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Assignment 10.1 1. Consider the budget for any business. Requirement Explain how you benefit from preparing the budget. 2. The following components are included in the reports of the master budget. Requirement List in order of preparation the items of the master budget. 3. Mountaineers sells its rock-climbing shoes worldwide. Mountaineers expects to sell 4,000 pairs of shoes for $165 each in January, and 2,000 pairs of shoes for $220 each in February. All sales are cash only. Requirement Prepare the sales budget for January and February. 4. Review your results from exercise 3. Mountaineers expects cost of goods sold to average 75% of sales revenue, and the company expects to sell 4,600 pairs of shoes in March for $240 each. Mountaineers' target ending inventory is $18,000 plus 45% of the next month's cost of goods sold. Requirement R1. Use this information and the sales budget prepared in S21-3 to prepare Mountaineers' inventory, purchases, and cost of goods sold budget for January and February. 1 5. Refer to the Mountaineers' sales budget that you prepared in exercise 3. Now assume that Mountaineers' sales are 20% cash and 80% on credit. Mountaineers' collection history indicates that credit sales are collected as follows: November sales totaled $386,000 and December sales were $399,500. Requirement Prepare a schedule for the budgeted cash collections for January and February. 6. Mountaineers has $8,600 cash on hand on December 1. The company requires a minimum cash balance of $7,400. December cash collections are $548,600. Total cash payments for December are $563,230. Requirement Prepare a cash budget for December. Will Mountaineers need to borrow cash by the end of December? 7. Riverbed Sporting Goods has the following sales budget: Suppose June sales are expected to be $40,000 rather than $60,000. Requirement Revise Riverbed Sporting Goods' sales budget. 2 8. Consider the following list of responsibility centers and phrases. Requirement Fill in the blanks with the phrase that best completes the sentence. 3 9. Look at the following performance report: Requirement On which variances should the manager of the Mexican sauces product line focus his or her efforts, according to the management by exception principle? For these variances, compute the variance as a percent of the budgeted amount, and suggest some questions the manager may want to investigate. 10. Diego Garcia owns a chain of travel goods stores. Last year, his sales staff sold 10,000 suitcases at an average sale price of $150. Variable expenses were 80% of sales revenue, and the total fixed expense was $110,000. This year, the chain sold more expensive product lines. Sales were 8,000 suitcases at an average price of $200. The variable expense percentage and the total fixed expense were the same both years. Garcia evaluates the chain manager by comparing this year's income with last year's income. Requirement Prepare a performance report for this year, similar to the following figure. How would you improve Garcia's performance evaluation system to better analyze this year's results? 4 11. Swenson Inc. sells tire rims. Its sales budget for the nine months ended September 30 follows: In the past, cost of goods sold has been 60% of total sales. The director of marketing and the financial vice president agree that each quarter's ending inventory should not be below $25,000 plus 10% of cost of goods sold for the following quarter. The marketing director expects sales of $200,000 during the fourth quarter. The January 1 inventory was $11,000. Requirement Prepare an inventory, purchases, and cost of goods sold budget for each of the first three quarters of the year. Compute cost of goods sold for the entire nine month period. 12. Lipman Auto Parts, a family-owned auto parts store, began January with $10,300 cash. Management forecasts that collections from credit customers will be $11,400 in January and $14,800 in February. The store is scheduled to receive $5,000 cash on a business note receivable in January. Projected cash payments include inventory purchases ($13,000 in January and $13,600 in February) and operating expenses ($2,700 each month). Lipman Auto Parts' bank requires a $10,000 minimum balance in the store's checking account. At the end of any month when the account balance dips below $10,000, the bank automatically extends credit to the store in multiples of $1,000. Lipman Auto Parts borrows as little as possible and pays back loans in quarterly installments of $2,000, plus 4% interest on the entire unpaid principal. The first payment occurs three months after the loan. Requirements R1. Prepare Lipman Auto Parts' cash budget for January and February. R2. How much cash will Lipman Auto Parts borrow in February if collections from customers that month total $13,800 instead of $14,800? 5 13. Web Touch is a Fresno company that sells cell phones and PDAs on the Web. Web Touch has assistant managers for its digital and video cell phone operations. These assistant managers report to the manager of the total cell phone product line, who, with the manager of PDAs, reports to the manager for all sales of handheld devices, Mary Burton. Burton received the following data for September 2011 operations: Requirement Arrange the data in a performance report similar to the following figure. Show September results, in thousands of dollars, for digital cell phones, for the total cell phone product line, and for all devices. Should Burton investigate the performance of digital cell phone operations? 6