Exercise 10-24: Production and Materials Purchases Budgets Background White Corporation’s budget…

Exercise 10-24: Production and Materials Purchases Budgets
Background

White
Corporation’s budget calls for the following sales for next year:

Quarter
1 90,000 units Quarter 3 68,000 units
Quarter
2 76,000 units Quarter 4 96,000 units

Each unit of the product requires 3 pounds of direct
material. The company’s policy is to begin each
quarter with an inventory of the product equal to 5% of that
quarter’s sales requirements and an inventory
of direct materials equal to 20% of that quarter’s direct
materials requirements for production.

Direct
Materials per unit of output 3 pounds
Target
end-of-month inventory (% of next
quarter’s est. sales) 5%
Direct
Materials inventory as a percentage need for production 20%

Exercise 10-25: Budgeted Cash Receipts and Cash Payments
Background

Timpco, a retailer, makes both cash and credit sales (i.e.,
sales on open account).
Information regarding budgeted sales for the last quarter of
the year is as follows:

October November December
Cash
Sales $100,000 $120,000 $80,000
Credit
Sales $100,000 $150,000 $90,000
Total $200,000 $270,000 $170,000

Credit
Sales Uncollectible 5%
Of the
collectibe credit sales:

Collected in month of Sale 60%

Collected following month 40%

Discount for early payment 2%

% of sales collected early 75%

Inventory
purchases as a % of cost 100%
Gross
profit rate 30%
Inventory
paid in month of purchase 25%
Remainder
paid following month 75%

Requirements

1. Calculate the budgeted total cash receipts for November
and December.

2. Calculate budgeted cash payments for November and
December.
Budgeted sales for
January of the coming year = $200,000

Exercise 10-26: Cash Disbursements Budget
Background

Problem Information

January February March
Budgeted
Purchases $150,000 $120,000 $90,000

Percentage
paid during month of sale 80%
Percentage
discount for early payment 2%
Extra
days allowed if discount is not taken (i.e., under 2/15, n/30) 15

RequirementsExercise
10-27: Cash Budget–Financing Effects

Data Input
Cash
balance, November 1st $75,000

Minimum
eom cash balance $50,000

Budgeted
cash receipts:
November $525,000

December $450,000

Budgeted
cash disbursements:
November $450,500

December $550,000

Interest
rate on borrowings 12.00% per year
Short-term
loan payable, as of November 1st $50,000

Borrowings
in increments of $1,000

Exercise 10-28: Cash Budget
Background

Marsha,
Inc.: Budget Data

Cash
balance, beginning $15,000
Collections
from customers $145,000
Expenses:
Direct materials purchases $25,000
Operating expenses $50,000
Payroll $75,000
Income taxes $6,000
Other:
Machinery purchases $30,000

NOTE: Operating expenses include depreciation = $20,000

Minimum
cash balance = $25,000

Requirements

Compute
the amount the company needs to finance or excess cash available for Carla to
invest.

Exercise 10-29: Budgeting Cash Receipts–Cash Discounts
Allowed on Receivables
Background

Sales
Data Amount Breakdown of Cash/Bank
Credit-Card Sales
June $60,000 Cash
sales 40%
July $80,000 Bank
credit-card sales 60%
August $90,000 Bank
processing fee 3%
September $96,000 Collection of Credit Sales:
October $88,000 Current
month 20%
Sales
Breakdown 1st month 50%
Cash/bank credit-card sales 25% 2nd month 15%
Credit sales 75% 3rd month 12%
Late charge/mo. 2%
Discount (if paid by eom) 1%

Requirements

1) Prepare a schedule of cash receipts for September and
October.
a. At the top of
the spreadsheet, create an “Original Data” section with four
subheadings: Sales Data, Sales

Breakdown/Terms, Breakdown of Cash/Bank Credit Card Sales, and
Collection of Credit Sales.
b. Enter all
pertinent data from above.
c. Create a
section of the spreadsheet to calculate cash receipts for September, with rows
for Cash Sales,
Bank Credit
Card Sales, Collections of Accounts Receivable (4 rows), Total Cash Inflow, and
columns for:
Total Sales
for the month; % Breakdown–Cash/Bank Credit Card Sales vs. Credit Sales; %
breakdown–cash vs.
bank credit
card sales, or collection of accounts receivable; and, Collection Percentage
(i.e., % collected to allow
for cash
discounts allowed or late charges assessed); and, Cash Receipts.
d. Program the
spreadsheet to perform all necessary calculations for determination of cash
receipts for
September. Do
not type in any amounts. All the amounts you enter into this new section should
derive
from data in
the Original Data section using a formula.
e. Verify the
accuracy of your spreadsheet by calculating the total cash receipts in
September: $86,082.
f. Create a new
section titled “October.” Program the spreadsheet to perform all
necessary calculations for
determining
cash receipts for October. Verify the accuracy of your spreadsheet by showing
that the total
cash receipts
for October is $88,141.

2) What is the approprirate accounting treatments for the
bank service fees and the cash discounts
allowed on
collection of receivables?

Exercise 10-30: Cash Budget
Background

Information pertaining to Noskey Corporation’s sales revenus
includes this:

November December January
2012
(Actual) 2012
(Budgeted) 2013
(Budgeted)

Cash
Sales $80,000 $100,000 $60,000
Credit
Sales $240,000 $360,000 $180,000
TOTAL
Sales $320,000 $460,000 $240,000

Management estimates 5% of credit sales to be uncollectible.
Of collectible credit sales, 60% is collected in the
month of sale and the remainder in the month following month
of sale. Purchases of inventory each month include 70%
of the next month’s projected total sales (stated at cost)
plus 30% of projected sales of the current month (stated at cost).
All inventory purchases are on account; 25% are paid in the
month of purchase, and the remainder is paid in the month
following purchase. Purchase costs are approximately 60% of
the selling price.

Estimated
collections in month of sale 60%
Estimated
collections in first month following month of sale 40%
Estimated
provision for bad debts in month of sale 5%
Inventory
purchases as a percent of next month’s projected sales 70%
Inventory
purchases paid in the month of purchase 25%
Inventory
purchases paid in the month after purchase 75%
Purchase
costs as a percent of selling price 60%

Requirements

1) Budgeted cash
collections in December 2012 from November 2012 credit sales
2) Budgeted total
cash receipts in January 2013
3) Budgeted total
cash payments in December 2012 for inventory purchases

Exercise 10-31: Purchase Discounts

Input Data

Discount % for
early payment: 1% 2%

Discount period
(no. of days) 10
Days in month
beyond discount period 20

Exercise 10-32: Accounts Receivable Collections and
Sensitivity Analysis
Background
Papst Company is preparing its cash budget for the month of
May. The following information is available concerning its accounts receivable:

Actual
credit sales for March $130,000

Actual
credit sales for April $160,000

Estimated
credit sales for May $210,000

Estimated
collections in month of sale 25%
Estimated
collections in first month following month of sale 60%
Estimated
collections in the second month after month of sale 10%
Estimated
provision for bad debts in month of sale 5%

Requirements

Determine for Papst Company for the month of May:
1. Estimated cash receipts from accounts receivable
collections.
2. The gross amount of accounts receivable at the end of the
month.
3. The net amount of accounts receivable at the end of the
month.
4. Recalculate requirements (1) and (2) under the assumption
that estimated collections in month of sale
= 60% and in first
month following month of sale = 25%.
5. What are the benefits and likely costs of moving to the
situation described about in (4)?

Exercise 10-33: What If Analysis

Input Data
January February March
Estimated credit
sales: $100,000
$120,000 $110,000

Month
of Sale 1st Month After Bad Debts
Collection
pattern 65% 30% 5%

Alternative
estimates of bad-debts: 1% 3% 5% 8%

Ex 10-34: Profit Planning & Sensitivity Analysis

Background

You are currently
trying to decide between two cost structures for your business, one that has a
greater
proportion of
short-term fixed costs, the other that is more heavily weighted to variable
costs. Estimated
revenue and cost
data for each alternative is as follows:

Data
Cost
Structure
Alternative
1 Alternative 2
Selling
Price per Unit $100.00
$100.00
Variable
Costs per Unit $85.00
$80.00
Total
Fixed Costs (per Year) $40,000
$45,000

Requirements

1. What sales volume, in units, is needed for the total
costs in each cost-structure alternative to be the same?
2. Suppose your profit goal for the coming year is 5% on
sales (i.e., operating profit ÷ sales = 5%).
What sales level,
in units, is needed under each alternative to achieve this goal?
3. Suppose again that your profit goal for the coming year
is 5% on sales.
What sales volume
in dollars is needed under each alternative to achieve this goal?

Exercise 10-35: Scenario Analysis

Background

As part of the
process of preparing the master budget for the coming year, you’ve been asked
to perform
“what-if”
analyses, in the form of scenarios, on the original planning assumptions
regarding Product A
produced by your
company. The following are the baseline planning data for the coming year for
this product:

Data

Sales volume (annual, in units) 2,500
Selling price per unit $1,500

Variable cost per unit $1,000

Fixed costs (per year) $200,000

Requirements

1. Define what is meant by the terms “what-if
analysis” and “scenario analysis.”
2. Based on the baseline planning data, what is the budgeted
operating income
for Product A for
the coming year?
3. Determine the estimated operating income under each of
the following scenarios:
(for each scenario
you should report both the new budgeted operating income and
the percentage
change in operating income from the baseline budgeted result):
a. selling
price per unit is 10% higher than planned, while fixed costs per year
are
also 10% higher than planned
b. variable
cost per unit is 5% higher than planned, while total fixed costs are lower
by this
same percentage
c. selling
price per unit is 10% higher than planned, while volume is decreased by 8%

Exercise 10-36: Cash Budgeting–Not-for-Profit Context

Requirements

Answer the following questions and complete the cash budget
statements in the form below.

Exercise 10-37: Budgeting–Not-for-Profit (NFP) Context

Exercise
10-38: Budgeting for a Service Firm
Background

Refer to AccuTax, Inc. in the chapter. One of the partners
is planning to retire at the end of the year. May Higgins, the sole
remaining partner, plans to add a manager at an annual
salary of $90,000. She expects the manager to work, on average,
45 hours per week for 45 weeks per year. She plans to change
the required staff time for each hour spent to complete a tax
return to the following:

Complex
Individual Return Simple
Individual Return
Business
Return

Partner 0.30 hr 0.05 hr
Manager 0.20 hr 0.15 hr
Senior
Consultant 0.50 hr 0.40 hr 0.20 hr
Consultant 0.00 hr 0.40 hr 0.80 hr

The manager is salaried and earns no overtime pay. Senior
consultants are salaried but receive time and a half for any
overtime worked. The firm plans to keep all the senior
consultants and adjust the number of consultants as needed, including
employing part-time consultants, who are also paid on an
hourly basis. The partner has also decided to have five supporting
staff at $40,000 each. All other operating data remain
unchanged. The manager will share 10 percent of any excess profit
over $500,000 before bonus.
Hourly
Budgeted Charge Required
Revenue
Source Revenue Rate Hours
Business
returns $1,000,000 $250 4,000
Complex
individual returns $1,200,000 $100 12,000
Simple
individual returns $1,640,000
$50 32,800
$3,840,000
48,800
Hrs./
week/
# weeks Current
year per year staff
Partner 50 40 1
Manager 45 45 1
Senior Consultant 40 45 8
Consultant 40 48 20
Annual Salaries:
Per partner = $250,000
Per manager = $90,000
Per senior consultant = $90,000
Per support staff = $40,000
Consultant’s pay:
Earnings per year = $60,000
Number of support staff 5

Requirements

1) What is the budgeted total cost for overtime hours worked
by senior consultants?
2) How many full-time consultants should be budgeted?
3) Determine the manager’s total compensation and total
pre-tax operating income for the firm assuming that the
revenues from
preparing tax returns remain unchanged.

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