Budgeting Paper 16

1

Sanford has a beginning cash balance of $10,000 and expects $40,000 in cash receipts for each of the next 2 months. Typically, disbursements total about $20,000 per month. Sanford’s payables policy has been to pay the bills upon receipt to maintain good vendor relationships and take advantage of any discounts. In month 1, the company also expects a one-time $40,000 bill for a patent application. Based on this information, select the statement below that reflects the most appropriate action that Sanford should take relative to the company’s cash position during the 2-month period.






2

In November, a company finalized its budget for the upcoming calendar year. In December, the decision was made to acquire new equipment in January by trading in old equipment and financing the amount due by a loan with principal and interest due at the end of 3 years. Out-of-pocket costs to operate the machinery would not change. This decision would change which of the company’s budgeted financial statements for the upcoming year?






3

Shoo, Inc., owns several retail stores. After all initial budget requests were received for the upcoming year, Shoo’s abbreviated pro forma income statement is as follows:
Sales ......$46,000,000
Cost of goods sold....20,700,000
Selling and administrative costs... 19,800,000
Operating income .....5,500,000
The cost of goods sold and a 5% sales commission are the only variable costs. Shoo’s upper management believes that the sales manager underestimated projected sales units and wants the sales budget increased such that the company can achieve its goal of a 15% return on sales. The amount by which sales must increase to achieve this goal is






4

Shoo, Inc., owns several retail stores. After all initial budget requests were received for the upcoming year, Shoo’s abbreviated pro forma income statement is as follows:
Sales ......$46,000,000
Cost of goods sold....20,700,000
Selling and administrative costs... 19,800,000
Operating income .....5,500,000
The cost of goods sold and a 5% sales commission are the only variable costs. Shoo’s upper management believes that the sales manager underestimated projected sales units and wants the sales budget increased such that the company can achieve its goal of a 15% return on sales. The amount by which sales must increase to achieve this goal is






5

Pro forma financial statements are part of the budgeting process. Normally, the last pro forma statement prepared is the






6

The cash budget must be prepared before the company can complete the






7

One of the final steps in completing a master budget is the preparation of a pro forma cash flow statement. This statement is intended to help users of financial statements






8

Golding Company has used the following data to prepare a pro forma income statement for the first quarter of next year. The company’s effective income tax rate is 40%. The company’s targeted gross margin percentage is 50%.
Sales .....$4,678,500
Beginning finished goods inventory... 12,600
Ending finished goods inventory ...18,900
Selling and administrative expenses...1,250,760
Cost of goods manufactured ...2,445,790
Which one of the following is the best course of action?






9

Bolton Corporation manufactures goods that are sold by independent sales agents who receive a 20% payment based on sales value. Bolton’s pro forma income statement for the upcoming year is below.
Sales $15,000,000
Cost of goods sold (all variable) 6,000,000
Payment to sales agents 3,000,000
Other expenses (all fixed) 2,000,000
Operating income $ 4,000,000
After the budget was created, Bolton became aware that its primary competitors would each be raising their selling prices by 5%. If Bolton also increased its selling price by 5%, the company’s revised operating income would be






10

Warner Company is creating its pro forma balance sheet for next year. Warner anticipates that 50% of sales will be collected during the month of sale, 40% will be collected in the month following the sale, and 10% will be collected 2 months after the sale. If Warner’s budgeted sales for the months of October, November, and December of the upcoming year are $200,000, $350,000, and $450,000, respectively, Warner’s budgeted year-end accounts receivable balance is






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