CHAPTER6:OPERATIONALANDFINANCIALBUDGETING

MultipleChoice

a1.Thestartingpointinpreparingacomprehensivebudgetis
a.thesalesforecast.
b.thecashbudget.
c.thebudgetedincomestatement.
d.theflexibleexpensebudget.

d2.Budgetsarerelatedtowhichofthefollowingmanagementfunctions?
a.Planning.
b.Control.
c.Performanceevaluation.
d.Alloftheabove.

d3.Whichofthefollowingshouldbeusedtoforecastsales?
a.Regressionanalysis.
b.Thescatterdiagram.
c.Thejudgmentofthemostexperiencedmanagers.
d.Whatevermethodproducesthemostaccurateforecast.

a4.Acriticalfactorforusingindicatormethodstoforecastsalesis
a.theavailabilityofaforecastedvaluefortheindicator.
b.anupwardtrendinthevalueoftheindicator.
c.governmentalcollectionofdataforcomputingandreportingthevalueoftheindicator.
d.theavailabilityofanindicatorthatcoverstheentirecountry.

d5.Whichofthefollowingequationscanbeusedtobudgetpurchases?(BI=beginninginventory,EI=ending
inventorydesired,CGS=budgetedcostofgoodssold)
a.Budgetedpurchases=CGS+BIEI
b.Budgetedpurchases=CGS+BI
c.Budgetedpurchases=CGS+EI+BI
d.Budgetedpurchases=CGS+EIBI

b6.Aflexiblebudgetis
a.onethatcanbechangedwheneveramanagersodesires.
b.adjustedtoreflectexpectedcostsattheactuallevelofactivity.
c.onethatusestheformulatotalcost=costperunitxunitsproduced.
d.thesameasacontinuousbudget.

b7.Theuseofflexible(asopposedtostatic)budgetallowancesisLEASTimportantforwhichofthe
following?
a.Costsoftheproductiondepartment.
b.Costsofthegeneralaccountingdepartment.
c.Costsoftheproductshippingdepartment.
d.Costsofthematerialreceivingdepartment.

d8.Budgetssetatveryhighlevelsofperformance(i.e.,verylowcosts)
a.assistinplanningtheoperationsofthecompany.
b.stimulatepeopletoperformbetterthantheyordinarilywould.
c.arehelpfulinevaluatingtheperformanceofmanagers.
d.canleadtolowlevelsofperformance.

c9.Inventorypolicyismostcriticalinthebudgetingof
a.sales.
b.costofgoodssold.
c.purchases.
d.expenses.

a10.Budgetingexpendituresbypurposeiscalled
a.programbudgeting.
b.zerobasedbudgeting.
c.linebudgeting.
d.flexiblebudgeting.

c11.Whichofthefollowingisadifferencebetweenastaticbudgetandaflexiblebudget?
a.Aflexiblebudgetincludesonlyvariablecosts,astaticbudgetincludesonlyfixedcosts.
b.Aflexiblebudgetincludesallcosts,astaticbudgetincludesonlyfixedcosts.
c.Aflexiblebudgetgivesdifferentallowancesfordifferentlevelsofactivity;astaticbudgetdoes
not.
d.Noneoftheabove.

a12.Astaticbudgetismostappropriateforadepartment
a.withonlyfixedcosts.
b.withonlyvariablecosts.
c.withmostlymixedcosts.
d.withanyoftheabovecharacteristics.

d13.WhichofthefollowingisNOTanadvantageofbudgeting?
a.Itrequiresmanagerstostatetheirobjectives.
b.Itfacilitatescontrolbypermittingcomparisonsofbudgetedandactualresults.
c.Itfacilitatesperformanceevaluationbypermittingcomparisonsofbudgetedandactualresults.
d.Itprovidesacheckupdevicethatallowsmanagerstokeepclosetabsontheirsubordinates.

b14.Animposedbudget
a.isthesameasastaticbudget.
b.canleadtopoorperformance.
c.isbestforplanningpurposes.
d.eliminatestheneedforasalesforecast.

b15.Prohibitingmanagersfromoverspendingbudgetallowances
a.improvescompanyperformance.
b.canharmcompanyperformance.
c.eliminatestheneedforcomparisonsofbudgetedandactualamounts.

31
d.usuallyreducestheneedtoprepareacashbudget.

b16.WhichofthefollowingwilloccurifXCo.'sactualsalesinMayarelowerthanitsbudgetedsalesfor
thatmonth?
a.Xwon'thaveenoughcashtocoverbillsrequiringpaymentinMay.
b.X'sactualinventoryattheendofMaywillbehigherthanbudgeted.
c.X'sactualpurchasesinJunewillbehigherthanbudgeted.
d.Alloftheabove.

c17.JITmanufacturersaremorelikelythanconventionalmanufacturersto
a.usestaticbudgetallowancesformanufacturingcosts.
b.prepareproductionbudgetswithoutasalesforecast.
c.budgetunitproductionequaltobudgetedunitsales.
d.experiencebudgetvariances.

a18.Ifcashreceiptsfromcustomersaregreaterthansales,whichofthefollowingismostlikelytobetrue?
a.Thebalanceofaccountsreceivablewilldecrease.
b.Thecompany'soutstandingdebtwilldecrease.
c.Thecompany'scashbalancewillincrease.
d.Thecompanywillshowaprofit.

c19.AcashbudgetisNOTprepareduntilacompanyhas
a.obtainedacommitmentfromitsbankthatcashwillbeavailableasneeded.
b.preparedtheproformabalancesheet.
c.prepareditspurchasesbudget.
d.determinedthatenoughcashisavailabletomeetdividendpayments.

a20.WhichofthefollowingisLEASTlikelytobeaffectedifunitsalesforthismontharelowerthan
budgeted?
a.Productionforthismonth.
b.Productionfornextmonth.
c.Cashreceiptsfornextmonth.
d.Inventoryattheendofthismonth.

b21."Incrementalbudgeting"refersto
a.linebylineapprovalofexpenditures.
b.settingbudgetallowancesbasedonprioryearexpenditures.
c.requiringtopmanagementapprovalofincreasesinbudgets.
d.usingincrementalrevenuesandcostsinbudgeting.

b22.TheprincipalDISADVANTAGEoflinebudgetingis
a.itcanonlybeusedbynotforprofitentities.
b.itlimitstheflexibilityofmanagerstoaccomplishtheentity'sobjectives.
c.itworksonlyinconjunctionwithzerobasedbudgeting.
d.noneoftheabove.

a23.Thecashreceiptsbudget
a.requiresasalesforecast.
b.requiresapurchasesorproductionbudget.
c.ispreparedafterthecashdisbursementsbudget.
d.hasnoneoftheabovecharacteristics.

c24.Thetypeofcompanymostlikelytorunshortofcashduringtheyearisonewith
a.littleseasonality.
b.highcontributionmarginpercentage.
c.highseasonalityandrapidsalesgrowth.
d.relativelylowfixedcosts.

d25.Ifacompanyisearningaprofit,
a.itscashbalanceisincreasing.
b.itsmonthlycashdisbursementswillbestable.
c.itsinventoryisincreasing.
d.itmighthavetoborrowmoney.

a26.Onedifferencebetweenbudgetinginforprofitandnotforprofitentitiesisthatnotforprofitentities
usually
a.budgetexpensesbeforerevenues.
b.don'tneedacashbudget.
c.arelesslikelytouseincrementalbudgeting.
d.usecomputersoftwarepackagestofacilitatethebudgetingprocess.

d27.Toprepareitscashdisbursementsbudget,acompanyusesinformationfrom
a.itsbalancesheetattheendofthepriorperiod.
b.itspurchasesbudget.
c.itscapitalbudget.
d.alloftheabovesources.

b28.Justintimemanufacturersaremorelikelythanconventionalmanufacturersto
a.prepareproductionbudgetswithoutasalesforecast.
b.budgetmaterialspurchasesequaltothecurrentmonth'sneedsforproduction.
c.budgetunitproductionforthemonthatgreaterthanbudgetedunitsalesforthemonth.
d.experiencecashshortages.

c29.QuorumCompanydesiresanendinginventoryof$120,000.Itexpectssalesof$240,000andhasabeginning
inventoryof$80,000.Costofsalesis60%ofsales.Budgetedpurchasesare
a.$120,000.
b.$144,000.
c.$184,000.
d.$264,000.

d30.GaramondCompanybudgetedpurchasesof$200,000.Costofsaleswas$240,000andthedesiredending
inventorywas$84,000.Thebeginninginventorywas
a.$40,000.
b.$64,000.
c.$84,000.

32
d.$124,000.

a31.WildwoodCompanybudgetedpurchasesof20,000units.Thebudgetedbeginninginventorywas4,800unitsand
thebudgetedendinginventorywas6,000units.Budgetedsaleswere
a.18,800units.
b.21,200units.
c.24,800units.
d.26,000units.

c32.MenomonieCompanybudgetedsalesof18,000units.Thebudgetedbeginninginventorywas3,000unitsandthe
budgetedendinginventorywas5,000units.Budgetedproductionis
a.23,000units.
b.21,000units.
c.20,000units.
d.16,000units.

d33.BakerCompanybudgetssuppliesas$20,000+($1.20xdirectlaborhours).Bakerhasbudgeted18,000direct
laborhours,$130,000directlaborcost.Theflexiblebudgetallowanceforsuppliesis
a.$18,000.
b.$20,000.
c.$150,000.
d.someothernumber.

b34.EquinoxCompanybudgetedsalesof44,000unitsforJanuary,60,000forFebruary.Thebudgetedbeginning
inventoryforJanuary1was14,000units.Equinoxdesiresanendinginventoryequaltoonehalfofthe
followingmonth'ssalesneeds.BudgetedproductionforJanuaryis
a.74,000units.
b.60,000units.
c.52,000units.
d.28,000units.

c35.SamsCompanymanufacturesasingleproduct.Itkeepsitsinventoryoffinishedgoodsat75%thecoming
month'sbudgetedsales,inventoryofrawmaterialsat50%ofthecomingmonth'sbudgetedproduction
needs.Eachunitofproductrequirestwopoundsofmaterials.Theproductionbudgetis,inunits:May,
1,000;June,1,200;July,1,300;August,1,600.RawmaterialpurchasesinJunewouldbe
a.1,525pounds.
b.2,550pounds.
c.2,800pounds.
d.3,050pounds.
a36.HaywardCompanydesiresanendinginventoryof$70,000.Itexpectssalesof$400,000andhasabeginning
inventoryof$65,000.Costofsalesis65%ofsales.Budgetedpurchasesare
a.$265,000.
b.$395,000.
c.$405,000.
d.$535,000.

c37.BryceCompanybudgetedsalesof50,000unitsforJanuary,60,000forFebruary.BryceCompanydesiresan
endinginventoryequaltoonehalfofthefollowingmonth'ssalesneeds.InventoryonJanuary1wasas
desired.BudgetedproductionforJanuaryis
a.22,000units.
b.52,000units.
c.55,000units.
d.74,000units.

c38.ChetekCompanybudgetedpurchasesof19,000units.Thebudgetedbeginninginventorywas12,400unitsand
thebudgetedendinginventorywas13,000units.Budgetedsaleswere
a.32,000units.
b.31,400units.
c.18,400units.
d.19,600units.

d39.BarronCompanymanufacturesasingleproduct.Barronkeepsinventoryofrawmaterialsat50%ofthecoming
month'sbudgetedproductionneeds.Eachunitofproductrequiresthreepoundsofmaterials.The
productionbudgetis,inunits:May,1,000;June,1,200;July,1,300;August,1,600.Rawmaterial
purchasesinJulywouldbe
a.1,450pounds.
b.2,400pounds.
c.3,900pounds.
d.someothernumber.

c40.AckerCompanyhaspreparedthefollowingflexiblebudgetforproductioncosts:totalproductioncosts=
$260,000+$5X,whereXisthenumberofmachinehours.Ackerproduced20,000units,using34,000
machinehoursatatotalcostof$425,000.Theflexiblebudgetallowanceforproductioncostsis
a.$260,000.
b.$425,000.
c.$430,000.
d.$525,000.

c41.ScooterInc.hasprojectedsalestobe$130,000inJune,$135,000inJulyand$150,000inAugust.Scooter
collects30%ofamonth'ssalesinthemonthofsale,50%inthemonthfollowingthesale,and16%inthe
secondmonthfollowingthesale.CashcollectionsinAugustwouldbe
a.$45,000.
b.$127,300.
c.$133,300.
d.$138,500.

d42.RundallCo.makespaymentsforpurchases30%duringthemonthofpurchaseandtheremainderthefollowing
month.Aprilpurchasesareprojectedtobe$160,000;Maypurchaseswillbe$240,000.CashpaymentsinMay
willbe
a.$72,000.
b.$108,000.
c.$168,000.
d.$184,000.

c43.RandallCo.makespaymentsforpurchases30%duringthemonthofpurchaseandtheremainderthefollowing

33
 month.Aprilpurchasesareprojectedtobe$80,000;Maypurchaseswillbe$120,000.Theaccountspayable
balanceonMay31willbe
a.$36,000.
b.$54,000.
c.$84,000.
d.$92,000.

c44.AlfuthCo.makespaymentsforpurchases10%duringthemonthofpurchase,60%inthefollowingmonth,and
theremainderinthesecondmonthfollowingthepurchase.Purchasesareprojectedtobe$260,000in
January,$280,000inFebruary,and$320,000inMarch.Marchpaymentswillbe
a.$32,000.
b.$168,000.
c.$278,000.
d.someothernumber.

d45.ReidCo.makespaymentsforpurchases10%duringthemonthofpurchase,60%inthefollowingmonth,and
theremainderinthesecondmonthfollowingthepurchase.Purchasesareprojectedtobe$130,000in
January,$140,000inFebruary,and$160,000inMarch.TheMarch31accountspayablebalancewillbe
a. $48,000.
b.$96,000.
c.$144,000.
d.$186,000.

c46.AndoverInc.hasprojectedsalestobe:February,$10,000;March,$9,000;April,$8,000;May,$10,000;and
June,$11,000.Andoverhas30%cashsalesand70%salesonaccount.Accountsarecollected40%inthe
monthfollowingthesaleand55%collectedthesecondmonth.TotalcashreceiptsinMaywouldbe
a.$3,000.
b.$8,150.
c.$8,705.
d.someothernumber.

d47.CondeInc.hasprojectedsalestobe:February,$20,000;March,$18,000;April,$16,000;May,$20,000;and
June,$22,000.Condehas30%cashsalesand70%salesonaccount.Accountsarecollected40%inthemonth
followingthesaleand60%collectedthesecondmonth.AccountsreceivableforMay31wouldbe
a.$6,160.
b.$13,300.
c.$14,000.
d.$20,720.

d48.Holmgrenestimatesitssuppliespurchasestobe$21,000inAugustand$28,000inSeptember.Holmgrenpays
70%ofitsaccountsinthemonthofpurchasewiththeremainderpaidthefollowingmonth.September
paymentswouldbe
a.$14,700.
b.$19,600.
c.$23,100.
d.$55,900.

c49.DannerInc.hasprojectedsalestobe$100,000inJune,$90,000inJuly,and$70,000inAugust.Danner
collects50%ofamonth'ssalesinthemonthofsale,30%inthemonthfollowingthesale,and16%inthe
secondmonthfollowingthesale.CashcollectionsinAugustwouldbe
a.$35,000.
b.$62,000.
c.$78,000.
d.$86,000.

a50.ClearwaterInc.hasprojectedsalestobe$160,000inApril,$200,000inMay,and$240,000inJune.
Clearwatercollects40%ofamonth'ssalesinthemonthofsale,40%inthemonthfollowingthesale,and
20%inthesecondmonthfollowingthesale.TheaccountsreceivablebalanceonJune30wouldbe
a.$184,000.
b.$144,000.
c.$40,000.
d.someothernumber.

TrueFalse

F1.AjustintimemanufacturerdoesNOTneedasalesbudget.

T2.AflexiblebudgetallowanceisNOTespeciallyusefulforbudgetingdiscretionarycosts.

F3.Thepurchasesbudgetispreparedbeforethesalesbudgetbecausethecompanycannotestimatewhatitwill
selluntilithassomeideaofwhatwillbeonhand.

F4.Thelongerthetimeperiodcoveredbyabudget,themoreusefulthebudgetwillbeforcontrolling
operations.

F5.Apurchasesbudgetisnormallypreparedafterthecompanyhasforecasthowmuchcashitwillhave
availabletopayforpurchases.

F6.Imposedbudgetsareexceptionallyambitiousgoalsnotlikelytobeachievedwithoutmakingfundamental
changesinthewayajobisdone.

F7.AJITmanufacturerthatmaintainsnoinventorydoesn'tneedacashdisbursementsbudget.

F8.Thebudgetforaretailerislikelytobemorecomplexthanthatforamanufacturerbecausearetailerhas
awidervarietyofcustomers.

F9.Theincreasingpublicdemandforaccountabilityfromgovernmentalandothernotforprofitorganizations
hasresultedinanincreaseduseofincrementalbudgeting.

T10.Linebylinebudgetauthorizationiscommoningovernmentalunits.

Problems

34
1.BallanInc.estimatesitsunitssalesforthecomingmonthstobeasfollows:

March280,000
April260,000
May250,000
June230,000
July240,000
August225,000

Ballanmaintainsinventoryatbudgetedsalesneedsforthenextmonth.March1inventorywillbe248,000
units.

a.PrepareamonthlypurchasingscheduleforMarchthroughJuly.

SOLUTION:

a.Marchpurchases: 292,000units[280,000+260,000248,000]

Aprilpurchases: 250,000units[260,000+250,000260,000]

Maypurchases: 230,000units[250,000+230,000250,000]

Junepurchases: 240,000units[230,000+240,000230,000]

Julypurchases: 225,000units[240,000+225,000240,000]

2.SuperiorCompanymanufacturesasingleproduct.Itkeepsitsinventoryoffinishedgoodsattwicethecoming
month'sbudgetedsalesandinventoryofrawmaterialsat150%ofthecomingmonth'sbudgetedproduction.
Eachunitofproductrequiresfivepoundsofmaterials,whichcost$3perpound.Thesalesbudgetis,in
units:May,10,000;June,12,400;July,12,600;August,13,200.

a.ComputebudgetedproductionforJune.

b.ComputebudgetedproductionforJuly.

c.ComputebudgetedmaterialpurchasesforJuneinpoundsanddollars.

SOLUTION:

a.Juneproduction:12,800units[12,400+(2x12,600)(2x12,400)]

b.Julyproduction:13,800units[12,600+(2x13,200)(2x12,600)]

c.Junematerialspurchases:71,500pounds;$214,500

Usedinproduction(5lbs.x12,800)64,000lbs.
Endinginventory(5lbs.x13,800x150%)103,500

Total167,500
Lessbeginninginventory(5lbs.x12,800x150%)96,000

Purchases71,500
Timescostperpound$3

Equalsdollarpurchases$214,500
========

3.Ironwoodsellsasingleproductfor$10.Thepurchasecostis$4perunitandIronwoodpaysa20%sales
commission.Fixedcostsare$45,000permonthincluding$12,000depreciation,andthecompanymaintains
inventoryequaltobudgetedsalesneedsforthefollowingmonth.Thefollowingbudgeteddataareavailable.

Inventoryonhand,February128,000units
BudgetedsalesFebruary24,000units
March26,000units
April25,000units

a.ComputetotalbudgetedincomeforFebruaryandMarch.

b.FindbudgetedinventoryatMarch31inunitsanddollars.

c.FindbudgetedpurchasesforMarchinunitsanddollars

SOLUTION:

a.Budgetedincome:$110,000

Sales[(24,000+26,000)x$10]$500,000
Costofsales(50,000x$4)200,000

Grossprofit$300,000
Commissionsat20%100,000

Contributionmargin$200,000
Fixedcosts(2x45,000)90,000

Income$110,000
========

b.Budgetedinventory:25,000units;$100,000($4x25,000)

c.Budgetedpurchases:25,000units;$100,000

35
Costofsales26,000units$104,000
Endinginventory25,000100,000

Totalrequired51,000$204,000
Lessbeginninginventory26,000104,000

Purchases25,000unitsx$4$100,000
==============

4.Westrumestimatesproductionoverheadcostsequalto$300,000+$2X,whereXisthenumberofmachinehours
used.Westrumbudgeted40,000machinehoursfor20X4.Westrumproduced23,000unitsin20X4,each
requiring3machinehours.Actualproductioncostswere$420,000.

a.Calculatetheflexiblebudgetallowanceforproductionoverheadcostsfor20X4.

b.Findtheamountanddirectionofthebudgetvariancefor20X4forproductionoverhead.(favorable
unfavorable)Circleoneanswer.

SOLUTION:

a.Flexiblebudgetallowance,$438,000[$300,000+(23,000x3x$2)]

b.Budgetvariance:$18,000favorable($438,000$420,000)

5.AcmeInc.estimatesitsdollarsalesforthecomingmonthstobeasfollows.

June$340,000
July360,000
August300,000
September260,000
October240,000
November200,000

Acmehasanaveragegrossmarginof40%ofsalesandmaintainsinventoryat75%ofbudgetedsalesneedsfor
thenextmonth.AcmebeganJunewith$150,000ininventory.

a.Prepareamonthlypurchasingschedule(in$)forasmanymonthsasispossible.

SOLUTION:

a. June July August September October

Sales $340,000 $360,000 $300,000 $260,000 $240,000
x40% x.40 x.40 x.40 x.40 x.40

CostofSales $136,000 $144,000 $120,000 $104,000 $96,000
+EndingInv 108,000 90,000 78,000 72,000 60,000
BegInv (150,000) (108,000) (90,000) (78,000) (72,000)

Purchases $94,000 $126,000 $108,000 $98,000 $84,000
======== ======== ======== ======== ========

6.BayCityestimatesproductionoverheadcostsequalto$200,000+$4X+$7Y,whereXisthenumberofdirect
laborhoursusedandYisthenumberofmachinehoursused.BayCitybudgeted20,000directlaborhoursand
50,000machinehoursfor20X9.BayCityproduced30,000unitsin20X9,eachrequiring1directlaborhour
and2.5machinehours.Actualproductioncostswere$890,000.

a.Calculatetheflexiblebudgetallowanceforproductionoverheadcostsfor20X9.

b.Findtheamountanddirectionofthebudgetvariancefor20X2forproductionoverhead.(favorable
unfavorable)Circleoneanswer.

SOLUTION:

a.Flexiblebudgetallowance,$845,000[$200,000+(30,000x1x$4)+(30,000x2.5x7)]

b.Budgetvariance:$45,000unfavorable($845,000$890,000)

7. WebsterCompanyhasthefollowingsalesbudget.

January$200,000
February$240,000
March$300,000
April$360,000

Costofsalesis70%ofsales.Salesarecollected40%inthemonthofsaleand60%inthefollowingmonth.
Websterkeepsinventoryequaltodoublethecomingmonth'sbudgetedsalesrequirements.Itpaysfor
purchases80%inthemonthofpurchaseand20%inthemonthafterpurchase.Inventoryatthebeginningof
Januaryis$190,000.Websterhasmonthlyfixedcostsof$30,000including$6,000depreciation.Fixed
costsrequiringcasharepaidasincurred.

a.ComputebudgetedcashreceiptsinMarch.

b.ComputebudgetedaccountsreceivableattheendofMarch.

c.ComputebudgetedinventoryattheendofFebruary.

d.ComputebudgetedpurchasesinFebruary.

e.Marchpurchasesare$290,000.ComputebudgetedcashpaymentsinMarchtosuppliersofgoods.

f.ComputebudgetedaccountspayableforgoodsattheendofFebruary.

36
g.CashattheendofFebruaryis$45,000.Cashdisbursementsarenotrequiredforanythingotherthan
paymentstosuppliersandfixedcosts.ComputethebudgetedcashbalanceattheendofMarch.

SOLUTION:

a.Marchreceipts:$264,000[($240,000x60%)+($300,000x40%)]

b.ReceivablesatendofMarch:$180,000[$300,000x(100%40%)]

c.InventoryatendofFebruary:$420,000($300,000x70%x2)

d.Februarypurchases:$252,000[($240,000x70%)+($300,000x2x70%)($240,000
x2x70%)]

e.Marchpayments:$282,400[(252,000x20%)+($290,000x80%)]

f.APatendofFebruary:$50,400($252,000x20%)

g.CashatendofMarch:$2,600($25,000+$264,000$282,400$24,000)

8. WeaselCompanyhasthefollowingsalesprojectionsfor20X9:

January $200,000
February 210,000
March 225,000
April 230,000
May 245,000
June 240,000

Weaselcollects40%ofitssalesinthemonthofsale,45%inthemonthfollowingthesaleand13%inthe
secondmonthfollowingthesale.Recordsshowthatsaleswere$225,000inNovemberand$208,000inDecember
20X2.

a. Prepareascheduleofcashreceiptsforthefirstthreemonthsof20X3.

b. Whatwouldbetheaccountsreceivable(netofbaddebts)balanceonMarch31,20X3?

SOLUTION:

a. Januarycollections: (13%x225,000)=$29,250
(45%x208,000)=93,600
(40%x200,000)=80,000

$202,850
========

Februarycollections:(13%x208,000)=$27,040
(45%x200,000)=90,000
(40%x210,000)=84,000

$201,040
========

Marchcollections:(13%x200,000)=$26,000
(45%x210,000)=94,500
(40%x225,000)=90,000

$210,500
========

b. $157,800 $27,300=Februarysales210,000x13%
$130,500=Marchsales225,000x(45%+13%)

$157,800
========

9.Bismarckhasthefollowingsalesbudget:

March $300,000
April $312,000
May $320,000
June $348,000

Costofsalesis55%ofsales.Bismarckkeepsaninventoryequaltoonefourththecomingmonth'sbudgeted
salesrequirements.Itpaysforpurchases40%inthemonthofpurchaseand60%inthemonthafterpurchase.
AccountsPayableis$94,800onMarch1.

a.PrepareamonthlypurchasingscheduleforMarchthroughMay.

b.PrepareamonthlycashpaymentscheduleforMarchthroughMay.

c. ComputetheaccountspayablebalanceasofMay31.

SOLUTION:

a. March April May

Sales $300,000 $312,000 $320,000
x55% x.55 x.55 x.55

CostofSales $165,000 $171,600 $176,000
+EndingInv 42,900 44,000 51,975

37
 BegInv (41,250) (42,900) (44,000)

Purchases $166,650 $172,700 $183,975
======== ======== ========

b. Marchpayments: (40%x166,650)=$66,660
Mar1AcctPay=94,800

$161,460
========

Aprilpayments: (40%x172,700)=$69,080
(60%x166,650)=99,990

$169,070
========

Maypayments: (40%x183,975)=$73,590
(60%x172,700)=103,620

$177,210
========

c. AccountsPayable,May31:$110,385 [60%x$183,975]

10.HicksCompanyhasthefollowingsalesprojectionsfor20X9:

January $160,000 March 175,000 May 195,000

February 168,000 April 180,000 June 190,000

Hickscollects30%ofitssalesinthemonthofsale,45%inthemonthfollowingthesale,and24%inthe
secondmonthfollowingthesale.Recordsshowthatsaleswere$160,000inNovemberand$168,000inDecember
20X8.

a. Prepareascheduleofcashreceiptsforthefirstthreemonthsof20X9.

b. Whatwouldbetheaccountsreceivablebalance(netofbaddebts)onMarch31,20X9?

SOLUTION:

a. Januarycollections: (24%x160,000)= $38,400

(45%x168,000)= 75,600
(30%x160,000)= 48,000

$162,000
========

Februarycollections:(24%x168,000)=$40,320
(45%x160,000)=72,000
(30%x168,000)=50,400

$162,720
========

Marchcollections:(24%x160,000)=$38,400
(45%x168,000)=75,600
(30%x175,000)=52,500

$166,500
========

b. $161,070 $40,320=Februarysales(168,000x24%)
120,750=Marchsales[175,000x(45%+24%)]

$161,070
========

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