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Chapter 22: Q4RQ (page 1228)
What is budgetary slack? Why might managers try to build slack into their budgets?
Budgetary slack means higher expectations for estimated expenses and least expectations for estimated revenues.
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Question: List the four budgeting objectives.
Question: Preparing an operating budget鈥攕ales budget; inventory, purchases and COGS budget; and S&A expense budget Burton Office Supply鈥檚 March 31, 2018, balance sheet follows:
The budget committee of Burton Office Supply has assembled the following data: a. Sales in April are expected to be \(200,000. Burton forecasts that monthly sales will increase 2% over April sales in May. June鈥檚 sales will increase by 4% over April sales. July sales will increase 20% over April sales. b. Burton maintains inventory of \)15,000 plus 25% of the cost of goods sold budgeted for the following month. Cost of goods sold equal 50% of sales revenue. c. Monthly salaries amount to \(7,000. Sales commissions equal 5% of sales for that month. d. Other monthly expenses are as follows: 鈥� Rent: \)2,000 鈥� Depreciation: \(200 鈥� Insurance: \)100 鈥� Income tax: $2,200
Requirements
1. Prepare Burton鈥檚 sales budget for April and May 2018. Round all calculations to the nearest dollar.
2. Prepare Burton鈥檚 inventory, purchases, and cost of goods sold budget for April and May.
3. Prepare Burton鈥檚 selling and administrative expense budget for April and May.
Preparing a financial budget鈥攃ash budget
You recently began a job as an accounting intern at Reilly Golf Park. Your first task was to help prepare the cash budget for April and May. Unfortunately, the computer with the budget file crashed, and you did not have a backup or even a paper copy. You ran a program to salvage bits of data from the budget file. After entering the following data in the budget, you may have just enough information to reconstruct the budget.
Reilly Golf Park eliminates any cash deficiency by borrowing the exact amount needed from First Street Bank, where the current interest rate is 6% per year. Reilly Golf Park first pays interest on its outstanding debt at the end of each month. The company then repays all borrowed amounts at the end of the month with any excess cash above the minimum required but after paying monthly interest expenses. Reilly does not have any outstanding debt on April 1.
Complete the cash budget. Round interest expense to the nearest whole dollar.
Preparing an operating budget鈥攕ales budget
Trailers sells its rock-climbing shoes worldwide. Trailers expects to sell 6,500 pairs of shoes for \(185 each in January and 4,000 pairs of shoes for \)220 each in February. All sales are cash only. Prepare the sales budget for January and February.
What is sensitivity analysis? Why is it important for managers?
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