Chapter 13 – Planning and Budgeting
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Chapter 13
Planning and Budgeting
Solutions to Review Questions
13–1.
Next period’s budget has more detail because it is closer in time than the longer-range
13–2.
13–3.
Answers will vary, but examples include:
a. Econometric methods—using economic data to forecast using statistical models;
Chapter 13 – Planning and Budgeting
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13–4.
The master budget links long-term objectives and short-term, tactical plans.
Organization goals are broad-based statements of purpose. Strategic plans take the
by 20% per year.” The master budget would state the number of units that are needed
to be produced and sold in the coming period to meet the 20% volume increase as well
13–5.
Because middle management has better knowledge about operations at lower levels in
the organization, and because budgets are usually used to evaluate performance or
13–6.
Budgeting aids in coordination in a number of ways. By relating sales forecasts to
production activities it is possible to reduce the likelihood of over- or under-production. It
Chapter 13 – Planning and Budgeting
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Solutions to Critical Analysis and Discussion Questions
13–7.
13–8.
13–9.
The earlier the budgeting process is started, the earlier the company will understand
some of the problems it must address. In addition, an early start allows managers to
13–10.
Because inventories would be eliminated, the timing of purchases would be closer to
13–11.
13–12.
Planning communicates the goals of the organization and can be used to coordinate the
Chapter 13 – Planning and Budgeting
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Problems can arise when the manager who is most knowledgeable, and, therefore the
13–13.
It is common to start the budgeting process with a sales forecast because sales are
13–14.
13–15.
A positive balance at the end of the budgeting period does not ensure that there is
13–16.
Answers will vary. Many people will submit a budget in excess of their best guess. Part
Chapter 13 – Planning and Budgeting
Solutions to Exercises
Chapter 13 – Planning and Budgeting
13–20. (15 min.) Estimate Production Levels: Hoffmann Corporation.
Hoffmann Corporation
Production Budget
13–21. (15 min.) Estimate Sales Levels Using Production Budgets: Sanlax, Inc.
Sanlax, Inc.
13–22. (15 min.) Estimate Inventory Levels Using Production Budgets: Harbor
Enterprises, Inc.
Harbor Enterprises, Inc.
Chapter 13 – Planning and Budgeting
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13–23. (15 min.) Estimate Production Levels: Capacity Constraints: Hamilton
Corp.
a.
Hamilton Corp.
Sales Budget
1. Reducing ending inventory;
2. Reducing sales (probably not desirable);
3. Producing more at the end of this year (increasing the beginning inventory).
Chapter 13 – Planning and Budgeting
13–24. (15 min.) Estimate Production and Materials Requirements: Wyoming
Machines.
a.
Wyoming Machines
Casings Plant
Expected sales ……………………………………………………………………..
160,000
units
Add: Desired ending inventory of finished goods ……………………….
5,000
Total needs ………………………………………………………………………….
165,000
Less: Beginning inventory of finished goods ……………………………..
20,000
Units to be produced ……………………………………………………………..
145,000
units
Units to be produced ……………………………………………………………….
145,000
Direct materials needed per unit …………………………..…………………..
x 6
ounces
Total production needs (amount per unit times 145,000 units) ………
870,000
ounces
Add: Desired ending inventory
(2 months ÷ 12 months)
x 160,000 x 6 …………………………….
160,000
Total direct materials needs ……………………………………………………..
1,030,000
Less: Beginning inventory of materials ……………………………………….
60,000
Direct materials to be purchased……………………………………………….
970,000
ounces
=
Sales + EB
=
Add: Estimated sales inventory ……………..………
Total merchandise needs ………………….………
Merchandise to be purchased ……………….………
Estimated cost per unit ………………………..…
Materials Requirements:
BB + P
=
Usage + EB
60,000 + P
=
(6 x 145,000) + (2 ÷ 12) x 160,000 x 6 oz.
P
=
970,000
oz.
13–25. (25 min.) Estimate Purchases And Cash Disbursements: Westile
Company.
a. and b. Westile Company
Merchandise Purchases Budget
For the Period Ended March 31
Chapter 13 – Planning and Budgeting
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13–26. (25 min.) Estimate Purchases And Cash Disbursements: White Products.
a. White Products
Merchandise Purchase Budget
For the Period Ended May 31
13–27. (15 min.) Estimate Cash Disbursements: Ashland Corporation.
Ashland Corporation
Schedule of Cash Disbursements