PROBLEMS
1. Cash Budget
Daniel Merrill is the manager of an airport gift shop, Merrill News and Gifts. From the following data, Mr. Merrill wants a cash budget showing expected cash receipts and disbursements for the month of April, and the cash balance expected as of April 30, 20X7.
- Planned cash balance, March 31, 20X7: $100,000
- Customer receivables as of March 31: $530,000 total. $80,000 from February sales, $450,000 from March sales
- Accounts payable, March 31: $460,000
- Merchandise purchases for April: $450,000, 40% paid in month of purchase, 60% paid in next month
- Payrolls due in April: $90,000
- Other expenses for April, payable in April: $45,000
- Accrued taxes for April, payable in June: $7,500
- Bunk note due April 10: $90,000 plus $7,200 interest
- Depreciation for April: $2,100
- Two-year insurance policy due April 14 for renewal: $1,500, to be paid in cash
- Sales for April: $1,000.000, half collected in month of sale, 40% in next month, 10% in third month
Prepare the cash budget for the month ending April 30, 20X7.
2. Activity-Based Budgeting
A recent directive from Laura Jensen, CEO of Hermantown Manufacturing, had instructed each department to cut its costs by 15%. The traditional functional budget for the shipping and receiving department was follows:
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Salaries, four employees at $63,000
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$252,000
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Benefits at 10%
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50,400
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Depreciation, straight-line basis
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114,000
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Supplies
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65,100
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Overhead at 35% of above costs
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168,525
|
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Total
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$650,025
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Therefore, the shipping and receiving department needed to find $97,504 to cut.
Janice Starke, a recent MBA graduate, was asked to pare $97,504 from the shipping and receiving department's budget. As a first step, she recast the traditional budget into an activity-based budget.
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Receiving, 620,000 pounds
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$139,500
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Shipping, 404,000 boxes
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303,000
|
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Handling, 11,200 moves
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168,000
|
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Record keeping, 65,000 transactions
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39,525
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Total
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$650,025
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1. What actions might Starke suggest to attain a 597.5024 budget cut? Why would these be the best actions to purse?
2. Which budget helped you most in answering number 1? Explain.
3. Budgeting, Behavior, and Ethics
Mathew Philp, president of North Idaho Mining. Ltd., has made budgets a major focus for managers. Making budgets was such art important goal that the only two managers who had missed their budgets in 20X7 (by 2% and 4%, respectively) had been summarily fired. This caused all managers to be wary when setting their 20X8 budgets.
The Red Mountain division of North Idaho Mining had the following results for 20X7:
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Sales, 1.6 million pounds at $.95/pounds
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$1,520,000
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Variable costs
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880,000
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Fixed costs, primarily depreciation
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450,000
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Pretax profit
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$190,000
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Molly Stark, general manager of Red Mountain, received a memo from Philp that contained the following:
We expect stone profit for- 20X8 to be at least $209,000. Prepare a budget showing how you plan to accomplish this.
Attachment:- Assignment.rar