three
months.
The cash payments in November for expenses are expected to be
a.
$12,500.
b.
$9,900.
c.
$10,000.
d.
$11,000.
54. Mi Casa Corporation wishes to prepare a cash budget for November 2010. Sales, purchases, and
expenses for October (actual) and November and December (estimated) are as follows:
Sales
Purchases
Expenses
October
$48,000
$35,000
$14,000
November
40,000
30,000
11,000
December
45,000
22,000
9,500
Sales: All sales are on credit, and the company’s experience shows that, on the average, 80 percent of
sales are collected in the month of sale and the balance in the following month. A 2 percent discount is
allowed on all collections in the month of sale.
Purchases: The company pays 60 percent of purchases in the month of purchase and the balance in the
following month. The company is allowed an average discount of 1 percent on payments made in the
month of purchase.
Expenses: The monthly expenses for November include charges for depreciation amounting to $1,000
and $100 of prepaid expenses, which will expire. All other expenses are paid as incurred.
Other: On September 1, 2010, a new machine was purchased for $5,000. A down payment of $500
was made, and it was agreed that the balance would be paid in equal installments in the following three
months.
The cash payments in November for payment for the new machine are expected to be
a.
$500.
b.
$1,500.
c.
$4,500.
d.
$5,000.
55. Leaverton’s forecast of sales is as follows: July, $60,000; August, $90,000; September, $130,000.
Sales are normally 80 percent cash and 20 percent credit in any month. Credit sales are collected in full
in the following month. Merchandise cost averages 60 percent of sales price. The company desires an
inventory as of September 30 of $52,000. The inventory as of June 30 was $25,000.
The July 31 balance of accounts receivable will be
a.
$12,000.
b.
$48,000.
c.
$18,000.
d.
$0.
56. Leaverton’s forecast of sales is as follows: July, $60,000; August, $90,000; September, $130,000.
Sales are normally 80 percent cash and 20 percent credit in any month. Credit sales are collected in full
in the following month. Merchandise cost averages 60 percent of sales price. The company desires an
inventory as of September 30 of $52,000. The inventory as of June 30 was $25,000.
Total purchases that must be made in order to meet sales and inventory requirements for the quarter
amount to
a.
$195,000.
b.
$253,000.
c.
$141,000.
d.
$307,000.
57. Leaverton’s forecast of sales is as follows: July, $60,000; August, $90,000; September, $130,000.
Sales are normally 80 percent cash and 20 percent credit in any month. Credit sales are collected in full
in the following month. Merchandise cost averages 60 percent of sales price. The company desires an
inventory as of September 30 of $52,000. The inventory as of June 30 was $25,000.
Total cash receipts for August will be
a.
$72,000.
b.
$66,000.
c.
$98,000.
d.
$84,000.
58. The following information was reported in a cash budget:
Beginning cash balance
$280,000
Cash payments
533,000
Cash receipts
370,000
Minimum cash balance desired
200,000
How much cash will the company have to borrow in order to meet its required needs?
a.
$103,000
b.
$163,000
c.
$0
d.
$83,000
59. Holman Company pays each of its three salespeople a base salary of $1,000 per month plus a
commission of 10 percent of their sales. The base salary is paid each month as incurred; the 10 percent
commission is paid the month following the month of sale. The total sales for the past four months are
as follows:
June
$15,000
July
22,000
August
39,000
September
40,000
Total salary and commission cash payments for September total
a.
$3,900.
b.
$6,400.
c.
$6,900.
d.
$5,400.
60. The last step in a master budget is to prepare a
a.
cost of goods manufactured budget.
b.
budgeted balance sheet.
c.
cash budget.
d.
sales budget.
61. Which of the following is prepared directly after the cash budget?
a.
Overhead budget
b.
Production budget
c.
Budgeted balance sheet
d.
Capital expenditures budget
SHORT ANSWER
1. Describe three benefits budgeting provides to an organization’s success.
2. List the contents of a master budget for a manufacturing organization by identifying the two major
components and the budgets within each of them.
3. Place the letter of the appropriate description beside the budget that it describes.
a. Is prepared after the production budget has been completed and the desired ending direct materials
inventory amount is known
b. Can be determined as soon as the unit production budget has been completed and the labor rates are
known
c. The starting point of the budgeting process
d. Can be prepared as soon as the sales budget has been completed and is made up of period expenses
that are both fixed and variable with sales
e. Has two purposes, one of which is computing the overhead rates for the forthcoming accounting
period
f. Is determined from the unit sales forecast and unit selling prices
g. Influences the cash budget as well as the interest expense on the forecasted income statement and
the Plant and Equipment account on the budgeted balance sheet
h. Is determined from the unit sales forecast and the desired change in the ending finished goods
inventory
_____ 1. Unit sales forecast
_____ 2. Production budget
_____ 3. Sales budget
_____ 4. Direct materials purchases budget
_____ 5. Direct labor budget
_____ 6. Overhead budget
_____ 7. Selling and administrative expense budget
_____ 8. Capital expenditures budget
4. Cellular Solutions, Inc., had a very successful year in 2009. Based on a $100 average unit selling price,
monthly sales during 2009 were as follows:
January
$ 80,000
February
70,000
March
90,000
April
70,000
May
60,000
June
50,000
July
50,000
August
60,000
September
65,000
October
75,000
November
85,000
December
95,000
Total
$850,000
Mr. Serene, vice president of sales, is preparing the sales budget for 2010. Increased manufacturing
costs will make it necessary to increase the selling price by 10 percent. Even with this price increase,
the unit volume of sales is expected to increase by 20 percent. The seasonal sales pattern shown for
2009 is expected to continue in 2010.
a. Prepare the monthly sales unit and dollar budgets for the first quarter of 2010.
b. Mr. Serene is considering the possibility of raising the average selling price by 30 percent in 2010.
If this action is taken, he projects that the sales volume for the year will increase by only 12 percent.
What would forecasted sales in units and dollars be in 2010 if his projection is correct?
January
February
Totals
5. A company expects to begin the coming year with 6,000 ceramic pots in finished goods inventory. It
expects to sell 85,000 ceramic pots and end the year with 8,000 pots in the finished goods inventory.
Four pounds of clay go into each ceramic pot. The company expects to have 4,000 pounds of clay on
hand at the beginning of the coming year and wishes to end the year with 6,000 pounds in inventory.
a. Prepare a production budget showing the number ceramic pots that the company must manufacture
to carry out these plans.
b. Prepare a direct materials purchases budget showing the number of pounds of clay that the company
must purchase during the year.
Sales requirements
Total requirements
Required production (pots)
Production (87,000 units 4 pounds)
Plus desired ending inventory
Total requirements
Less beginning inventory
Required production (pounds)
6. Sarusse, Inc., produces two products in a single plant utilizing two departments: Shaping and
Assembly. Direct labor hour and dollar requirements for 2010 are being projected using 2009 unit
standard labor information. Departmental data and routing sequence information are shown below.
Product
Shaping
Assembly
R2D2
0.5
0.4
Projected sales units
Projected sales dollars
Totals
T3E3
0.7
0.6
Labor rate per hour
$9
$12
Management has forecasted that 20,000 units of product R2D2 and 70,000 units of product T3E3 must
be produced during 2010.
Prepare a direct labor budget for 2010 that shows the budgeted direct labor cost for each department
and the company as a whole.
ANS:
7. Seymore Company manufactures three products, Ace, Deuce, and Trey, requiring the following inputs
of raw materials:
Units of Materials Required
Product
Fabric
Metal
Ace
2
2
Deuce
1
2
Trey
2
1
Unit cost and inventory for each raw material:
Fabric
Metal
Unit cost
$4
$2
Beginning inventory
6,000
5,000
Ending inventory
5,000
4,000
Scheduled production:
Ace
30,000
Finished units
Direct labor hours per unit
Total direct labor hours
49,000
Direct labor rate per hour
Total direct labor cost
Finished units
Direct labor hours per unit
Total direct labor hours
42,000
Direct labor rate per hour
Total direct labor cost
Total direct labor cost
Deuce
20,000
Trey
50,000
Prepare a direct materials purchases budget for the year ended December 31, 20×8.
8. The following information is available from the controller’s records for Penelope, Ltd.:
Sales
Purchases
May
$60,000
$20,000
June
70,000
30,000
July
80,000
25,000
All sales are on credit. Records show that 80 percent of the customers pay during the month of the
sale, 15 percent pay the month after the sale, and the remaining 5 percent pay the second month after
the sale. Purchases are all paid the following month at a 1 percent discount. Cash disbursements for
operating expenses in July were $8,000.
Prepare a cash budget for July.
Product ace finished units
Direct materials per unit
Product deuce finished units
Direct materials per unit
Product trey finished units
Direct materials per unit
Production needs in direct materials units
Add desired ending inventory
Less beginning inventory
Direct materials purchases in units
Cost per direct materials unit
Total direct materials purchases cost
9. Roger Wills & Company estimates the following for 2010:
Sales (all on account)
$800,000
Collections of accounts receivable
700,000
Proceeds from bond issuance
500,000
Proceeds from sale of common stock
300,000
Merchandise bought on credit
650,000
Payments of accounts payable
500,000
Cash payments of expenses
70,000
Cash purchase of equipment
140,000
Depreciation of equipment
15,000
Payment on notes payable
30,000
The ending cash balance for 2009 was $200,000.
Prepare a cash budget to determine the ending cash balance for 2010.
10. Chad has been making skateboards for his friends and now has more orders than he can handle. He has
decided to turn the business into a full-time venture and plans to develop the company into a Fortune
500 company. However, he does not have enough cash and has decided to apply for a Small Business
Administration loan. The loan officer informed him that she will need to see projected financial
statements with supporting schedules for the next 12 months of operations.
a. Identify the financial statements and supporting schedules you believe are appropriate.
b. What information will you need to include in the budgeted financial statements, and where will you
get this information?
11. Sondari Corporation estimates the following for 2010:
Sales (all on account)
$600,000
Collections of accounts receivable
400,000
Proceeds from bond issuance
200,000
Proceeds from sale of common stock
300,000
Merchandise bought on credit
350,000
Payments of accounts payable
300,000
Cash payments of expenses
60,000
Cash purchase of computerized equipment
100,000
Depreciation of computerized equipment
10,000
Payment on notes payable
20,000
Ending cash balance for 2009 was $150,000.
Prepare a cash budget to determine the ending cash balance for 2010.
ANS:
12. Fill in the blanks.
1. The cash budget serves two purposes. First, it shows the ending _________, which is needed to
complete the __________. Second, it highlights period’s excess cash reserves or cash shortages.
2. A projection of cash receipts and cash payments for a future period of time is called a(n)
______________.
3. Since the __________ is a summary of all expected transactions for a future time period, it also
must be the key to all expected cash transactions.
4. The _________________________ oversees each stage in the preparation of the _______________
budget, decides any departmental disputes that may rise in the process, and gives final approval to the
budget.
ANS:
13. Harrisburg Manufacturing produces three products requiring the following inputs of raw materials:
Units of Materials Required
Product
Fabric
Metal
Jade
2
1
Kolia
1
2
Lymon
2
1
Unit cost and inventory for each raw material:
Fabric
Metal
Unit cost
$3
$2
Beginning inventory
10,000
8,000
Ending inventory
9,000
6,000
Scheduled production:
Jade:
20,000
Kolia:
10,000
Lymon:
30,000
Prepare a direct materials purchases budget for the year ended December 31, 2010.
14. Crosson Wineries & Bottling is preparing its budget for 2010 and has completed the sales budget for
the first six months of the year. The projected volume is as follows:
January
50,000
bottles
February
60,000
bottles
March
100,000
bottles
April
80,000
bottles
May
40,000
bottles
June
20,000
bottles
Product jade finished units
Direct materials per unit
Product kolia finished units
Direct materials per unit
Product lymon finished units
Direct materials per unit
Production needs in direct materials units
Add desired ending inventory
Less beginning inventory
Direct materials purchases in units
Cost per direct materials unit
Total direct materials purchases cost
The desired ending inventory for each month must be equal to 30 percent of the next month’s sales.
The December 31, 2009, inventory was 15,000 bottles.
a. Prepare the production budget for the first four months of 2010.
b. Explain why Crosson Wineries & Bottling must produce more bottles than it sells in January and
February, and why it must produce fewer bottles than it sells in March and April.
c. Assume each finished bottle requires 25 ounces of wine and that the ending inventory each month
must be equal to 20 percent of the next month’s production needs. The December 31, 2009, inventory
of wine was 265,000 ounces. Prepare the direct materials purchases budget for the first three months of
2010.
15. James International is in the construction business. In 2010, it is expected that 30 percent of a month‘s
sales will be received in cash, with the balance being received the following month. Of the purchases,
50 percent are paid the following month, 40 percent are paid in two months, and the remaining 10
percent are paid during the month of purchase.
The sales force receives $1,500 a month base pay plus a 4 percent commission. Labor expenses are
expected to be $4,000 a month. Other operating expenses are expected to run about $4,500 a month,
including $500 for depreciation. The ending cash balance for 2009 was $18,000.
Sales
Purchases
2009—Actual
November
$100,000
$60,000
December
150,000
70,000
2010—Budgeted
January
50,000
80,000
February
80,000
60,000
March
60,000
70,000
a. Prepare a cash budget and determine the projected ending cash balances for the first three months of
2010.
b. Determine the months that the company would either borrow or invest cash.
Cash receipts:
Sales from previous month (70%)
Sales from current month (30%)
Total cash receipts
Cash payments:
Purchases from current month (10%)
6,000
Sales salaries
1,500
Sales commissions
3,200
Labor expenses
4,000
Operating expenses
Total cash payments
Cash increase (decrease)
Beginning cash balance
16. The expected sales for Uptown Clothing in the month of May are shown in the table below. Chelsea
Rogers, the owner, gives credit to a select group of customers (20 percent of sales), but all others must
pay cash. Of Chelsea’s credit customers, 80 percent pay her the month after the sale and 20 percent pay
the following month.
Chelsea pays cash for 10 percent of her purchases. The other 90 percent she pays off by the end of the
next month. Chelsea’s operating expenses are paid the month after incurrence. Her operating expenses
are about $7,000 each month, $500 of which is depreciation. Selling expenses have a fixed and a
variable component. The fixed is $1,500 a month, and the variable is 10 percent of sales. Chelsea
began May with $9,000 in cash.
Sales
Purchases
March
$130,000
$120,000
April
140,000
125,000
May
150,000
130,000
Prepare a cash budget to determine Uptown Clothing’s ending cash balance for May.
17. Allan International is in the construction business. In 2010, it is expected that 30 percent of a month’s
sales will be received in cash, with the balance being received the following month. Of the purchases,
60 percent are paid the following month, 30 percent are paid in two months, and the remaining 10
percent are paid during the month of purchase.
The sales force receives $2,000 a month base pay plus a 4 percent commission. Labor expenses are
expected to be $6,000 a month. Other operating expenses are expected to run about $5,000 a month,
including $1,000 for depreciation.
Sales from previous month (0.2 0.8 $140,000)
Sales from current month (0.8 $150,000)
Purchases from two months previous ($125,000 0.9)
The ending cash balance for 2009 was $28,000.
Sales
Purchases
2009—Actual
November
$140,000
$ 80,000
December
160,000
100,000
2010—Budgeted
January
$ 90,000
$ 90,000
February
80,000
100,000
March
100,000
80,000
Prepare a cash budget and determine the projected ending cash balances for the first three months of
2010.
18. Sol Del , Inc., was preparing the master budget for 2010 when a computer virus deleted some of the
data contained in the cash budget for the first quarter shown below:
January
February
March
First Quarter
Cash receipts:
Collections from customers
$310,000
$220,000
$ —
$780,000
Cash receipts:
Sales from previous month (70%)
Sales from current month (30%)
Total cash receipts
Cash payments:
Sales salaries
2,000
Sales commissions
3,600
Labor expenses
6,000
Operating expenses
4,000
Total cash payments
Cash increase (decrease)
Beginning cash balance
Ending cash balance
Cash payments:
Direct materials
60,000
—
60,000
—
Direct labor
100,000
80,000
—
280,000
Overhead
70,000
50,000
35,000
—
Selling and administrative
expenses
—
40,000
—
180,000
Total cash payments
—
—
249,000
—
Cash increase (decrease)
(6,000)
9,000
—
—
Beginning cash balance
15,000
—
18,000
—
Ending cash balance
—
18,000
—
—
*Minimum cash balance requirement is $10,000.
a. Determine the missing amounts.
b. Should Sol Del, Inc., anticipate borrowing during the quarter? How much and when? What effect
would this have on the cash budget shown? When will the company have sufficient funds available to
pay back any loans?