AFM481 Chapter Notes -Income Statement, Eval, Financial Statement

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orangecoyote929

6 Nov 2013

School

University of Waterloo

Department

Accounting & Financial Management

Course

AFM481

Professor

Grant Russell

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Document Summary

Budget: formalized financial plan for operations for a specified future period. Budgets for capital expenditures & long-term financing organizational strategies. Budgets for revenues, cost & cash flows short term operating plans. Budget cycle: series of steps to develop and use budgets. Operating budget: plan for revenues, production and op costs. Financial budget: plan for capital expenditures, long-term financing, cash flows and short-term financing. Budgeted financial statements forecasts of future i/s, b/s and cash flows. Developing a master budget: revenue budget, production budget, dm budget, dl budget, mfg overhead budget, support dept budget. No inventory, direct costs are recognized as period costs (on i/s) Nfpo budgets are the primary source of info. Government legally adopted restrictions on spending authority. Sell on account need to forecast the time for customers to pay up. Summary of purchases & determine when they"ll be paid off. Static budget is a budget based on forecasts of specific volumes of production/services.

Related Questions

Be noted the required is to June 2016 Not December 2016.

You have just been hired as a new management Accountant by SaudiJewellery, a distributor of earring to various retail outletslocated in shopping malls across the country. In the past, thecompany has done very little in the way of budgeting and at certaintimes of the year has experienced a shortage of cash.

Since you are well trained in budgeting, you have decided toprepare a master budgets for the Fourth quarter of 2016 in order toshow management the benefits that can be gained from an integratedbudgeting program. To this end, you have worked with accounting andother areas to gather the information assembled below.
The company sells many styles of earrings, but all are sold for thesame price- $10 per pair. Actual sales of earrings for the lastthree months and budgeted sales for the next six months follow (inpairs of earrings):

Recent and forecast sales ( in units)

January (actual)... 20,800
February (actual)... 26,000
March (actual)... 40,000
April (budget)... 65,000
May (budget)... 100,000
June (budget)... 50,000

July (budget)... 30,000

August (budget ... 28,000

September (budget) 25,000

The concentration of sales before and during May is due to MothersDay.

The concentration of sales before and during May is due toMother's Day.

Balance sheet at September 30, 2016

Assets Cash 74,000

Accounts receivable 346,000

Inventory 104,000

Prepaid insurance 21,000

Property and equipment (net) 950,000

Total assets $1,495,000

Liabilities and Stockholders' Equity

Accounts payable $100,000

Dividends payable 15,000

Capital stock 800,000

Retained earnings 580.000

Total liabilities & stockholders' equity $1.495.000

All sales are on credit. The collection of sales is asfollows:

20% of a month's sales are collected in the month of sale.

70% is collected in the following month, and the remaining

10% is collected in the second month following sale.

Bad debts have been negligible.

Additional information: Cost to buy a pair of earrings fromsuppliers is S4 Desired ending inventory at the end of each monthis 40% of the cost of goods sold in the following month.

Payment for purchases is as follows:

One-half of a month's purchases is paid for in the month ofpurchase; the other half is paid for in the following month.

Monthly operating expenses for the company are given below:

Variable monthly expenses:

Sales commissions 4% of month's sales paid as incurred

Fixed monthly expenses paid as incurred:

Advertising 200,000

Rent 18,000

Salaries 106,000

Utilities 7,000

Depreciation 14,000

Insurance is paid on an annual basis, in November of each year$36000 was paid on 1st of nov last year (i.e., $3000 permonth).

The company plans to purchase $16,000 in new equipment duringMay and $40,000 in new equipment during June; both purchases willbe for cash

The company declares dividends of $15,000 each quarter, payablein the first month of the following quarter.

The company maintains a minimum cash balance of $50,000. Allborrowing is done at the beginning of a month and any repaymentsare made at the end of a month.

The company has an agreement with a bank that allows the companyto borrow in increments of $1,000 at the beginning of each month.The interest rate on these loans is 1% per month and for simplicitywe will assume that interest is not compounded. At the end of thequarter, the company would pay the bank all of the accumulatedinterest on the loan and as much of the loan as possible (inincrements of $1,000), while still retaining at least $50,000 incash.

Required: Prepare a master budget for the three-month periodending December 31, 016.

Include the following detailed budgets: a. A sales budget, bymonth and in total N b. A schedule of expected cash collectionsfrom sales, by month and in total. c. A merchandise purchasesbudget in units and in dollars. Show the budget by month and intotal. A schedule of expected cash disbursements for merchandisepurchases, by month and in total.

2. A cash budget. Show the budget by month and in total.Determine any borrowing that would be needed to maintain theminimum cash balance of $50,000. 3. A budgeted income statement forthe three-month period ending June 30 2014. Use the contributionapproach.

4. A budgeted balance sheet as of June 30, 2014.

5. Based on the master budget that you prepared for the fourthquarter of 2016, what would you expect the results to be for thefourth quarter of the year.

6: Define strategic plan, long range plan, capital budgets and amaster budget.

7. Briefly explain the major benefits of budgets 8. Explain thepotential problems in implementing budgets g. Differentiate betweenan operating budget and a financial budget.

magentamammoth556

In absorption costing, fixed manufacturing overhead is expensed________.

A) when all the other non-manufacturing fixed costs areexpensed

B) when the product is sold

C) at the end of the period in which it is paid

D) when the units are produced

50) Volplex, Inc. produces paper and office supplies and usesthe just-in-time inventory system. Currently, the company is usingvariable costing. Which of the following is true of the effect ofcosting systems on the financial results of Volplex?

A) Its operating income will besignificantly higher if the company uses absorption costing insteadof variable costing.

B) Its operating income will besignificantly lower if the company uses absorption costing insteadof variable costing.

C) Its operating income will vary alittle if the company uses absorption costing instead of variablecosting.

D) Its operating income will benegative if the company uses absorption costing instead of variablecosting.

51) For which of the following decisions is absorption costingmost appropriate?

A) decisions related to using the sales mix to maximizeprofitability

B) decisions related to controlling short-term costs

C) decisions related to setting sales prices in the long run

D) decisions related to increasing contribution margin

61) The direct materials budget is prepared using informationfrom the ________ budget.

A) cash

B) master

C) capital expenditure

D) production

64) The budgeted income statement________.

A) reports cash paid for purchases of direct materials

B) includes amounts from the sales, cost of goods sold, cash,and capital expenditures budgets

C) is accrual-based

D) does not include depreciation expense

68) Which of the following best describes a standard?

A) a sales price, cost, or quantity that is expected undernormal conditions

B) costs incurred to produce a product

C) budgeted amount for total product cost

D) actual sales price, cost, or quantity

69) A company is setting its direct materials and direct laborstandards for its leading product. Direct material costs from thesupplier are $9 per square foot, net of purchase discount.Freight-in amounts to $0.30 per square foot. Basic wages of theassembly line personnel are $19 per hour. Payroll taxes areapproximately 23% of wages. How much is the direct labor coststandard per hour? (Round your answer to the nearest cent.)

A) $4.37

B) $19.00

C) $23.37

D) $32.37

burgundyhamster652

Which of the following tends to insulate management somewhat from the financial results of poor financial planning? (Pick the best answer.)

AFM481 Chapter Notes -Income Statement, Eval, Financial Statement

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