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Chapter 22: Q32E (page 1237)

Preparing an operating budget鈥攕elling and administrative expense budget

Consider the sales budget presented in Exercise E22-31. Slate鈥檚 selling and administrative expenses include the following:

Rent, \(2,000 per month

Salaries, \)4,000 per month

Commissions, 5% of sales

Depreciation, $1,000 per month

Miscellaneous expenses, 2% of sales

Prepare a selling and administrative expense budget for each of the three quarters of 2018 and totals for the nine-month period.

Short Answer

Expert verified

Answer

The total budget S & A spending is $ 97,650.

Step by step solution

01

Preparation of selling and administrative budget


March 31

June 30

September 30

Total

Salaries

$6,000

$6,000

$6,000

$18,000

Rent

$12,000

$12,000

$12,000

$36,000

Commissions

$7,000

$9,500

$8,250

$24,750

Depreciation

$3,000

$3,000

$3,000

$9,000

Miscellaneous expense

$2,800

$3,800

$3,300

$9,900

Total budgeted S&A Expenses

$30,800

$34,300

$32,550

$97,650

02

Statement showing commissions


March 31

June 30

September 30

Total

Budgeted sales

$140,000

$190,000

$165,000

$495,000

Commission

X 5%

X 5%

X 5%

X 5%

Commissions

$7,000

$9,500

$8,250

$24,750

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Most popular questions from this chapter

Preparing the financial budget鈥攃ash budget Hoppy Company requires a minimum cash balance of $3,500. When the company expects a cash deficiency, it borrows the exact amount required on the first of the month. Expected excess cash is used to repay any amounts owed. Interest owed from the previous month鈥檚 principal balance is paid on the first of the month at 14% per year. The company has already completed the budgeting process for the first quarter for cash receipts and cash payments for all expenses except interest. Hoppy does not have any outstanding debt on January 1. Complete the cash budget for the first quarter for Hoppy Company. Round interest expense to the nearest whole dollar.

Preparing a financial budget鈥攕chedule of cash receipts and schedule of cash payments

Agua Cool is a distributor of bottled water. For each of the items, compute the amount of cash receipts or payments Agua Cool will budget for September. The solution to one item may depend on the answer to an earlier item.

a. Management expects to sell equipment that cost \(14,000 at a gain of \)7,000. Accumulated depreciation on this equipment is \(5,000.

b. Management expects to sell 7,100 cases of water in August and 9,000 cases in September. Each case sells for \)14. Cash sales average 20% of total sales, and credit sales make up the rest. Three-fourths of credit sales are collected in the month of the sale, with the balance collected the following month.

c. The company pays rent and property taxes of $4,500 each month. Commissions and other selling expenses average 30% of sales. Agua Cool pays one-half of commissions and other selling expenses in the month incurred, with the balance paid the following month.

Using sensitivity analysis Holly Company prepared the following budgeted income statement for the first quarter of 2018:

Holly Company is considering two options. Option 1 is to increase advertising by \(700 per month. Option 2 is to use better-quality materials in the manufacturing process. The better materials will increase the cost of goods sold to 45% but will provide a better product at the same sales price. The marketing manager projects either option will result in sales increases of 30% per month rather than 20%.

Requirements

1. Prepare budgeted income statements for both options, assuming both options begin in January and January sales remain \)8,000. Round all calculations to the nearest dollar.

2. Which option should Holly choose? Explain your reasoning.

Explain the difference between static and flexible budgets.

Crowley Company projects the following sales:

January February March

Cash sales (25%) \( 5,000 \) 5,500 \( 6,000

Sales on account (75%) 15,000 16,500 18,000

Total sales \) 20,000 \( 22,000 \) 24,000

Crowley collects sales on account in the month after the sale. The Accounts Receivable balance on January 1 is \(13,500, which represents December鈥檚 sales on account. Crowley projects the following cash receipts from customers:

January February March

Cash receipts from cash sales \) 5,000 \( 5,500 \) 6,000

Cash receipts from sales on account 13,500 15,000 16,500

Total cash receipts from customers \( 18,500 \) 20,500 $ 22,500

Recalculate cash receipts from customers if total sales remain the same but cash sales are only 20% of the total.
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