1. What is the benefit of continuous budgeting?
2. Why should each department participate in preparing its own budget?
3. How does budgeting help management coordinate and plan business activities?
4. Walker Company prepares monthly budgets. The current budget plans for a September ending inventory of 30,000 units. Company policy is to end each month with merchandise inventory equal to a specified percent of budgeted sales for the following month. Budgeted sales and merchandise purchases for the three most recent months follow.
(1) Prepare the merchandise purchases budget for the months of July, august, and September.
(2) Compute the ratio of ending inventory to the next month's sales for each budget prepared in (1).
(3) How many units are budgeted for sale in October?
Sales (units) Purchases (units)
July..........................180,000 200,250
August...................315,000 308,250
September............270,000 259,500
5. Foyert Corp requires a minimum $30,000 cash balance. If necessary, loans are taken to meet this requirement at a cost of 1% interest per month (paid monthly). Any excess cash is used to repay loans at month-end. The cash balance on October 1 is $30,000 and the company has an outstanding loan of $10,000. Forecasted cash receipts (other than for loans received) and forecasted cash payments (other than for loan or interest payments) follow. Prepare a cash budget for October, November, and December. Round interest payment to the nearest whole dollar.
October November December
Cash receipts................................110,000 80,000 100,000
Cash disbursements...................120,000 75,000 80,000
6. Hospitable Co. provides the following sales forecast for the next four months:
April May June July
Sales..............500 580 540 620
The company wants to end each month with ending finished goods inventory equal to 25% of next month's sales. Finished goods inventory on April 1 is 190 units. Assume July's budgeted production is 540 units. Prepare a production budget for the months of April, May, and June.
7. Write a half page summary offering a solution to the "use it or lose it" budgeting problem where managers spend the remaining budget amounts at the end of a budget period.