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Chapter 22: Q10RQ (page 1228)
What is the formula used to determine the number of units to be produced?
The production budget helps in preparing the production cost budget.
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Preparing the financial budget鈥攃ash budget
Use the original schedule of cash receipts completed in Exercise E22-26, Requirement 1, and the schedule of cash payments completed in Exercise E22-27 to complete a cash budget for Marcel Company for January, February, and March.
Additional information: Marcel鈥檚 beginning cash balance is \(5,000, and Marcel desires to maintain a minimum ending cash balance of \)5,000. Marcel borrows cash as needed at the beginning of each month in increments of \(1,000 and repays the amounts borrowed in increments of \)1,000 at the beginning of months when excess cash is available. The interest rate on amounts borrowed is 8% per year. Interest is paid at the beginning of the month on the outstanding balance from the previous month.
Using sensitivity analysis in budgeting Riverbed Sporting Goods Store has the following sales budget:
Suppose June sales are expected to be \(81,000 rather than \)65,000. Revise Riverbed鈥檚 sales budget.
Preparing a financial budget鈥攂udgeted income statement and balance sheet
Buncomb Companyhas 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 $ 121,700 Budgeted purchases of merchandise inventory,
all on account 61,200 Budgeted cost of goods sold 60,850 Budgeted selling and administrative expenses: Commissions expense 6,085 Salaries expense 3,000 Rent expense 4,100 Depreciation expense 900 Insurance expense 300 Budgeted cash receipts from customers 126,450 Budgeted cash payments for merchandise inventory 67,925 Budgeted cash payments for salaries and commissions 14,836 Budgeted income tax expense 4,700 Additional information:
Rent and income tax expenses are paid as incurred. Insurance expense is an expiration of the prepaid amount.
Requirements
Preparing an operating budget鈥攄irect materials, direct labor, and manufacturing overhead budgets
Grady, Inc. manufactures model airplane kits and projects production at 650, 500, 450, and 600 kits for the next four quarters. Direct materials are 4 ounces of plastic per kit and the plastic costs \(1 per ounce. Indirect materials are considered insignificant and are not included in the budgeting process. Beginning Raw Materials Inventory is 850 ounces, and the company desires to end each quarter with 10% of the materials needed for the next quarter鈥檚 production. Grady desires a balance of 200 ounces in Raw Materials Inventory at the end of the fourth quarter. Each kit requires 0.10 hours of direct labor at an average cost of \)10 per hour. Manufacturing overhead is allocated using direct labor hours as the allocation base. Variable overhead is \(0.20 per kit, and fixed overhead is \)165 per quarter. Prepare Grady鈥檚 direct materials budget, direct labor budget, and manufacturing overhead budget for the year. Round the direct labor hours needed for production, budgeted overhead costs, and predetermined overhead allocation rate to two decimal places. Round other amounts to the nearest whole number.
How does the master budget for a merchandising company differ from a manufacturing company?
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