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Chapter 22: Q20SE (page 1232)
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.
Answer
The cash sales for June are $60,750 and credit sales are $20,250.
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Preparing a financial budget鈥攃ash budget
Booth has \(12,500 in cash on hand on January 1 and has collected the following budget data:
January February
Sales \) 529,000 \( 568,000
Cash receipts from customers 443,000 502,200
Cash payments for direct materials purchases 180,624 160,284
Direct labor costs 135,010 113,348
Manufacturing overhead costs (includes
depreciation of \)900 per month) 55,058 53,922
Assume direct labor costs and manufacturing overhead costs are paid in the month incurred. Additionally, assume Booth has cash payments for selling and administrative expenses including salaries of \(40,000 per month plus commissions that are 1% of sales, all paid in the month of sale. The company requires a minimum cash balance of \)20,000. Prepare a cash budget for January and February. Round to the nearest dollar. Will Booth need to borrow cash by the end of February?
Camp Company is a sporting goods store. The company sells a tent that sleeps six people. The store expects to sell 250 tents in 2018 and 280 tents in 2019. At the beginning of 2018, Camp Company has 25 tents in Merchandise Inventory and desires to have 5% of the next year鈥檚 sales available at the end of the year. How many tents will Camp Company need to purchase in 2018?
Preparing an operating budget鈥攎anufacturing overhead budget Bennett Company expects to produce 2,030 units in January that will require 8,120 hours of direct labor and 2,210 units in February that will require 8,840 hours of direct labor. Bennett budgets \(10 per unit for variable manufacturing overhead; \)2,100 per month for depre000ciation; and $78,460 per month for other fixed manufacturing overhead costs. Prepare Bennett鈥檚 manufacturing overhead budget for January and February, including the predetermined overhead allocation rate using direct labor hours as the allocation base.
Completing a comprehensive budgeting problem鈥攎erchandising company Alliance Printing Supply of Baltimore has applied for a loan. Its bank has requested a budgeted income statement for April 2018 and a balance sheet at April 30, 2018. The March 31, 2018, balance sheet follows:
As Alliance Printing Supply鈥檚 controller, you have assembled the following additional information:
a. April dividends of \(7,000 were declared and paid.
b. April capital expenditures of \)16,300 budgeted for cash purchase of equipment.
c. April depreciation expense, \(1,000.
d. Cost of goods sold, 40% of sales.
e. Desired ending inventory for April is \)22,400.
f. April selling and administrative expenses include salaries of \(37,000, 30% of which will be paid in cash and the remainder paid next month.
g. Additional April selling and administrative expenses also include miscellaneous expenses of 10% of sales, all paid in April.
h. April budgeted sales, \)89,000, 80% collected in April and 20% in May.
i. April cash payments of March 31 liabilities incurred for March purchases of inventory, \(8,600.
j. April purchases of inventory, \)8,600 for cash and $37,400 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.
Using sensitivity analysis in budgeting
Refer to the Berry鈥檚 schedule of cash receipts from customers that you prepared in Short Exercise S22-9. Now assume that Berry鈥檚 sales are collected as follows:
60% in the month of the sale
20% in the month after the sale
18% two months after the sale
2% never collected
Prepare a revised schedule of cash receipts for January and February.
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