For each of the following items 1 through 6, indicate yes if it describes a potential benefit of budgeting or no if it describes a potential negative outcome of budgeting.
6. Budgets can provide incentives for good performance.
Incentives are the type of compensation offered by the organization to its employees and their monthly salary for outstanding performance.
Suppose an employee is working towards a task, keeping in mind the budget and the availability of resources that lead to a good performance and benefit the firm immensely. In that case, the management provides incentives as a token of appreciation in monetary terms.
Electro Company budgets production of 450,000 transmissions in the second quarter and 520,000 transmissions in the third quarter. Each transmission requires 0.80 pounds of a key raw material. The company aims to end each quarter with an ending inventory of direct materials equal to 20% of next quarter’s budgeted materials requirements. Beginning inventory of this raw material is 72,000 pounds. Direct materials cost $1.70 per pound. Prepare a direct materials budget for the second quarter.
Use the information in Exercise 20-25 and the following additional information to prepare a budgeted income statement for the month of July and a budgeted balance sheet for July 31.
a. Cost of goods sold is 55% of sales.
b. Inventory at the end of June is $80,000 and at the end of July is $60,000.
c. Salaries payable on June 30 are $50,000 and are expected to be $60,000 on July 31.
d. The equipment account balance is $1,600,000 on July 31. On June 30, the accumulated depreciation on equipment is $280,000.
e. The $6,600 cash payment of interest represents the 1% monthly expense on a bank loan of $660,000.
f. Income taxes payable on July 31 are $30,720, and the income tax rate is 30%.
g. The only other balance sheet accounts are: Common Stock, with a balance of $600,000 on June 30; and Retained Earnings, with a balance of $964,000 on June 30.
Forrest Company manufactures phone chargers and has a JIT policy that ending inventory must equal 10% of the next month’s sales. It estimates that October’s actual ending inventory will consist of 40,000 units. November and December sales are estimated to be 400,000 and 350,000 units, respectively. Compute the number of units to be produced for the month of November.
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