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Chapter 22 - Master Budgets and Planning
Chapter 22
Master Budgets and 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:
monthly, quarterly, and annually. A semiannual planning horizon is also popular.
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
specific guidance for the individual activities of various departments and
employees.
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
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Chapter 22 - Master Budgets and Planning
9. Budgeting promotes good decision making by requiring managers to conduct
research (or analysis) and by focusing their attention on the future.
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
budgeting for his/her store. A manager at the corporate offices may participate in,
but would not likely be involved in the budgeting for individual stores, but would
have responsibility and decision control over administrative budgets.
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.
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Chapter 22 - Master Budgets and Planning
QUICK STUDIES
Quick Study 22-1 (10 minutes)
Three useful guidelines to help motivate employees with budgeting are
1. Employees affected by a budget should be consulted when it is prepared.
Quick Study 22-2 (10 minutes)
1. The bottom-up approach to budgeting is considered more successful
because without active employee involvement in preparing budget
Quick Study 22-3 (5 minutes)
Quick Study 22-4 (10 minutes)
Grace
Sales Budget
For Month Ended June 30
Prior month’s unit sales........................................................................ 1,000
Plus 4% growth in unit sales................................................................ 40
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Chapter 22 - Master Budgets and Planning
Quick Study 22-5 (10 minutes)
Zilly Co.
Selling Expense Budget
For Month Ended June 30
Budgeted sales...................................................................................... $400,000
Sales commission percent................................................................... x 8%
Quick Study 22-6 (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
*$40,000 x 40% = $16,000.
Quick Study 22-7 (10 minutes)
ZORTEK CORP.
Direct Materials Budget
For Month Ended January 31
Budget production (units)..................................................................... 400
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Chapter 22 - Master Budgets and Planning
Add budgeted ending inventory (200* units x 5 lbs. per unit x 40%).... 400
Total materials requirements (lbs.)...................................................... 2,400
Total cost of direct materials purchases............................................. $4,540
*February’s budgeted production.
Quick Study 22-8 (5 minutes)
TORA CO.
Direct Labor Budget
For Month Ended July 31
Budget production (units)..................................................................... 1,020
Labor requirements per unit (hours)................................................... x 2
Quick Study 22-9 (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
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Chapter 22 - Master Budgets and Planning
February........................................................ 2,000 50 100,000
Quick Study 22-10 (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
Quick Study 22-11 (10 minutes)
X-TEL
Selling Expense Budget
For April, May, and June
April May June
Budgeted sales............................................. $60,000 $100,000 $80,000
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Chapter 22 - Master Budgets and Planning
Quick Study 22-12 (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
Quick Study 22-13 (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
Materials price per pound..................................................................... $ 6
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Chapter 22 - Master Budgets and Planning
Total cost of direct materials purchases............................................. $91,620
Quick Study 22-14 (10 minutes)
MIAMI SOLAR
Direct Labor Budget
For Month Ended July 31
Budgeted production............................................................................ 5,000
Labor requirements per unit (hours)................................................... x 4
Quick Study 22-15 (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%
* 5,300 x 4 x $16 = $339,200
Quick Study 22-16 (15 minutes)
ATLANTIC SURF
Production Budget
July and August
July August
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Chapter 22 - Master Budgets and Planning
Budgeted ending inventories
July (40% x 6,500).................................................................. 2,600
August (40% x 3,500)............................................................. 1,400
Add budgeted sales................................................................. 4,000 6,500
Quick Study 22-17 (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
Units to be produced............................................................................. 395,000
Quick Study 22-18 (15 minutes)
Hockey Pro
Factory Overhead Budget
For Month Ended May 31
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Chapter 22 - Master Budgets and Planning
Units to be produced ............................................................................ 3,900
Variable factory overhead rate per unit............................................... x $1.50
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