MANAGEMENT ACCOUNTING CONCEPTS AND TECHNIQUES
By Dennis Caplan, University at Albany (State University of New York)
CHAPTER 20: Operating Budgets
Exercises and Problems
20-1: ZFN anticipates sales of 20,000 units in March, 30,000 units in April, and 40,000 units in May. The company wants to have 20% of next month’s sales on hand at the end of the previous month. In fact, at the beginning of March, the company has 4,000 units on hand. How many units should the company produce during April?
20-2: Yue Yeung Industries has sales of $10,000 in May, $20,000 in June, and $30,000 in July. The company collects 25% of sales in the month of sale, and the remaining 75% in the following month. Calculate Accounts Receivable at June 30.
20-3: A merchandising company expects to sell 300 units in April, 400 units in May, and 500 units in June. The company plans to have 30% of each month’s sales, plus an additional 50 units, on hand in inventory at the beginning of each month. How many units should the company plan to purchase in May?
20-4: Quolala is a merchandising company. Quolala expects unit sales for the coming year as follows:
The average selling price is $23 per unit. The company’s policy is to maintain month-end inventory levels at 30% of next month’s anticipated sales. All sales are made on credit, and expected collections are as follows:
70% collected in the month of sale
20% collected in the month following the sale
10% collected in the second month following the sale.
Cost of goods sold equals 80% of the sales price. The company pays cash for all purchases of inventory, at the time of purchase.
A) How much inventory (how many units) will Quolala expect to purchase in June?
B) What will be the dollar amount of accounts receivable at the end of July?
C) How much should the company expect to pay (i.e., credits to cash, debits to inventory) for purchases of inventory in May?
D) What can the company expect to collect in receivables (i.e., debits to cash, credits to accounts receivable) in June?
20-5: The Gordon Candy Company is a wholesaler for peanut brittle and other candies. Gordon’s sales of peanut brittle for the last four months of 2006 are projected as follows:
September 150 cases
October 170 cases
November 190 cases
December 230 cases
Bill Gordon, founder, Chairman, President, and Chief Executive Officer of the company, plans to sell each case for $150, which represents a 25% mark-up over cost (Note: an item purchased for $1 and sold for $1.60 would represent a 60% mark-up over cost).
Bill manages his inventory purchases so that he has 45% of each month’s sales on hand at the beginning of the month. Bill makes all purchases on credit. Bill pays 60% of credit purchases in the month of purchase, and pays the remaining 40% in the month following the purchase.
On average, Bill’s customers pay cash at the time of purchase for 50% of purchases, and buy the remaining 50% on credit. Credit purchases are paid to the Gordon Candy Company as follows:
40% in the month of purchase
35% in the month immediately following the purchase
20% in the second month following the purchase
5% bad debt expense (Bill never collects this amount).
Required: Calculate the cash inflows from sales of peanut brittle and the cash outflows from purchases of peanut brittle, for November.
September: 100 cases
October: 120 cases
November: 130 cases
December: 160 cases
California Concepts plans to sell each case for $25, which represents a $7 mark-up over cost. The company manages its inventory purchases so that it always has 70% of each month’s unit sales on hand at the beginning of that month. The company buys inventory on credit. The company pays for these credit purchases in the month following the purchase.
On average, the company’s customers pay cash at the time of purchase for 60% of their purchases, and buy the remaining 40% on credit. These credit purchases are paid to California Concepts as follows:
30% in the month of purchase
40% in the month immediately following the purchase
30% in the second month following the purchase
A) Calculate Accounts Receivable for sales of shampoo as of the end of November, and Accounts Payable for purchases of shampoo as of the end of November.
B) Calculate net cash flows from sales and purchases of shampoo that occur in November.
20-7: The Piombino Manufacturing Company anticipates sales as follows:
Piombino plans to have 35% of each month’s sales on hand as finished goods inventory at the beginning of the month. The manufacturing process requires 30 days (one month) from start to finish. Each unit requires two pounds of aluminum, and the aluminum is put into the production process at the beginning of production (day one of the 30 day production cycle). Aluminum costs $15 per pound. The company wants to have 50,000 pounds of aluminum raw materials on hand at the beginning of each month. Purchases of aluminum are paid 50% in the first month after purchase and 50% in the second month after purchase.
Required: How much money will be disbursed in November for aluminum?
September 1,700 cases
October 1,900 cases
November 2,300 cases
December 2,800 cases
The increase through the year arises due to the increasing popularity of brandy as the weather turns cold, and particularly the high consumption around the holiday season.
50% in the month of purchase
25% in the month immediately following the purchase
20% in the second month following the purchase
5% bad debt expense (Mary River never collects this amount).
Required: Because “cash is king,”
20-9: Muravera, Inc., budgets sales as follows:
Sales are 30% cash sales and 70% credit sales. Credit sales are collected, on average, according to the following schedule:
In the month of purchase
In the first month after purchase
In the second month after purchase
In the third month after purchase
In the fourth month after purchase
Required: If all goes according to the budget, what will be the balance in Accounts Receivable at September 30?
20-10: The Dorsely Manufacturing Company anticipates sales of 62,000 units in April, 55,000 units in May, 45,000 units in June, 38,000 units in July, and 29,000 units in August. Dorsely plans to have 40% of each month’s sales on hand as finished goods inventory at the beginning of the month. The manufacturing process requires 60 days (two months) from start to finish. Each unit requires three feet of wire, and the wire is put into the production process half-way through production (day 30 of the 60-day production cycle). Wire costs $7 per foot. The company wants to have 110% of each month’s wire raw materials requirements on hand at the beginning of the month. Purchases of wire are paid 50% in the month of purchase and 50% in the first month after purchase.
Required: What will be the balance for Accounts Payable for wire at June 30?
20-11: Edwin’s Clothing Store expects revenues of $27,000 in March, $32,000 in April, $33,000 in May, and $36,000 in June. Eighty percent of these revenues are cash sales, and the remaining 20% are credit sales. Bad debt expense is accrued monthly such that the allowance for uncollectible accounts (the contra-asset balance sheet account) is 10% of the gross receivables at the end of any given month. Credit sales are collected as follows: 10% in the month of sale, 35% in the month following the sale, 25% in the second month following the sale, and 20% in the third month following the sale. Ten percent is never collected, and uncollected accounts receivable are written off at the end of the third month following the sale.
Required: Calculate net accounts receivable (net of the allowance for uncollectible accounts) as of June 30 (after the closing entries for the month have been made).
Required: Calculate patient receivables at June 30, net of the allowance for uncollectible accounts.
Management Accounting Concepts and Techniques; copyright 2006; most recent update: November 2010
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