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Chapter 22: 20RQ (page 1228)
What is sensitivity analysis? Why is it important for managers?
Sensitivity analysis is a what-if technique.
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Preparing a financial budget鈥攕chedule of cash payments
Marcel Company has the following projected costs for manufacturing and selling and administrative expenses:
January February March Direct materials purchases \( 3,100 \) 3,500 $ 4,800 Direct labor costs 3,300 3,500 3,600 Depreciation on plant 550 550 550 Utilities for plant 650 650 650 Property taxes on plant 200 200 200 Depreciation on office 550 550 550 Utilities for office 250 250 250 Property taxes on office 170 170 170 Office salaries 3,500 3,500 3,500
All costs are paid in month incurred except: direct materials, which are paid in the month following the purchase; utilities, which are paid in the month after incurred; and property taxes, which are prepaid for the year on January 2. The Accounts Payable and Utilities Payable accounts have a zero balance on January 1. Prepare a schedule of cash payments for Marcel for January, February, and March. Determine the balances in Prepaid Property Taxes, Accounts Payable, and Utilities Payable as of March 31.
Preparing a financial budget鈥攂udgeted balance sheet
Use the following June actual ending balances and July 31, 2018, budgeted amounts for Omas to prepare a budgeted balance sheet for July 31, 2018.
a. June 30 Merchandise Inventory balance, \(17,770
b. July purchase of Merchandise Inventory, \)4,400, paid in cash
c. July payments of Accounts Payable, \(8,400
d. June 30 Accounts Payable balance, \)10,700
e. June 30 Furniture and Fixtures balance, \(34,100; Accumulated Depreciation balance, \)29,880
f. June 30 total stockholders鈥� equity balance, \(28,020
g. July Depreciation Expense, \)500
h. Cost of Goods Sold, 60% of sales
i. Other July expenses, including income tax, \(2,000, paid in cash
j. June 30 Cash balance, \)11,600
k. July budgeted sales, all on account, \(12,600
l. June 30 Accounts Receivable balance, \)5,130
m. July cash receipts from collections on account, $14,700
(Hint: It may be helpful to trace the effects of each transaction on the accounting equation to determine the ending balance of each account.)
Budgeting types Consider the following budgets and budget types.
Cash Cost of Goods Sold
Flexible Master
Operational Sales
Static Strategic
Which budget or budget type should be used to meet the following needs?
a. Upper management is planning for the next five years.
b. A store manager wants to plan for different levels of sales.
c. The accountant wants to determine if the company will have sufficient funds to pay expenses.
d. The CEO wants to make companywide plans for the next year.
Preparing a financial budget鈥攂udgeted income statement and balance sheet Ball Company has the following post-closing trial balance on December 31, 2018:
The company鈥檚 accounting department has gathered the following budgeting information for the first quarter of 2019:
Budgeted total sales, all on account $ 121,800 Budgeted purchases of merchandise inventory, all on account 60,400 Budgeted cost of goods sold 60,900 Budgeted selling and administrative expenses:
Commissions expense 6,090 Salaries expense 7,000 Rent expense 4,100 Depreciation expense 600 Insurance expense 400 Budgeted cash receipts from customers 125,840 Budgeted cash payments for merchandise inventory 67,775 Budgeted cash payments for salaries and commissions 14,822 Budgeted income tax expense 5,400 Additional information: Rent and income tax expenses are paid as incurred. Insurance expense is an expiration of the prepaid amount.
Requirements
Understanding the components of the master budgetThe following are some of the components included in the master budget of amerchandising company.
a. Budgeted balance sheet
b. Sales budget
c. Capital expenditures budget
d. Budgeted income statement
e. Cash budget
f. Inventory, purchases, and cost of goods sold budget
g. Selling and administrative expense budget
List the items of the master budget in order of preparation.
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