Question: One benefit of budgeting is coordination and communication. Explain what this means.
The budget encourages managers to communicate to ensure that the company can achieve its goals.
Budget or budgeting can be defined as it is a plan established by a company for a specified period of time in the future. It helps the entity to focus on the set goals. It guides the entity for performing better.
Planning, coordination and communication, and benchmarking are the main benefits of budgeting.
Budgeting requires input from all managers from different departments and areas, and these managers work together to make a single, unified, comprehensive plan for the business. Budgeting helps managers communicate with each other by giving suggestions and viewpoints regarding budgeting decisions.
Question: Preparing a financial budget—schedule of cash receipts, schedule cash payments, cash budget
Baxter Company’s budget committee provides the following information: December 31, 2017, account balances:
1. Prepare the schedule of cash receipts from customers for January and February 2018. Assume cash receipts are 80% in the month of the sale and 20% in the month following the sale.
2. Prepare the schedule of cash payments for purchases for January and February 2018. Assume purchases are paid 60% in the month of purchase and 40% in the month following the purchase.
3. Prepare the schedule of cash payments for selling and administrative expenses for January and February 2018. Assume 40% of the accrual for Salaries and Commissions Payable is for commissions and 60% is for salaries. The December 31 balance will be paid in January. Salaries and commissions are paid 30% in the month incurred and 70% in the following month. Rent and income tax expenses are paid as incurred. Insurance expense is an expiration of the prepaid amount.
4. Prepare the cash budget for January and February 2018. Assume no financing took place.
Match the following statements to the appropriate budgeting objective or benefit: developing strategies, planning, directing, controlling, coordinating and communicating, and benchmarking.
1. Managers are required to think about future business activities.
2. Managers use feedback to identify corrective action.
3. Managers use results to evaluate employees’ performance.
4. Managers work with managers in other divisions.
Question: Preparing a financial budget—schedule of cash receipts, schedule of cash payments, cash budget
Puckett Company has provided the following budget information for the first quarter of 2018:
Total sales $ 216,000
Budgeted purchases of direct materials 40,600
Budgeted direct labor cost 36,800 Budgeted manufacturing overhead costs:
Variable manufacturing overhead 1,025
Insurance and property taxes 6,650
Budgeted selling and administrative expenses:
Salaries expense 14,000
Rent expense 2,500
Insurance expense 2,000
Depreciation expense 350
Supplies expense 4,320
Additional data related to the first quarter of 2018 for Puckett Company:
a. Capital expenditures include $41,000 for new manufacturing equipment to be purchased and paid in the first quarter.
b. Cash receipts are 75% of sales in the quarter of the sale and 25% in the quarter following the sale.
c. Direct materials purchases are paid 50% in the quarter purchased and 50% in the next quarter.
d. Direct labor, manufacturing overhead, and selling and administrative costs are paid in the quarter incurred.
e. Income tax expense for the first quarter is projected at $49,000 and is paid in the quarter incurred.
f. Puckett Company expects to have adequate cash funds and does not anticipate borrowing in the first quarter.
g. The December 31, 2017, balance in Cash is $25,000, in Accounts Receivable is $21,600, and in Accounts Payable is $16,500.
1. Prepare Puckett Company’s schedule of cash receipts from customers and schedule of cash payments for the first quarter of 2018.
2. Prepare Puckett Company’s cash budget for the first quarter of 2018.
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