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Chapter 22: 2SE (page 1228)

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.

Short Answer

Expert verified
  1. Strategic budget
  2. Flexible budget
  3. Operational budget
  4. Master budget

Step by step solution

01

Upper management is planning for the next five years

The upper management鈥檚 need for planning for the next five years is a long-term goal that requires a strategic budget

02

A store manager wants to make a plan for different levels of sales.

If the store manager wants to plan for a different level of sales, then he should prepare aflexible budget.

03

The accountant wants to determine if the company will have sufficient funds to pay expenses.

To determine if the company will have sufficient funds to pay expenses the accountant should prepare anoperational budget.

04

The CEO wants to make companywide plans for the next year

If the CEO wants to make companywide plans for the next year they should prepare amaster budget.

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Most popular questions from this chapter

Explain the difference between strategic and operational budgets

Describing master budget components

Sarah Edwards, division manager for Pillows Plus, is speaking to the controller, Diana Rothman, about the budgeting process. Sarah states, 鈥淚鈥檓 not an accountant, so can you explain the three main parts of the master budget to me and tell me their purpose?鈥� Answer Sarah鈥檚 question.

Preparing an operating budget鈥攄irect materials budget

Bell expects to produce 1,800 units in January and 2,155 units in February. The company budgets 3 pounds per unit of direct materials at a cost of $10 per pound. Indirect materials are insignificant and not considered for budgeting purposes. The balance in the Raw Materials Inventory account (all direct materials) on January 1 is 4,950 pounds. Bell desires the ending balance in Raw Materials Inventory to be 20% of the next month鈥檚 direct materials needed for production. Desired ending balance for February is 4,860 pounds. Prepare Bell鈥檚 direct materials budget for January and February.

Match the budget types to the definitions.

Budget Types Definitions

5. Financial a. Includes sales, production, and cost of goods sold budgets

6. Flexible b. Long-term budgets

7. Operating c. Includes only one level of sales volume

8. Operational d. Includes various levels of sales volumes

9. Static e. Short-term budgets

10. Strategic f. Includes the budgeted financial statements

: Completing a comprehensive budgeting problem鈥攎erchandising company

Belton Printing Company of Baltimore has applied for a loan. Its bank has requested a budgeted income statement for the month of April 2018 and a balance sheet at April 30, 2018. The March 31, 2018, balance sheet follows:

As Belton Printing鈥檚 controller, you have assembled the following additional information:

a. April dividends of \(7,000 were declared and paid.

b. April capital expenditures of \)17,000 budgeted for cash purchase of equipment.

c. April depreciation expense, \(800.

d. Cost of goods sold, 55% of sales.

e. Desired ending inventory for April is \)24,800.

f. April selling and administrative expenses includes salaries of \(29,000, 20% of which will be paid in cash and the remainder paid next month.

g. Additional April selling and administrative expenses also include miscellaneous expenses of 10% of sales, all paid in April.

h. April budgeted sales, \)86,000, 80% collected in April and 20% in May.

i. April cash payments of March 31 liabilities incurred for March purchases of inventory, \(8,300.

j. April purchases of inventory, \)22,900 for cash and $37,200 on account. Half the credit purchases will be paid in April and half in May

Requirements

1. Prepare the sales budget for April.

2. Prepare the inventory, purchases, and cost of goods sold budget for April.

3. Prepare the selling and administrative expense budget for April.

4. Prepare the schedule of cash receipts from customers for April.

5. Prepare the schedule of cash payments for selling and administrative expenses for April.

6. Prepare the cash budget for April. Assume the company does not use short-term financing to maintain a minimum cash balance.

7. Prepare the budgeted income statement for April.

8. Prepare the budgeted balance sheet at April 30, 2018.
See all solutions

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