Chapter 21 Budgeting 1083 5. A B C D Cabot Co. E N - Cost of Goods Sold Budget For the Month Ending July 31 4 Finished goods inventory, July 1 $ 145,500 5 Direct materials: 6 Direct materials inventory, July 1 (Note A $ 23,000 7 Direct materials purchases 539,080 Cost of direct materials available for use $562,080 Direct materials inventory, July 31 (Note B) (17,000) 10 Cost of direct materials placed in production $545,080 11 Direct labor 500,560 12 Factory overhead 299,000 13 Cost of goods manufactured 1,344,640 14 Cost of finished goods available for sale $1,490,140 15 Finished goods inventory, July 31 (112,500) 16 Cost of goods sold $1,377.640 17 18 Note A: 19 Material A 4,000 lbs. at $4.00 per lb $16,000 20 Material B 3,500 lbs. at $2.00 per lb 7,000 21 Direct materials inventory, July 1 $23,000 22 23 Note B: 24 Material A 3,000 lbs. at $4.00 per lb. $12,000 25 Material B 2,500 lbs. at $2.00 per lb. 5,000 26 Direct materials inventory, July 31 $17.000 27 Discussion Questions 1. What are the three major objectives of budgeting? 7. Why should the production requirements set forth 2. Briefly describe the type of human behavior prob- in the production budget be carefully coordinated lems that might arise if budget goals are set too with the sales budget? tightly. 8. Why should the timing of direct materials purchases 3. What behavioral problems are associated with set- be closely coordinated with the production budget? ting a budget too loosely? 9. A. Discuss the purpose of the cash budget. What behavioral problems are associated with estab- B. If the cash for the first quarter of the fiscal year lishing conflicting goals within the budget? indicates excess cash at the end of each of the first two months, how might the excess cash be 5. Under what circumstances would a static budget be used? appropriate? 10. Give an example of how the capital expenditures 6. How do computerized budgeting systems aid firms budget affects other operating budgets. in the budgeting process