This action might not be possible to undo. Are you sure you want to continue?
1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16. 17. 18. 19. 20. Budgets are statements of management's plans stated in financial terms. A benefit of budgeting is that it provides definite objectives for evaluating performance. A budget can be a means of communicating a company's objectives to external parties. A budget can be used as a basis for evaluating performance. A well-developed budget can operate and enforce itself. The budget itself and the administration of the budget are the responsibility of the accounting department. Effective budgeting requires clearly defined lines of authority and responsibility. The flow of input data for budgeting should be from the highest levels of responsibility to the lowest. Budgets can have a positive or negative effect on human behavior depending on the manner in which the budget is developed and administered. A budget can facilitate the coordination of activities among the segments of a large company. The longer the budget period, the more reliable the estimates of future outcomes. The budget committee has the responsibility for coordinating the preparation of the budget. The budget is developed within the framework of a sales forecast. Budgeting and long-range planning are two terms that describe the same process. Long-range plans are used more as a review of progress toward long-term goals rather than an evaluation of specific results to be achieved. The master budget reflects management's long-term plans encompassing five years or more. The master budget consists of operating and financial budgets. Financial budgets must be completed before the operating budgets can be prepared. The direct materials budget must be completed before the production budget because the quantity of materials available for production must be known. The number of direct labor hours needed for production is obtained from the production
62 21. 22. 23. 24. 25. 26. 27. 28. 29. 30.
Test Bank for Managerial Accounting, Second Edition budget. A manufacturing overhead budget is not needed if the company develops a predetermined overhead rate to apply overhead. The manufacturing overhead budget generally has separate sections for variable, mixed, and fixed costs. A production budget should be prepared before the sales budget. The direct materials budget contains both quantity and cost data. The budgeted income statement indicates the expected profitability of operations for the next year. If a monthly cash budget is prepared properly, there will never be a cash deficiency at the end of any month. The budgeted balance sheet is prepared entirely from the budgets for the current year. The starting point when budgeting for a not-for-profit organization is generally to budget expenditures first. A merchandiser has a merchandise purchases budget rather than a production budget. A critical factor in budgeting for a service firm is to determine the amount of products to purchase.
Answers to True-False Statements
Item Ans. Item Ans. Item Ans. Item Ans. Item Ans. Item Ans.
1. 2. 3. 4. 5.
T T F T F
6. 7. 8. 9. 10.
F T F T T
11. 12. 13. 14. 15.
F T T F T
16. 17. 18. 19. 20.
F T F F T
21. 22. 23. 24. 25.
F F F T T
26. 27. 28. 29. 30.
F F T T F
MULTIPLE CHOICE QUESTIONS
31. A budget a. is a substitute for management. b. is an aid to management. c. can operate or enforce itself. d. is the responsibility of the accounting department. Accounting generally has the responsibility for a. setting company goals. b. expressing the budget in financial terms. c. enforcing the budget. d. administration of the budget. Which one of the following is not a benefit of budgeting? a. It facilitates the coordination of activities. b. It provides definite objectives for evaluating performance. c. It provides assurance that the company will achieve its objectives. d. It requires all levels of management to plan ahead on a recurring basis. Budgeting is usually most closely associated with which management function? a. Planning b. Directing c. Motivating d. Controlling Which of the following items do not follow from the adoption of a budget? a. Promote efficiency b. Deterrent to waste c. Basis for performance evaluation d. Guarantee of accomplishing the profit objective A common starting point in the budgeting process is a. expected future net income. b. past performance. c. to motivate the sales force. d. a clean slate, with no expectations. If budgets are to be effective, all of the following must be present except a. acceptance at all levels of management. b. research and analysis in setting realistic goals. c. stockholders' approval of the budget. d. sound organizational structure. If budgets are to be effective, there must be a. a history of successful operations. b. independent verification of budget goals. c. an organizational structure with clearly defined lines of authority and responsibility. d. excess plant capacity.
Test Bank for Managerial Accounting, Second Edition It is important that budgets be accepted by a. division managers. b. department heads. c. supervisors. d. all of these. Which of the following statements about budget acceptance in an organization is true? a. The most widely accepted budget by the organization is the one prepared by top management. b. The most widely accepted budget by the organization is the one prepared by the department heads. c. Budgets are hardly ever accepted by anyone except top management. d. Budgets have a greater chance of acceptance if all levels of management have provided input into the budgeting process. Top management notices a variation from budget and an investigation of the difference reveals that the department manager could not be expected to have controlled the variation. Which of the following statements is applicable? a. Department managers should be held accountable for all variances from budgets for their departments. b. Department managers should only be held accountable for controllable variances for their departments. c. Department managers should be credited for favorable variances even if they are beyond their control. d. Department managers' performances should not be evaluated based on actual results to budgeted results. An unrealistic budget is more likely to result when it a. has been developed in a top down fashion. b. has been developed in a bottom up fashion. c. has been developed by all levels of management. d. is developed with performance appraisal usages in mind. A budget is most likely to be effective if a. it is used to assess blame when things do not occur according to plans. b. it is not used to evaluate a manager's performance. c. employees and managers at the lower levels do not get involved in the budgeting process. d. it has top management support. In many companies, responsibility for coordinating the preparation of the budget is assigned to a. the company's independent certified public accountants. b. the company's internal auditors. c. the company's board of directors. d. a budget committee. A budget period should be a. monthly. b. for a year or more. c. long-term. d. long enough to provide an obtainable goal under normal business conditions.
Budgetary Planning 46. If a company has adopted continuous budgeting, the budget will show plans for a. every day. b. a full year ahead. c. the current year and the next year. d. at least five years. The most common budget period is a. one month. b. three months. c. six months. d. twelve months. Budget development for the coming year usually starts a. a year in advance. b. the first month of the year to be budgeted. c. several months before the end of the current year. d. the last month of the previous year. The budget committee would not normally include the a. research director. b. treasurer. c. sales manager. d. external auditor. The budget committee in a company is often headed by the a. president. b. controller. c. treasurer. d. budget director. Long-range planning a. generally presents more detailed information than an annual budget. b. generally encompasses a longer period of time than does an annual budget. c. is usually more accurate than an annual budget. d. is prepared on a quarterly basis if the budget is prepared on a quarterly basis. Long-range planning usually encompasses a period of at least a. six-months. b. 1 year. c. 5 years. d. 10 years. Which of the following is not a proper match-up? a. Long range planning ←→Strategies b. Budgeting ←→Short-term goals c. Long-range planning ←→5 years d. Budgeting ←→Long-term goals
If there were 30,000 pounds of raw material on hand on January 1, 60,000 pounds are
Test Bank for Managerial Accounting, Second Edition desired for inventory at January 31, and 180,000 pounds are required for January production, how many pounds of raw material should be purchased in January? a. 150,000 pounds b. 240,000 pounds c. 120,000 pounds d. 210,000 pounds
The total direct labor hours required in preparing a direct labor budget are calculated using the a. sales forecast. b. production budget. c. direct materials budget. d. sales budget. The direct materials and direct labor budgets provide information for preparing the a. sales budget. b. production budget. c. manufacturing overhead budget. d. cash budget. A sales forecast a. shows a forecast for the firm only. b. shows a forecast for the industry only. c. shows forecasts for the industry and for the firm. d. plays a minor role in the development of the master budget. Which of the following is not an operating budget? a. Direct labor budget b. Sales budget c. Production budget d. Cash budget Which of the following is not a financial budget? a. Capital expenditure budget b. Cash budget c. Manufacturing overhead budget d. Budgeted balance sheet Which of the following is done to improve the reliability of the sales forecast? a. Employ financial planning models b. Lengthen the planning horizon to more than a year c. Rely solely on outside consultants d. Use the sales forecasts from the previous year The financial budgets include the a. cash budget and the selling and administrative expense budget. b. cash budget and the budgeted balance sheet. c. budgeted balance sheet and the budgeted income statement. d. cash budget and the production budget.
Budgetary Planning 62. The culmination of preparing operating budgets is the a. budgeted balance sheet. b. production budget. c. cash budget. d. budgeted income statement. An overly optimistic sales budget may result in a. increases in selling prices late in the year. b. insufficient inventories. c. increased sales during the year. d. excessive inventories. In a production budget, total required units are the budgeted sales units plus a. beginning finished goods units. b. desired ending finished goods units. c. desired ending finished goods units plus beginning finished goods units. d. desired ending finished goods units minus beginning finished goods units. The direct materials budget details 1. the quantity of direct materials to be purchased. 2. the cost of direct materials to be purchased. a. 1 b. 2 c. both 1 and 2 d. neither 1 nor 2
The production budget shows expected unit sales of 16,000. Beginning finished goods units are 2,800. Required production units are 16,800. What are the desired ending finished goods units? a. 2,000. b. 2,800. c. 3,200. d. 3,600. The production budget shows expected unit sales are 10,000. The required production units are 10,400. What are the beginning and desired ending finished goods units, respectively? a. b. c. d. Beginning Units 1,000 600 400 1,000 Ending Units 600 1,000 1,000 400
The production budget shows that expected unit sales are 16,000. The total required units are 18,000. What are the required production units? a. 2,000 b. 3,000 c. 4,000 d. cannot be determined from the data provided.
Test Bank for Managerial Accounting, Second Edition The direct materials budget shows: Units to be produced Total pounds needed for production Total materials required What are the direct materials per unit? a. 1.08 pounds b. 2.0 pounds c. 2.2 pounds d. cannot be determined from the data. 3,000 6,000 6,600
The direct materials budget shows: Desired ending direct materials Total materials required Direct materials purchases 12,000 pounds 18,000 pounds 15,800 pounds
The total direct materials needed for production is a. 6,000 pounds. b. 2,200 pounds. c. 3,800 pounds. d. 33,800 pounds. 71. If the required direct materials purchases are 8,000 pounds and the direct materials required for production is three times the direct materials purchases, and the beginning direct materials are three and a half times the direct materials purchases, what are the desired ending direct material in pounds? a. 20,000 b. 4,000 c. 12,000 d. 8,000 Which of the following expenses would not appear on a Selling and Administrative Expense Budget? a. Sales commissions b. Depreciation c. Property taxes d. Indirect labor Which of the following would not appear as a fixed expense on the Selling and Administrative Expense Budget? a. Freight-out b. Office salaries c. Property taxes d. Depreciation A master budget consists of a. an interrelated long-term plan and operating budgets. b. financial budgets and a long-term plan. c. interrelated financial budgets and operating budgets. d. all the accounting journals and ledgers used by a company.
Budgetary Planning 75. The starting point in preparing a master budget is the preparation of the a. production budget. b. sales budget. c. purchasing budget. d. personnel budget. Which one of the following is not needed in preparing a production budget? a. Budgeted unit sales b. Budgeted raw materials c. Beginning finished goods units d. Ending finished goods units
A company budgeted unit sales of 51,000 units for January, 2002 and 60,000 units for February, 2002. The company has a policy of having an inventory of units on hand at the end of each month equal to 30% of next month's budgeted unit sales. If there were 15,300 units of inventory on hand on December 31, 2001, how many units should be produced in January, 2002 in order for the company to meet its goals? a. 53,700 units b. 51,000 units c. 48,300 units d. 69,000 units A company determined that the budgeted cost of producing a product is $20 per unit. On June 1, there were 20,000 units on hand, the sales department budgeted sales of 75,000 units in June, and the company desires to have 30,000 units on hand on June 30. The budgeted cost of goods manufactured for June would be a. $1,300,000. b. $1,900,000. c. $1,500,000. d. $1,700,000. Of the following items, which one is not obtained from an individual operating budget? a. Selling and administrative expenses b. Interest expense c. Cost of goods sold d. Sales Which of the following statements about a budgeted income statement is not true? a. The budgeted income statement is prepared after the financial budgets are prepared. b. The budgeted income statement is prepared on the accrual basis of accounting. c. The budgeted income statement can be prepared in a multiple-step format. d. The budgeted income statement is prepared using the individual operating budgets. All data for the budgeted income statement are obtained from the individual operating budgets except a. cost of goods sold. b. income tax expense. c. sales. d. selling and administrative expenses.
6Test Bank for Managerial Accounting, Second Edition 1 0 82. The end-product of the operating budgets is the a. budgeted balance sheet. b. budgeted income statement. c. capital expenditure budget. d. cash budget. 83. The single most important output in preparing financial budgets is the a. sales forecast. b. determination of the unit cost of the product. c. cash budget. d. budgeted income statement. Beginning cash balance plus total receipts a. equals ending cash balance. b. must equal total disbursements. c. equals total available cash. d. is the excess of available cash over disbursements. The projection of financial position at the end of the budget period is found on the a. budgeted income statement. b. cash budget. c. budgeted balance sheet. d. sales budget. What is the proper preparation sequencing of the following budgets? 1. 2. 3. 4. a. b. c. d. 87. 1, 2, 3, 4 2, 3, 1, 4 2, 3, 4, 1 2, 4, 1, 3 Budgeted Balance Sheet Sales Budget Selling and Administrative Budget Budgeted Income Statement
The following information was taken from Sloan Company’s cash budget for the month of July: Beginning cash balance $90,000 Cash receipts 57,000 Cash disbursements 102,000 If the company has a policy of maintaining a minimum end of the month cash balance of $75,000, the amount the company would have to borrow is a. $30,000. b. $15,000. c. $45,000. d. $18,000.
The cash budget reflects a. all revenues and all expenses for a period. b. expected cash receipts and cash disbursements from all sources. c. all the items that appear on a budgeted income statement. d. all the items that appear on a budgeted balance sheet.
Budgetary Planning 89. The following credit sales are budgeted by Roswell Company: January February March April $34,000 50,000 70,000 60,000
The company's past experience indicates that 70% of the accounts receivable are collected in the month of sale, 20% in the month following the sale, and 8% in the second month following the sale. The anticipated cash inflow for the month of April is a. $61,720. b. $56,000. c. $60,000. d. $58,800. 90. Which one of the following sections would not appear on a cash budget? a. Cash receipts b. Financing c. Investing d. Cash disbursements A company's past experience indicates that 60% of its credit sales are collected in the month of sale, 30% in the next month, and 5% in the second month after the sale; the remainder is never collected. Budgeted credit sales were: January February March $ 80,000 48,000 120,000
The cash inflow in the month of March is expected to be a. $90,400. b. $68,400. c. $72,000. d. $86,400. 92. Which one of the following items would never appear on a cash budget? a. Office salaries expense b. Interest expense c. Depreciation expense d. Travel expense The financing section of a cash budget is needed if there is a cash deficiency or if the ending cash balance is less than a. the prior years. b. management's minimum required balance. c. the amount needed to avoid a service charge at the bank. d. the industry average. All of the following statements about the cash budget are correct except that it a. can show managers when additional financing will be necessary. b. contributes to more efficient cash management. c. can indicate when excess cash will be available for investments. d. replaces the statement of cash flows.
6Test Bank for Managerial Accounting, Second Edition 1 2 95. In the cash budget, total available cash less cash disbursements a. equals ending cash balance. b. must equal total cash receipts. c. is the excess of available cash over cash disbursements. d. equals the amount of financing. 96. All of the following are financial budgets except the a. budgeted balance sheet. b. budgeted income statement. c. capital expenditures budget. d. cash budget. The budgeted balance sheet is a. a projection of financial position at the beginning of the budget period. b. developed from the budgeted balance sheet for the preceding year. c. prepared before the cash budget. d. none of these. Which of the following does not appear as a separate section on the cash budget? a. Cash receipts b. Cash disbursements c. Capital expenditures d. Financing An appropriate activity index for a college or university for budgeting faculty positions would be a. faculty hours worked. b. the number of administrators. c. the credit hours taught by a department. d. the number of days in the school term. A critical factor in budgeting for a service firm is a. hiring professional staff to perform the budgeting work. b. coordinating professional staff needs with anticipated services. c. classifying all personnel as either variable or fixed. d. budgeting expenditures before anticipated receipts. Which one of the following budgets would be prepared for a manufacturing company but not for a merchandiser? a. Direct labor budget b. Cash budget c. Sales budget d. Budgeted income statement A merchandiser does not use a. financial budgets. b. manufacturing budgets. c. operating budgets. d. a merchandise purchases budget.
Budgetary Planning 103. The formula for determining budgeted merchandise purchases is budgeted a. production + desired ending inventory – beginning inventory. b. sales + beginning inventory – desired ending inventory. c. cost of goods sold + desired ending inventory – beginning inventory. d. cost of goods sold + beginning inventory – desired ending inventory. Budgets may be used by all of the following except a. merchandisers. b. not-for-profit organizations. c. service enterprises. d. all of these use budgets.
All of the following are problems that may result if a service enterprise is overstaffed except that a. labor costs will be disproportionately high. b. profits will be lower because of the additional salaries. c. staff turnover may increase. d. revenue may be lost. The master budget for a service enterprise a. will have the same types of budgets as a merchandiser. b. may include a sales budget for sales revenue. c. will not include a budgeted income statement. d. includes a service revenue budget based on expected client billings. Budgeting in not-for-profit organizations a. is not important because they are not profit-oriented. b. usually starts with budgeting expenditures, rather than receipts. c. is necessary only if some product is produced and sold. d. consists entirely of budgeted contributions. For a merchandiser, the starting point for the development of the master budget is the a. cash budget. b. sales budget. c. selling and administrative expenses budget. d. budgeted income statement. Instead of a production budget, a merchandiser will prepare a a. pseudo-production budget. b. merchandise purchases budget. c. master time sheet. d. sales forecast. Not-for-profit entities budget on a. a revenue and expense basis. b. an accrual basis. c. the basis of cash flows. d. a modified accrual basis.
6Test Bank for Managerial Accounting, Second Edition 1 4 Answers to Multiple Choice Questions
Item Ans. Item Ans. Item Ans. Item Ans. Item Ans. Item Ans. Item Ans.
31. 32. 33. 34. 35. 36. 37. 38. 39. 40. 41. 42.
b b c a d b c c d d b a
43. 44. 45. 46. 47. 48. 49. 50. 51. 52. 53. 54.
d d d b d c d d b c d d
55. 56. 57. 58. 59. 60. 61. 62. 63. 64. 65. 66.
b d c d c a b d d d c d
67. 68. 69. 70. 71. 72. 73. 74. 75. 76. 77. 78.
b d b a c d a c b b a d
79. 80. 81. 82. 83. 84. 85. 86. 87. 88. 89. 90.
b a b b c c c c a b c c
91. 92. 93. 94. 95. 96. 97. 98. 99. 100. 101. 102.
a c b d c b b c c b a b
103. 104. 105. 106. 107. 108. 109. 110.
c d d d b b b c
Ex. 111 Dolan Company has budgeted the following unit sales: 2002 April May June July Units 15,000 30,000 45,000 25,000
Of the units budgeted, 40% are sold in the Southern Region at an average price of $15 per unit and the remainder are sold by the Eastern Region at an average price of $12 per unit. Instructions Prepare separate sales budgets for each region and for the company in total for the second quarter of 2002.
Budgetary Planning Solution 111 (15–20 min.) DOLAN COMPANY Sales Budget For the Quarter Ending June 30, 2002 Southern Division Expected units sales Unit selling price Total sales Eastern Division Expected unit sales Unit selling price Total sales Total Company Expected unit sales Total sales April 6,000 $15 $ 90,000 9,000 $12 $108,000 15,000 $198,000 May 12,000 $15 $180,000 18,000 $12 $216,000 30,000 $396,000 June 18,000 $15 $270,000 27,000 $12 $324,000 45,000 $594,000 Total 36,000 $15 $ 540,000 54,000 $12 $ 648,000 90,000 $1,188,000
Ex. 112 Jensen Company manufactures two products, (1) Regular and (2) Deluxe. The budgeted units to be produced are as follows: Units of Product 2002 Regular Deluxe Total July 10,000 15,000 25,000 August 6,000 10,000 16,000 September 9,000 14,000 23,000 October 8,000 12,000 20,000 It takes 2 pounds of direct materials to produce the Regular product and 4 pounds of direct materials to produce the Deluxe product. It is the company's policy to maintain an inventory of direct materials on hand at the end of each month equal to 20% of the next month's production needs for the Regular product and 10% of the next month's production needs for the Deluxe product. Direct materials inventory on hand at June 30 were 4,000 pounds for the Regular product and 6,000 pounds for the Deluxe product. The cost per pound of materials is $5 Regular and $7 Deluxe. Instructions Prepare separate direct materials budgets for each product for the third quarter of 2002.
6Test Bank for Managerial Accounting, Second Edition 1 6 Solution 112 (25–30 min.) JENSEN COMPANY Direct Materials Budget—Regular For the Quarter Ending September 30, 2002 July Units to be produced 10,000 Direct materials per unit × 2 Total pounds needed for production 20,000 Add: Desired ending direct materials (pounds) 2,400 Total materials required 22,400 Less: Beginning direct materials (pounds) 4,000 Direct materials purchases 18,400 Cost per pound × $5 Total cost of direct materials purchases $92,000 *20% × (8,000 × 2) August 6,000 × 2 12,000 3,600 15,600 2,400 13,200 × $5 $66,000 September Total 9,000 × 2 18,000 3,200* 21,200 3,600 17,600 × $5 $88,000 $246,000
JENSEN COMPANY Direct Materials Budget—Deluxe For the Quarter Ending September 30, 2002 July Units to be produced 15,000 Direct materials per unit × 4 Total pounds needed for production 60,000 Add: Desired ending direct materials (pounds) 4,000 Total materials required 64,000 Less: Beginning direct materials (pounds) 6,000 Direct materials purchases 58,000 Cost per pound × $7 Total cost of direct materials purchases $406,000 *10% × (12,000 × 4) Ex. 113 Yang Company has budgeted the following unit sales: 2002 January February March April May Units 10,000 8,000 9,000 11,000 15,000 August 10,000 × 4 40,000 5,600 45,600 4,000 41,600 × $7 $291,200 September Total 14,000 × 4 56,000 4,800* 60,800 5,600 55,200 × $7 $386,400 $1,083,600
The finished goods units on hand on December 31, 2001, was 2,000 units. Each unit requires 3 pounds of raw materials which is estimated to cost an average of $4 per pound. It is the company's policy to maintain a finished goods inventory at the end of each month equal to 20% of next month's anticipated sales. They also have a policy of maintaining a raw materials inventory at the end of each month equal to 30% of the pounds needed for the following month's production. There were 8,640 pounds of raw materials on hand at December 31, 2001. Instructions For the first quarter of 2002, prepare (1) a production budget and (2) a direct materials budget.
Budgetary Planning Solution 113 (1) (25–30 min.) YANG COMPANY Production Budget For the Quarter Ending March 31, 2002 January 10,000 1,600 11,600 2,000 9,600 February 8,000 1,800 9,800 1,600 8,200 March 9,000 2,200* 11,200 1,800 9,400 Total
Expected unit sales Desired ending finished goods units Total required units Less: Beginning finished goods units Required production units *April units: 11,000 × 20%. (2)
YANG COMPANY Direct Materials Budget For the Quarter Ending March 31, 2002 January 9,600 × 3 28,800 7,380 36,180 8,640 27,540 × $4 $110,160 February 8,200 × 3 24,600 8,460 33,060 7,380 25,680 × $4 $102,720 March Total 9,400 × 3 28,200 10,620** 38,820 8,460 30,360 × $4 $121,440 $334,320
Units to be produced Direct materials per unit Total pounds needed for production Desired ending direct materials (pounds) Total materials required Less: Beginning direct materials (pounds) Direct materials purchases Cost per pound Total cost of direct materials purchases **April units: 11,800 × 3 = 35,400 × 30%.
Ex. 114 Avila Company has budgeted the following unit sales: 2002 Quarter 1 2 3 4 Units 70,000 30,000 50,000 90,000 Quarter 1 2003 Units 60,000
The finished goods inventory on hand on December 31, 2001 was 7,000 units. It is the company's policy to maintain a finished goods inventory at the end of each quarter equal to 10% of the next quarter's anticipated sales. Instructions Prepare a production budget for 2002.
6Test Bank for Managerial Accounting, Second Edition 1 8 Solution 114 (15–20 min.) AVILA COMPANY Production Budget For the Year Ended December 31, 2002 1 70,000 3,000 73,000 7,000 66,000 Quarter 2 3 30,000 50,000 5,000 9,000 35,000 59,000 3,000 5,000 32,000 54,000 4 90,000 6,000* 96,000 9,000 87,000 Total
Expected unit sales Desired ending finished goods units Total required units Less: Beginning finished goods units Required production units
*2003 Q1: 60,000 units × 10% = 6,000.
Ex. 115 The following facts are known: • The total pounds needed for production are 2 times the units to be produced. • The desired ending direct materials inventory is 20% of the total pounds needed for production. • The beginning direct materials inventory is equal in number to 10% of the units to be produced. • Cost per pound is $10. • Total cost of the direct materials purchases are $1,610,000. Instructions Create the direct materials budget for the period. Solution 115 (12–17 min.)
Let X = total units to be produced. Then total pounds needed equals 2X. Desired ending inventory is .20 × 2X. The beginning inventory is .10X. The direct materials budget is: Units to be produced Direct materials per unit Total pounds needed for production Add: Desired ending direct materials .2(2X) Total materials required Less: Beginning direct materials Direct materials purchases Cost per pound Total cost of direct materials purchases *2X + .2(2X) – .1X = 161,000 2X + .4X – .1X = 161,000 2.3X = 161,000 X = 70,000
X 2 2X .4X 2.4X .10X 2.3X $10
70,000* × 2 140,000 28,000 168,000 7,000 161,000 × 10 $1,610,000
Budgetary Planning Ex. 116
Norris Company is preparing its direct labor budget for 2002 from the following production budget based on a calendar year: Quarter 1 2 3 4 Units 40,000 20,000 30,000 50,000
Each unit requires 1.5 hours of direct labor. The union contract provides for a 10% increase in wage rate to $11 per hour on October 1. Instructions Prepare a direct labor budget for 2002. Solution 116 (15–20 min.) NORRIS COMPANY Direct Labor Budget For the Year Ending December 31, 2002 Quarter 1 2 3 40,000 20,000 30,000 × 1.5 × 1.5 × 1.5 60,000 30,000 45,000 × $10* × $10 × $10 $600,000 $300,000 $450,000 4 50,000 × 1.5 75,000 × $11 $825,000 Total
Units to be produced Direct labor time (hours) per unit Total required direct labor hours Direct labor cost per hour Total direct labor cost *$11 ÷ 110% = $10. Ex. 117
For each item given, identify the budget in which it will appear. If an item will appear on more than one budget, then indicate as many budgets as are relevant. Budget Code: DM DL P S C BBS BIS SA MOH 1. 2. 3. 4. 5. 6. Direct Materials Budget Direct Labor Budget Production Budget Sales Budget Cash Budget Budgeted Balance Sheet Budgeted Income Statement Selling and Administrative Expense Budget Manufacturing Overhead Budget
Ending cash balance Total selling and administrative expenses Total sales (in dollars) Interest expense Ending raw materials inventory (in dollars) Ending finished goods inventory (in dollars)
6Test Bank for Managerial Accounting, Second Edition 2 0 Solution 117 (10–13 min.) 1. 2. 3. 4. 5. 6. Ending cash balance Total selling and administrative expenses Total sales (in dollars) Interest expense Ending raw materials inventory Ending finished goods inventory BBS, C SA, BIS S, BIS C, BIS BBS, DM BBS, BIS
Ex. 118 Eller Company is preparing its master budget for 2002. Relevant data pertaining to its sales budget are as follows: Sales for the year are expected to total 4,000,000 units. Quarterly sales are 25%, 30%, 15%, and 30%, respectively. The sales price is expected to be $1.50 per unit for the first quarter and then be increased to $1.75 per unit in the second quarter. Instructions Prepare a sales budget for 2002 for Eller Company. Solution 118 (9–14 min.) ELLER COMPANY Sales Budget For the Year Ending December 31, 2002 1 1,000,000 × $1.50 $1,500,000 Quarter 2 3 1,200,000 600,000 × $1.75 × $1.75 $2,100,000 $1,050,000 4 1,200,000 × $1.75 $2,100,000 Year 4,000,000 Var. $6,750,000
Unit sales Unit selling price Total sales
Ex. 119 Lawsen Company combines its operating expenses for budget purposes in a selling and administrative expense budget. For the first quarter of 2002, the following data are developed: 1. Sales: 15,000 units; unit selling price: 2. Variable costs per dollar of sales: Sales commissions Delivery expense Advertising 3. Fixed costs per quarter: Sales salaries Office salaries Depreciation Insurance Utilities $30 6% 2% 4% $24,000 12,000 6,000 2,000 1,000
Budgetary Planning Ex. 119 (cont.) Instructions Prepare a selling and administrative expense budget for the first quarter of 2002.
(12–17 min.) LAWSEN COMPANY Selling and Administrative Expense Budget For the Quarter Ended March 31, 2002
Variable expenses Sales commissions ($450,000 × 6%) Delivery expense ($450,000 × 2%) Advertising ($450,000 × 4%) Total variable Fixed expenses Sales salaries Office salaries Depreciation Insurance Utilities Total fixed Total selling and administrative expenses
$27,000 9,000 18,000 54,000 $24,000 12,000 6,000 2,000 1,000 45,000 $99,000
Ex. 120 The Northeast Regional Division of Irwin Wholesale Corporation has been requested to prepare a quarterly budgeted income statement for 2002. The regional manager expects that sales in the first quarter of 2002 will increase by 10% over the same quarter of the preceding year and will then increase by 5% for each succeeding quarter in 2002. The corporate head office has requested that the regional manager maintain an inventory in dollars equal to 25% of the next quarter's sales. Quarterly purchases average 55% of quarterly sales. Budgeted ending inventory on December 31, 2001 is $33,000. Quarterly salaries are $5,000 plus 5% of sales. All salaries are classified as sales salaries. Other quarterly expenses are estimated to be as follows: Rent expense Depreciation on office equipment Utilities expense Miscellaneous expenses $6,000 $3,000 $ 900 2% of sales
The income statement for the first quarter of 2001 was as follows:
6Test Bank for Managerial Accounting, Second Edition 2 2 Ex. 120 (cont.) Income Statement For the Three Months Ended March 31, 2001 Sales .................................................................................................... Cost of goods sold ............................................................................... Gross profit ........................................................................................... Operating expenses Sales salaries ............................................................................... $11,800 Rent expense ................................................................................ 6,000 Depreciation .................................................................................. 3,000 Utilities .......................................................................................... 900 Miscellaneous .............................................................................. 2,600 Total operating expenses ...................................................... Net income ...........................................................................................
$120,000 66,000 54,000
Instructions Prepare a budgeted quarterly income statement in tabular form for the first quarter of 2002. (Show computations.)
IRWIN WHOLESALE CORPORATION Northeast Regional Division Budgeted Income Statement For the Quarter Ending March 31, 2002 Sales (1).............................................................................................................. Cost of goods sold (2).......................................................................................... Gross profit ......................................................................................................... Operating expenses Sales salaries (3) ......................................................................................... Rent expense .............................................................................................. Depreciation ................................................................................................ Utilities ......................................................................................................... Miscellaneous (4) ........................................................................................ Total operating expenses ..................................................................... Net income ......................................................................................................... (1) (2) Sales Qtr. 1 $120,000 × 108% = $132,000 Cost of goods sold Beginning inventory Purchases ($132,000 × 55% = $72,600) Cost of goods available Ending inventory ($132,000 × 105% = $138,600 × 25% = $34,650) Cost of goods sold Sales salaries: $5,000 + ($132,000 × .05) = $11,600. Miscellaneous expenses: $132,000 × .02 = $2,640.
$132,000 70,950 61,050 11,600 6,000 3,000 900 2,640 24,140 $ 36,910
$ 33,000 72,600 105,600 34,650 $ 70,950
Budgetary Planning Ex. 121 In September 2002, the budget committee of Sharpe Company assembles the following data: 1. Expected Sales October $700,000 November 750,000 December 800,000 2. Cost of goods sold is expected to be 60% of sales. 3. Desired ending merchandise inventory is 20% of the next month's cost of goods sold. 4. The beginning inventory at October 1 will be the desired amount.
Instructions Prepare the budgeted income statement for October through gross profit on sales, including a cost of goods sold schedule.
(16–21 min.) SHARPE COMPANY Budgeted Income Statement For the Month Ending October 31, 2002
Sales Cost of goods sold Inventory, October 1 Purchases Cost of goods available for sale Less: Inventory, October 31 Cost of goods sold Gross profit Supporting Computations: Budgeted cost of goods sold (1) Desired ending merchandise inventory (2) Total Less: Beginning merchandise inventory (3) Budgeted merchandise purchases October (1) $700,000 × 60% = $420,000. (2) ($750,000 × 60%) × 20% = $90,000. (3) $420,000 × 20% = $84,000.
$700,000 $ 84,000 426,000 510,000 90,000 420,000 $280,000 $420,000 90,000 510,000 84,000 $426,000
6Test Bank for Managerial Accounting, Second Edition 2 4 Ex. 122 Timmons Company has budgeted sales revenue as follows: January February March April May June Budgeted Sales Revenues $ 65,000 90,000 110,000 50,000 55,000 30,000
Past experience has indicated that 80% of sales each month are on credit and that collection of credit sales occurs as follows: 60% in the month of sale, 30% in the month following the sale, and 5% in the second month following the sale. The other 5% is uncollectible. Instructions Prepare a schedule which shows expected cash receipts from sales for the months of April, May, and June.
(20–25 min.) TIMMONS COMPANY Expected Cash Receipts from Sales For the Quarter Ended June 30 April May June
February sales Credit sales: ($90,000 × .80 × .05) March sales Credit sales: ($110,000 × .80 × .30) ($110,000 × .80 × .05) April sales Credit sales: ($50,000 × .80 × .60) ($50,000 × .80 × .30) ($50,000 × .80 × .05) Cash sales: ($50,000 × .20) May sales Credit sales: ($55,000 × .80 × .60) ($55,000 × .80 × .30) Cash sales: ($55,000 × .20) June sales Credit sales: ($30,000 × .80 × .60) Cash sales: ($30,000 × .20) Total cash receipts
26,400 $ 4,400 24,000 12,000 $ 2,000 10,000
26,400 13,200 11,000 14,400 6,000 $35,600
Budgetary Planning Ex. 123 Finagan Company has budgeted sales revenues as follows: Credit sales Cash sales Total sales June $54,000 36,000 $90,000 July $ 58,000 102,000 $160,000 August $ 36,000 78,000 $114,000
Past experience indicates that 60% of the credit sales will be collected in the month of sale and the remaining 40% will be collected in the following month. Purchases of inventory are all on credit and 50% is paid in the month of purchase and 50% in the month following purchase. Budgeted inventory purchases are: June July August $120,000 100,000 42,000
Other cash disbursements budgeted: (a) selling and administrative expenses of $19,000 each month, (b) dividends of $41,400 will be paid in July, and (c) purchase of a computer in August for $12,000 cash. The company wishes to maintain a minimum cash balance of $20,000 at the end of each month. The company borrows money from the bank at 9% interest if necessary to maintain the minimum cash balance. Borrowed money is repaid in months when there is an excess cash balance. The beginning cash balance on July 1 was $20,000. Assume that borrowed money in this case is for one month. Instructions Prepare a cash budget for the months of July and August. Prepare separate schedules for expected collections from customers and expected payments for purchases of inventory. Solution 123 (25–35 min.) FINAGAN COMPANY Cash Budget For the Two Months of July and August Beginning cash balance Add: Receipts Collections from customers Cash sales Total receipts Total available cash Less: Disbursements Purchases Selling and administrative expenses Dividends Computer purchase Total disbursements Excess (deficiency) of available cash over disbursements Financing Borrowings Repayments Ending cash balance July $ 20,000 56,400 102,000 158,400 178,400 110,000 19,000 41,400 170,400 8,000 12,000 $ 20,000 (12,090)* $ 28,710 August $ 20,000 44,800 78,000 122,800 142,800 71,000 19,000 12,000 102,000 40,800
6Test Bank for Managerial Accounting, Second Edition 2 6 Solution 123 (cont.) *12,000 × 9% × 1/12 = $90 + $12,000 = $12,090. Schedule of Expected Collections from Customers Credit sales June (54,000 × 40%) July ($58,000) August ($36,000) Total collections July $21,600 34,800 $56,400 August $23,200 21,600 $44,800
Schedule of Expected Payments for Purchase of Inventory Inventory purchases June ($120,000) July ($100,000) August ($42,000) Total payments July $ 60,000 50,000 $110,000 August $50,000 21,000 $71,000
Ex. 124 The City National Bank has asked Naylor, Inc. for a budgeted balance sheet for the year ended December 31, 2002. The following information is available: 1. The cash budget shows an expected cash balance of $50,000 at December 31, 2002. 2. The 2002 sales budget shows total annual sales of $600,000. All sales are made on account and accounts receivable at December 31, 2002 are expected to be 15% of annual sales. 3. The merchandise purchases budget shows budgeted cost of goods sold for 2002 of $300,000 and ending merchandise inventory of $70,000. 20% of the ending inventory is expected to have not yet been paid at December 31, 2002. 4. The December 31, 2001 balance sheet includes the following balances: Equipment $196,000, Accumulated Depreciation $80,000, Common Stock $180,000, and Retained Earnings $32,000. 5. The budgeted income statement for 2002 includes the following: depreciation on equipment $10,000, federal income taxes $16,000, and net income $74,000. The income taxes will not be paid until 2003. 6. In 2002, management does not expect to purchase additional equipment or to declare any dividends. It does expect to pay all operating expenses, other than depreciation, in cash. Instructions Prepare an unclassified budgeted balance sheet at December 31, 2002.
Budgetary Planning Solution 124 (20–25 min.) NAYLOR, INC. Budgeted Balance Sheet December 31, 2002 Assets Cash ..................................................................................................... Accounts receivable ............................................................................. Merchandise inventory ......................................................................... Equipment ............................................................................................ $196,000 Less: Accumulated depreciation ($80,000 + $10,000).......................... 90,000 Total assets .................................................................................. Liabilities and Stockholders' Equity Accounts payable ................................................................................. Income taxes payable .......................................................................... Common stock ..................................................................................... Retained earnings ................................................................................ Total liabilities and stockholders' equity ........................................ $ 50,000 90,000 70,000 106,000 $316,000 $ 14,000 16,000 180,000 106,000 $316,000
Ex. 125 The management of Horton Company estimates that credit sales for August, September, October, and November will be $180,000, $210,000, $230,000, and $160,000, respectively. Experience has shown that collections are made as follows: In month of sale In first month after sale In second month after sale 25% 60% 10%
Instructions Determine the collections from customers in October and November. Show all computations.
(13–18 min.) October $ 18,000 126,000 21,000 57,500 138,000 -0$201,500 40,000 $199,000 November $ -0-
Collections from Customers August Sales ($180,000 × .10) September Sales ($210,000 × .60) ($210,000 × .10) October Sales ($230,000 × .25) ($230,000 × .60) November Sales ($160,000 × .25) Total collections
6Test Bank for Managerial Accounting, Second Edition 2 8 Ex. 126 Swine Skins specializes in Super Bowl memorabilia. Therefore, the company’s sales are seasonal. Budgeted figures are presented below. Quarter 1 2 3 4 Budgeted Sales $560,000 $200,000 $160,000 $380,000 From past experience, Swine Skins has learned that of credit sales, 70% are collected in the month of sale and 30% are collected in the month following the sale. Instructions Assuming the fourth quarter sales for he previous year totaled $420,000, determine Swine Skins’ cash collections for each of the four quarters.
(12–14 min.) Quarter 1 $126,000 ($420,000 × .30) 392,000 ($560,000 ×.70) 2 3 4
Accounts receivable First quarter Second quarter Third quarter Fourth quarter Total cash collections
$168,000 ($560,000 ×.30) 140,000 ($200,000 × .70) $ 60,000 ($200,000 × .30) 112,000 $ 48,000 ($160,000 × .70) ($160,000 × .30) 266,000 ($380,000 × .70)
Ex. 127 Hawksley Company needs a cash budget for the month of April, 2003. The company’s controller has provided you with the following information and assumptions: a. The April 1, 2003 cash balance is expected to be $14,560. b. All sales are on account. Credit sales are collected over a three-month period—60 percent in the month of sale, 30 percent in the month following sale, and 10 percent in the second month following sale. Actual sales for February and March were $60,000 and $55,000, respectively. April’s sales are budgeted at $70,000. c. Marketable securities are expected to be sold for $38,000 during the month of April. d. The controller estimates that direct materials totaling $53,000 will be purchased during April. Fifty percent of a month’s raw materials purchases are paid in the month of purchase with the remaining 50 percent paid in the following month. Accounts payable for March purchases total $16,150, which will be paid in April.
Budgetary Planning Ex. 127 (cont.) e. During April, direct labor costs are estimated to be $28,000. f.
Manufacturing overhead is estimated to be 50 percent of direct labor costs, Further, the controller estimates that approximately 10 percent of the manufacturing overhead is depreciation on the factory building and equipment.
g. Selling and administrative expenses are budgeted at $34,000 for April. Of this amount, $16,000 is for depreciation. h. During April, Hawksley Company plans to buy a new delivery van costing $17,500. The company will pay cash for the van. i. j. Hawksley Company owes $9,000 in income tax, which must be paid in April. Hawksley Company must maintain a minimum cash balance of $10,000. To bolster the cash position as needed, an open line of credit is available from the bank.
Instructions Prepare the following: (1) a schedule of cash collections, (2) a schedule of cash payments for raw materials, and (3) a cash budget for the month of April. Indicate in the financing section any borrowing that will be necessary during the month. Solution 127 (18–20 min.) 2. Cash Payments for Merchandise .50 × $53,000 = $26,500 Accounts payable 16,150 Total $42,650 HAWKSLEY COMPANY Cash Budget For the month ending April 30, 2003 $ 14,560 $64,500 38,000 102,500 117,060 42,650 28,000 12,600 18,000 17,500 9,000 127,750 (10,690) 20,690 $ 10,000
1. Cash Receipts .60 × $70,000 = $42,000 .30 × $55,000 = 16,500 .10 × $60,000 = 6,000 Total $64,500 3.
Beginning cash balance Add: Receipts Collections from customers Sales of securities Total receipts Total Available cash Less: Disbursements Direct materials Direct labor Manufacturing overhead ($28,000 × .50) × .90 Selling and administrative expenses ($34,000 – $16,000) Purchase of van Income tax expense Total disbursements Excess (deficiency) of available cash over disbursements Financing Borrowings Ending cash balance
6Test Bank for Managerial Accounting, Second Edition 3 0 Ex. 128 In September 2002, the management of Yancey Company assembles the following data in preparation of budgeted merchandise purchases for the months of October and November. 1. Expected Sales October November December $1,000,000 1,400,000 1,800,000
2. Cost of goods sold is expected to be 60% of sales. 3. Desired ending merchandise inventory is 25% of the next month's cost of goods sold. 4. The beginning inventory at October 1 will be the desired amount. Instructions Compute the budgeted merchandise purchases for October and November. Use a columnar format with separate columns for each month. Solution 128 (12–17 min.) YANCEY COMPANY Merchandise Purchases Budget For the Months of October and November, 2002 Budgeted cost of goods sold Desired ending merchandise inventory Total Less: Beginning merchandise inventory Required merchandise purchase October $1,000,000 × 60% = $600,000 $840,000 × 25% = $210,000 $600,000 × 25% = $150,000 October $600,000 210,000 810,000 150,000 $660,000 November $ 840,000 270,000 1,110,000 210,000 $ 900,000
November $1,400,000 × 60% = $840,000 $1,800,000 × 60% × 25% = $270,000
129. A _________________ is a formal written summary or statement of management's plans expressed in financial terms. 130. A budget is a primary means of ________________ agreed upon objectives throughout the business organization. 131. Effective budgeting is dependent on an _________________________ in which authority and responsibility are clearly defined. 132. The budget should have the support of _________________ and should be an important basis for _________________________ by comparing actual results to expected results. 133. Many companies use ____________________________ budgets by dropping the month just ending and adding a future month. 134. A __________________, which is often headed by a budget director, is responsible for coordinating the preparation of the budget in many companies. 135. A major difference between the annual budget and long-range planning is the ____________________ over which the data pertain. 136. The ____________________ is the starting point in preparing the master budget. 137. The formula for developing a production budget is _________________ plus ______________________ minus _______________________. 138. The ________________ is a set of interrelated budgets that constitutes a plan of action for a specified period of time. 139. Three major sections of a cash budget are (1) ___________________, (2) ____________________, and (3) ______________________. 140. The two major differences between the master budgets of merchandisers and manufacturers are that the merchandiser will have a ______________________ budget and will not have __________________ budgets.
Answers to Completion Statements 129. 130. 131. 132. budget communicating organizational structure top management, evaluating performance 133. continuous twelve-month 134. budget committee 135. time period 136. sales budget 137. budgeted sales units, desired ending finished goods units, beginning finished goods units 138. master budget 139. cash receipts, cash disbursements, financing 140. merchandise purchases, manufacturing
Test Bank for Managerial Accounting, Second Edition
A. B. C. D. E. Budget Financial budgets Budget committee Master budget Sales forecast F. G. H. I. J. Production budget Cash budget Long-range planning Direct materials budget Sales budget
141. Match the items below by entering the appropriate code letter in the space provided.
____ 1. A selection of strategies to achieve long-term goals. ____ 2. An estimate of expected sales for the budget period. ____ 3. Budgets that indicate the cash resources needed for expected operations and planned capital expenditures. ____ 4. The projection of potential sales for the industry and the company's expected share of such sales. ____ 5. Management's plans expressed in financial terms for a specified future time period. ____ 6. A projection of anticipated cash flows. ____ 7. A group responsible for coordinating the preparation of the budget. ____ 8. A projection of production requirements to meet expected sales. ____ 9. A set of interrelated budgets that constitute a plan of action for a specified time period. ____ 10. An estimate of the quantity and cost of direct materials to be purchased.
Answers to Matching 1. 2. 3. 4. 5. H J B E A 6. 7. 8. 9. 10. G C F D I
SHORT-ANSWER ESSAY QUESTIONS
S-A E 142
Budgeting can be an important management tool if implemented properly. Identify several positive results when budgets are used properly. Since budgets affect people, identify several negative aspects if budgets are not implemented properly. Solution 142 When budgets are used properly, positive results can include: managers are required to plan ahead, there are definite objectives for performance evaluation, there is an early warning system for potential problems, there is coordination of activities within the business, there is greater management awareness of the entity's overall operations, and there are positive behavior patterns by motivating personnel to meet planned objectives. However, if budgets are not implemented properly, negative results can include discouragement of additional effort to meet goals, poor morale of managers, and lack of commitment to budget goals.
S-A E 143 Budgeting and long-range planning are both important aids to management in achieving a company's goals and objectives. Briefly distinguish between budgeting and long-range planning and indicate how they help managers perform their functions. Solution 143 Budgeting is preparing a detailed formal written summary of management's plans for a specified future time period (usually one year), in financial terms. Long-range planning involves the selection of strategies to achieve long-term (at least five years) goals and the development of policies and plans to implement the strategies. Budgeting and long-range planning differ in time periods involved, emphasis, and the amount of detail presented. Budgets help managers in planning and controlling operations for the coming year, while long-range planning assists managers in broad long-term goal-setting, policy development, and planning.
S-A E 144 (Ethics) Ken Clarke is a new production manager. After a great deal of effort, including considerable market research, he completes his budget and submits it to his boss, Diane Jackson. Without even looking at it, she asks him what his "fudge factor" was, and which items contained the most slack. Ken, very surprised, responds that he doesn't use any "fudge factor," and that all his figures are honest. Ms. Jackson counters by asking him how he would respond if he had to cut about 20% from his budget, as it is. She tells him that most budgets are trimmed in committee, and he had better be ready. She returns the budget to him, and tells him to come back with something reasonable. Required: 1. Is it ethical to build slack into a budget? Explain. 2. Was it ethical for Ms. Jackson to refuse to accept a budget without slack? Briefly explain.
6Test Bank for Managerial Accounting, Second Edition 3 4 Solution 144 1. Either answer may be correct. Slack may be seen as an estimate of how much the actual results may vary from the predictions. As such, it is perfectly legitimate to add some slack, as in this case. On the other hand, it is certainly possible that a great deal of padding may be added to a budget, with the manager preparing the budget hoping that the amount to be trimmed will not exceed the amount of the padding. The decision as to whether the addition of slack is unethical depends upon whether budgeting guidelines are followed. Any secretive method of adding padding to one's own budget would be unethical. 2. As Ken Clarke's superior, Ms. Jackson has the obligation to correct his mistakes. Apparently, in this particular company, budgets are trimmed in committee, with the expectation that all budgets contain some expenses that could be removed without harm to the company. Ken must continue to be honest. One way to do that would be for Ken to submit his trimmed budget, and then note the costs that are most likely to exceed the budget, and by how much. This would give Ms. Jackson the ability to intelligently defend his budget while in committee. S-A E 145 (Communication) At Lakeside Manufacturing, budgets are the responsibility of everyone. Each department collaborates in determining its expected needs, and sales personnel determine the likely sales volume. Ed Tucker, one of the production managers, believes in building plenty of slack into everything, including his estimates of ending inventory of work in process. Required: You are the accounting manager. Write a memo to Mr. Tucker. Explain why the ending inventory figure should be extremely accurate, with as little slack as possible. Solution 145 TO: Ed Tucker FROM: Mary Barnes SUBJECT: Budgets At our last budget meeting, you mentioned that you put plenty of slack into all your budgets, so that you could better survive budget reductions. You remember that I specifically asked about your ending inventory estimates, and you said that those had plenty of slack as well. Please reconsider adding slack to the ending inventory estimates. Those estimates are used by all other departments in calculating their budgets. In other words, they rely on your figures being accurate. If you estimate much too high for inventory, the other departments will experience stockouts, as they will have counted on your having more goods ready than you will be able to produce. If, as is more likely, you understate the number of units you will have on hand, we will experience increased storage costs and related spoilage. We will also have spent money to produce more units than the next department can use. I understand your desire to ensure that your budgets are reasonable. However, I am sure also that you see that we depend upon your inventory numbers. Please make sure that these numbers are as precise as possible. (signed)
This action might not be possible to undo. Are you sure you want to continue?
We've moved you to where you read on your other device.
Get the full title to continue listening from where you left off, or restart the preview.