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Chapter 22: Q18SE (page 1232)

Using sensitivity analysis in budgeting

Refer to the Victors schedule of cash receipts from customers that you prepared in Short Exercise S22-15. Now assume that Victors鈥檚 sales are collected as follows:

40% in the month of the sale

20% in the month after the sale

39% two months after the sale

1% never collected

Prepare a revised schedule of cash receipts for January and February

Short Answer

Expert verified

Answer

Total cash receipts from the customers are $513,520 in the month of January and $438,730 in the month of February.

Step by step solution

01

Meaning of schedule of cash receipts

A cash receipt schedule is created to record the cash received from customers.

02

Preparation of schedule of cash receipts

Particulars

January

February

Total budgeted sales

$702,000

$349,000

Cash receipts from customers:



40 % in the month of sale

$280,800

$139,600

20% in the month after sale

$407,000*20% =$81,400

$702,000*20% =$140,400

39% two months after sales

$388,000*39% =$151,320

$407,000*39% =$158,730

Total cash receipts from customers

$513,520

$438,730

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Most popular questions from this chapter

Using Excel for to prepare an operating budeget (manufacturing company)

Download an Excel template for this problem online in MyAccountingLab or athttp://www.pearsonhighered.com/Horngren.

Thunder Creek Company is preparing budgets for the first quarter of 2018. All relevant information is presented on the Excel template.

Requirements

1. Prepare a Sales Budget.

2. Prepare a Production Budget.

3. Prepare a Direct Materials Budget.

4. Prepare a Direct Labor Budget.

5. Prepare a Manufacturing Overhead Budget.

6. Prepare a Cost of Goods Sold Budget

7. Prepare a Selling and Administrative Expense Budget.

Explain the difference between strategic and operational budgets

Southeast Suites operates a regional hotel chain. Each hotel is operated by a manager and an assistant manager/controller. Many of the staff who run the front desk, clean the rooms, and prepare the breakfast buffet work part-time or have a second job, so employee turnover is high.

Assistant Manager/Controller Terry Dunn asked the new bookkeeper to help prepare the hotel鈥檚 master budget. The master budget is prepared once a year and is submitted to company headquarters for approval. Once approved, the master budget is used to evaluate the hotel鈥檚 performance. These performance evaluations affect hotel managers鈥� bonuses, and they also affect company decisions on which hotels deserve extra funds for capital improvements.

When the budget was almost complete, Dunn asked the bookkeeper to increase the amounts budgeted for labor and supplies by 15%. When asked why, Dunn responded that hotel manager Clay Murry told her to do this when she began working at the hotel. Murry explained that this budgetary cushion gave him flexibility in running the hotel. For example, because company headquarters tightly control capital improvement funds, Murry can use the extra money budgeted for labor and supplies to replace broken televisions or pay 鈥渂onuses鈥� to keep valued employees. Dunn initially accepted this explanation because she had observed similar behavior at the hotel where she worked previously.

Requirements Put yourself in Dunn鈥檚 position. In deciding how to deal with the situation, answer the following questions:

1. What is the ethical issue?

2. What are the options?

3. What are the possible consequences?

4. What should you do?

Question: Preparing a financial budget鈥攕chedule of cash receipts, schedule cash payments, cash budget

Baxter Company鈥檚 budget committee provides the following information: December 31, 2017, account balances:

1. Prepare the schedule of cash receipts from customers for January and February 2018. Assume cash receipts are 80% in the month of the sale and 20% in the month following the sale.

2. Prepare the schedule of cash payments for purchases for January and February 2018. Assume purchases are paid 60% in the month of purchase and 40% in the month following the purchase.

3. Prepare the schedule of cash payments for selling and administrative expenses for January and February 2018. Assume 40% of the accrual for Salaries and Commissions Payable is for commissions and 60% is for salaries. The December 31 balance will be paid in January. Salaries and commissions are paid 30% in the month incurred and 70% in the following month. Rent and income tax expenses are paid as incurred. Insurance expense is an expiration of the prepaid amount.

4. Prepare the cash budget for January and February 2018. Assume no financing took place.

Preparing a financial budget鈥攕chedule of cash payments

Barnes Company budgeted direct materials purchases of \(191,990 in January and \)138,610 in February. Assume Barnes pays for direct materials purchases 60% in the month of purchase and 40% in the month after purchase. The Accounts Payable balance on January 1 is $75,000. Prepare a schedule of cash payments for purchases for January and February. Round to the nearest dollar.
See all solutions

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