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Chapter 20
Planning
QUESTIONS
1. A budget helps managers control and monitor a business by 1) communicating
plans to employees, 2) coordinating the activities of different parts of the
2. Two common benchmarks used by managers to evaluate performance are: past
3. Continuous budgeting provides managers a full set of updated budgets each time a
4. Three common short-term horizons for planning and budgeting purposes are:
5. Budgeting can be a strong positive motivating force if employees are involved or
consulted in the process. This participation promotes their commitment to reaching
6. Budgeting helps management coordinate and plan business activities by providing
7. The sales budget reflects the expected sales to be made over a period of time, stated
8. A selling expense budget is a plan of the expenses to be incurred to produce the
9. Budgeting promotes good decision making by requiring managers to conduct
10. A cash budget shows the planned cash receipts and cash disbursements for each
budget period, including any loans to be received or repaid. Since the operating
11. A production budget shows the number of units to be produced each budget period.
12. A manager of an Apple store would have responsibility for and decision control over
13. With the exception of the decision to operate, the manager of a Samsung
distribution center is not likely to engage in a substantial amount of long-term
14.
Budget Participant
Description
Sales manager ....................
Information on estimated sales (units and dollars).
Production manager ...........
Number of units to produce based on estimated sales.
Manufacturing manager .....
Amount of direct materials, direct labor, and
manufacturing overhead to produce the estimated level
of production.
Sales manager ....................
Cost of selling the estimated sales level.
General & admini-
strative managers ...............
Cost to support operations; most often are fixed costs.
Capital expenditures
committee ...........................
Prepare plans to have available plant assets necessary
to carry on business activities.
Cash managers ...................
Working with the above budgets, this team will prepare
cash flow analysis.
Accounting and finance
staff .....................................
Financial budgets prepared from above information.
Quick Study 20-1 (10 minutes)
1. Employees affected by a budget should be consulted when it is prepared.
2. Goals reflected in a budget should be attainable.
3. Evaluations of performance should be made carefully with opportunities
Quick Study 20-2 (10 minutes)
1. The bottom-up approach to budgeting is considered more successful
because without active employee involvement in preparing budget
Quick Study 20-3 (5 minutes)
1. No 3. No
2. No 4. Yes
Quick Study 20-4 (10 minutes)
Grace
Sales Budget
For Month Ended June 30
Prior month’s unit sales ........................................................................
1,000
Plus 4% growth in unit sales ................................................................
40
Projected June sales (units) ................................................................
1,040
Selling price per unit .............................................................................
x $250
Projected dollar sales for June ............................................................
$260,000
Quick Study 20-5 (10 minutes)
Zilly Co.
Selling Expense Budget
For Month Ended June 30
Budgeted sales ......................................................................................
$400,000
Sales commission percent....................................................................
x 8%
Sales commissions................................................................................
32,000
Sales manager’s monthly salary ..........................................................
6,000
Projected selling expense for June .....................................................
$ 38,000
Quick Study 20-6 (10 minutes)
Liza’s
Budgeted Cash Receipts
For Month Ended June 30
Budgeted sales ......................................................................................
$52,000
Less ending accounts receivable ($52,000 x 0.40) .............................
20,800
Cash sales ($52,000 x 0.60) ...................................................................
31,200
Collections of last month’s receivables* .............................................
16,000
Total budgeted cash receipts ...............................................................
$47,200
*$40,000 x 40% = $16,000.
Quick Study 20-7 (10 minutes)
ZORTEK CORP.
Direct Materials Budget
For Month Ended January 31
Budget production (units) .....................................................................
400
Materials requirements per unit ...........................................................
x 5 lbs.
Materials needed for production (lbs.) ................................................
2,000
Add budgeted ending inventory (200* units x 5 lbs. per unit x 40%) ....
400
Total materials requirements (lbs.) ......................................................
2,400
Deduct beginning inventory (lbs.) ........................................................
(130)
Materials to be purchased (lbs.) ...........................................................
2,270
Materials price per pound .....................................................................
$ 2
Total cost of direct materials purchases .............................................
$4,540
*February’s budgeted production.
Quick Study 20-8 (5 minutes)
TORA CO.
Direct Labor Budget
For Month Ended July 31
Budget production (units) .....................................................................
1,020
Labor requirements per unit (hours) ...................................................
x 2
Total labor hours needed ......................................................................
2,040
Labor rate (per hour) .............................................................................
$ 20
Labor dollars ..........................................................................................
$40,800
Quick Study 20-9 (10 minutes)
SCORA INC.
Sales Budget
For January, February, and March
Budgeted
Unit Sales
Budgeted
Unit Price
Budgeted
Total Sales
January .........................................................
1,200
$50
$ 60,000
February ........................................................
2,000
50
100,000
March ............................................................
1,600
50
80,000
Totals for the quarter ................................
4,800
$50
$240,000
Quick Study 20-10 (10 minutes)
X-TEL
Cash Receipts Budget
For April, May, and June
April
May
June
Sales ..............................................................
$60,000
$100,000
$80,000
Less ending accts. receivable (60%) .........
36,000
60,000
48,000
Cash receipts from
Cash sales (40% of sales) ..........................
24,000
40,000
32,000
Collections of prior month’s receivables ......
15,000
36,000
60,000
Total cash receipts .....................................
$39,000
$76,000
$92,000
Quick Study 20-11 (10 minutes)
X-TEL
Selling Expense Budget
For April, May, and June
April
May
June
Budgeted sales ............................................
$60,000
$100,000
$80,000
Sales commission percent..........................
x 10%
x 10%
x 10%
Sales commissions .....................................
6,000
10,000
8,000
Sales manager monthly salary ...................
6,000
6,000
6,000
Total selling expenses ................................
$12,000
$ 16,000
$14,000
Quick Study 20-12 (10 minutes)
CHAMP, INC.
Production Budget
For Month Ended May 31
Next month’s budgeted sales (units) ...................................................
200
Ratio of inventory to future sales .........................................................
x 60%
Budgeted ending inventory (units) ......................................................
120
Add budgeted sales for the month (units) ..........................................
180
Required units of available production ...............................................
300
Deduct beginning inventory (units) .....................................................
(108)
Units to be produced .............................................................................
192
Quick Study 20-13 (10 minutes)
MIAMI SOLAR
Direct Materials Budget
For Month Ended July 31
Budgeted production (units, given) .....................................................
5,000
Materials requirements per unit ...........................................................
x 3 lbs.
Materials needed for production (lbs.) ................................................
15,000
Add budgeted ending inventory (5,300 units x 3 lbs./unit x 30%) .........
4,770
Total materials requirements (lbs.) ......................................................
19,770
Deduct beginning inventory (lbs.) ........................................................
(4,500)
Materials to be purchased (lbs.) ...........................................................
15,270
Materials price per pound .....................................................................
$ 6
Total cost of direct materials purchases .............................................
$91,620
Quick Study 20-14 (10 minutes)
MIAMI SOLAR
Direct Labor Budget
For Month Ended July 31
Budgeted production.............................................................................
5,000
Labor requirements per unit (hours) ...................................................
x 4
Total labor hours needed ......................................................................
20,000
Labor rate (per hour) .............................................................................
$ 16
Total cost of direct labor .......................................................................
$320,000
Quick Study 20-15 (10 minutes)
MIAMI SOLAR
Factory Overhead Budget
For Month Ended August 31
Total budgeted direct labor* ...................................................
$339,200
Variable overhead rate (% of DL cost) ................................
x 70%
Budgeted variable overhead ...................................................
$237,440
Budgeted fixed overhead ........................................................
180,000
Budgeted total overhead .........................................................
$417,440
* 5,300 x 4 x $16 = $339,200
Quick Study 20-16 (15 minutes)
ATLANTIC SURF
Production Budget
July and August
July
August
Budgeted ending inventories
July (40% x 6,500) ................................................................
2,600
August (40% x 3,500) .............................................................
1,400
Add budgeted sales ................................................................
4,000
6,500
Required units of available production ................................
6,600
7,900
Less actual or budgeted beginning inventories ...................
(1,600)
(2,600)
Units to be produced ...............................................................
5,000
5,300
Quick Study 20-17 (15 minutes)
Forrest Company
Production Budget
For Month Ended November 30
Next month’s budgeted sales ...............................................................
350,000
Ratio of inventory to future sales .........................................................
x 10%
Budgeted ending inventory ................................................................
35,000
Add budgeted sales for the month ......................................................
400,000
Required units of available production ...............................................
435,000
Less beginning inventory .....................................................................
40,000
Units to be produced .............................................................................
395,000
Quick Study 20-18 (15 minutes)
Hockey Pro
Factory Overhead Budget
For Month Ended May 31
Units to be produced ............................................................................
3,900
Variable factory overhead rate per unit ...............................................
x $1.50
Budgeted variable overhead ................................................................
$ 5,850
Budgeted fixed overhead ......................................................................
46,000
Budgeted total overhead .......................................................................
$51,850
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