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Exam 14: Planning for Profit and Cost Control

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Question 81

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Tableware Unlimited Company plans to sell china and other dining-related items over the internet. The company plans to begin business on January 1, 2014. The company's accountant has prepared the following sales budget for the first quarter of 2014: In anticipation of preparing a cash budget, the accountant needs to compute the expected monthly cash collections. Because the company is new and has no collection experience of its own, the accountant contacted an industry trade group and obtained the following industry collection data: Collections on account 70% in the month of sale 20% in the month following sale 6% in the second month following sale Uncollectible accounts have averaged 4% of receivables. The company gives a 2% discount for payments made by customers during the month of sale. Required: Prepare a schedule of cash collections from sales by month and in total for the first quarter.

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Schedule of cash collections: Computati...

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Question 82

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Select the correct statement.

A) Four purposes often claimed for budgeting involve planning, coordination, performance measurement, and reporting.
B) In a participative budgeting system, budget information flows in one direction only, from bottom to top.
C) The three major categories of the master budget are operating budgets, capital budgets, and pro forma financial statements.
D) The accounting department normally coordinates the development of the sales forecast.

E) All of the above
F) C) and D)

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Question 83

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One advantage of participatory budgeting is that it frees up upper management for more important tasks.

Why is cash management important to a business?

The cash budget is not the same as the pro forma cash flow statement.

Sales for January are budgeted at 50,000 units, and the company expects sales to increase 4% each month. How many units will need to be purchased in February if the company's policy is to keep ending inventory each month at 10,000 units?

Select the incorrect statement about the planning process.

A management accountant was working on a cash budget for Oklahoma Company when he accidentally spilled his coffee. Some of the liquid splattered on his working papers rendering a few of the amounts illegible. The budget with missing amounts indicated is provided below: The company desires a cash cushion of $7,500 to start each month. In any month in which there is cash shortage the company's bank will extend it a loan equal to the shortage amount. The loan is assumed to have been made on the last day of the month. Any time the company has a cash surplus it must repay as much of any outstanding loans as possible. The bank charges monthly interest of 1% on any outstanding loan balance. Required: Compute the missing amounts and enter them in the following table: $\begin{array} { | l | l | l |l |} \hline \text { (a) } && ( i )& \\\hline \text { (b) } && ( j ) \\\hline \text { (c) } && \text { (k) } \\\hline \text { (d) } && \text { (l) } \\\hline \text { (e) } && \text { (m) } \\\hline \text { (f) } && \text { (n) } \\\hline \text { (g) } && \text { (o) } \\\hline \text { (h) } && \text { (p) } \\\hline\end{array}$

Which of the following is generally included in a sales budget?