Question 1

Assume you have just been hired by a large manufacturing company and have been assigned to a team that has the responsibility of gathering the data for completing the company's master budget.Your first assignment is to make a presentation to a meeting of all department managers concerning preparation of the master budget and the importance of each department manager providing realistic estimates to the team.You and the other team members have had a brain storming session to determine what you should cover.The team has come up with some questions you should ans during your presentation.
a.What is a master budget?
b.What are the component parts of the master budget?
c.How are the components related?

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Question 2

Assume you have just been hired by a large manufacturing company and have been assigned to a team that has the responsibility of gathering the data for completing the company's operating budget.Your first assignment is to make the initial contact with the department managers who will be providing data to insure that everyone involved knows the importance of preparing a realistic budget.The first manager you approach does not appear to know what an operating budget is and apparently is not interested in assisting your team in preparing a meaningful budget.Prepare a written memo to the managers explaining what the operating budget is,its components,and its importance.

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Question 3

What is budgetary slack and why is it an issue in budget preparation?

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Question 4

Assume your friend is watching you prepare the Master Budget as part of your accounting homework.She notices that The Sales Budget affects both the Budgeted Income Statement and the Cash Budget,but not by the same amount.Explain why the effect is not the same on the two budgets.

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Question 5

$\textbf{    Integrated sales budget,production budget,and purchases budget     }$  Go-Spa Enterprises is a portable hot tub manufacturer.The company produces both 2-person and 4-person hot tubs.John Ireland the company's sales manager,prepared the following sales forecast for 2015.The forecasted sales prices include a 5 percent increase in the 2-person spa price and a 10 percent increase in the 4-person spa price,to cover anticipated increases in raw materials prices.
 
Required:

a.	Prepare Go-Spa’s sales budget for 2015.
b.	On December 31, 2014, Go-Spa had 80 2-person spas in stock—fewer than the desired inventory level of 100, based on the following quarter’s sales. The company has budgeted for sales of 450 2-person spas in the first quarter of 2016. Prepare the 2015 production budget for 2-person spas.
c.	Each 2-person spa requires a pump motor, which Go-Spa purchases for $160. On December 31, 2014, Go Spa had 400 pump motors in inventory. Damage during the installation process results in a standard quantity of 1.2 motors per spa. Because of recent delivery problems, Go-Spa wants to maintain an ending inventory equal to 50 percent of the following quarter’s production needs. Since the supplier has assured Go-Spa that the delivery issues will be resolved by the end of December, Go-Spa wants only 300 motors in inventory on December 31, 2015. Prepare the purchases budget for motors for 2015.

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Question 6

$\textbf{   Comprehensive Cash Budget      }$  Sedona Gear Company a rapidly growing distributor of camping equipment,is formulating its plants for the coming year.Cody Mosbay,the firm's marketing director,has completed the following sales forecast.

Patti Bodkin,an accountant in the Planning and Budgeting Department,is responsible for preparing the cash flow projection.She has gathered the following information.
$\bullet$All sales are made on credit.
$\bullet$Sedona's excellent record in accounts receivable collection is expected to continue,with 65 percent of billings collected in the month after sale and the remaining 35 percent collected in the second month after the sale.
$\bullet$Cost of goods sold,Sedona's largest expense,is estimated to equal 45 percent of sales dollars.Seventy percent of inventory is purchased one month prior to sale and 30 percent during the month of sale.For example,in April,30 percent of April cost of goods sold is purchased and 70 percent of May cost of goods sold is purchased.
$\bullet$All purchases are made on account.Historically,70 percent of accounts payable have been paid during the month of purchase,and the remaining 30 percent in the month following purchase.
a.Prepare the cash receipts budget for the second quarter.
b.Prepare the purchases budget for the second quarter.
c.Prepare the cash payments budget for the second quarter.

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Question 7

Describe the components of the cash budget and discuss why the cash budget is important to managers.

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Question 8

What are two tradeoffs between ideal standards and practical standards that a student might be willing to accept for a Principles of Accounting class?

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Question 9

Most organizations have a plan for success.The plan may be formal or informal,but leaders should be able to identify what they want their organizations to achieve.One type of tactical planning is the budgeting process.

Required:

Describe the budget development process and explain how it fits into management’s planning process.

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Question 10

Cooper Company,a retailer of camping supplies has budgeted activity for January using the following data:
  Required:

Prepare a cash budget for January

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Question 11

Williams Company makes and sells laundry duffel bags. Each duffel bag sells for $20 and has a unit variable cost of $12. The company has provided the following budgeting data for March:

Sales all cash sales	$~~~~~~~~$$~~~~~ ~$$~~~~~~~~$$~~~~~~~~$$34,000
Cash balance on March 1$~~~ ~~~$$~~~~~~~~$	$~~~~~~~~$4,000
Cash disbursements during the month $~~~ ~~$	36,000
A minimum cash balance on March $~~~~~~~~$31	4,000

If necessary, Williams will borrow cash from the local bank in multiples of $1,000.

Required:

a.	How many units did Williams budget to sell during March?

b.	What is Williams’ budgeted cash balance at the end of the period before borrowing?

c.	How much should Williams budget for borrowing in January?

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Question 12

$\textbf{    Cash receipts budget with discounts      }$ Garden Gnomes Company produces various types of lawn ornaments.The company's sales budget for the first six months of the coming year is as follows.All sales are made on credit.

Garden Gnomes is planning to change its credit policies in the coming year.For the first time in its history,the company is offering a 2 percent discount to customers who pay within 15 days of the invoice date.Based on industry trends,Garden Gnomes estimates that this change will result in 60 percent of credit sales being paid within the discount period; another 20 percent of sales,within the month of sale but outside of the discount period; and another 15 percent of sales,during the month after the sale.An estimated 5 percent of sales will be uncollectible.
a.Prepare Garden Gnomes' cash receipts budget for the second quarter of the coming year.
b.How much cash will Garden Gnomes sacrifice in the second quarter by offering the new discount?
c.What do you think led Garden Gnomes to offer the new discount to customers?

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Question 13

The standard price of a product is comprised of several components including cost and quantity.

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Question 14

Pro-forma financial statements are prepared using the information developed in the budget process.These statements reflect the results of operations and the financial position of the organization as if all actions planned in the budget had occurred.Many of the master budget components provide direct input to the pro-forma financial statements.

Required:

For each of the following components of the financial statements, indicate which pro-forma financial statement will show the item Income Statement or Balance Sheet and the budget within the master budget the item originated. Number 1 provides an example.

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Question 15

Integrated purchases and cash payments budget Senegalese Specialties,a retailer of West African food products,has completed the sales forecast for the coming year:

Senegalese Specialties maintains an ending inventory level of 60 percent of the following month’s cost of goods sold. The company’s cost of goods sold is 35 percent of sales.

Required:

a.	Prepare Senegalese Specialties purchases budget for June and July. Use the following format:

b.Assuming that Senegalese Specialties pays for 50 percent of its purchases in the month of purchase and the remaining 50 percent in the month following the purchase,prepare the company's cash payments budget for July.

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Quiz 5: Planning and Forecasting

What is budgetary slack and why is it an issue in budget preparation?

Assume your friend is watching you prepare the Master Budget as part of your accounting homework.She notices that The Sales Budget affects both the Budgeted Income Statement and the Cash Budget,but not by the same amount.Explain why the effect is not the same on the two budgets.

Describe the components of the cash budget and discuss why the cash budget is important to managers.

What are two tradeoffs between ideal standards and practical standards that a student might be willing to accept for a Principles of Accounting class?

Cooper Company,a retailer of camping supplies has budgeted activity for January using the following data: Required: Prepare a cash budget for January

The standard price of a product is comprised of several components including cost and quantity.