# Ch23FAP19e (Problems B) - Chapter 23 Master Budgets and...

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Chapter 23 - Master Budgets and Planning Chapter 23 Master Budgets and Planning PROBLEM SET B Problem 23-1B (60 minutes) Part 1 H2O SPORTS CORPORATION Merchandise Purchases Budgets For April, May, and June April May June W ATER S KIS Budgeted sales for next month ...................... 90,000 130,000 140,000 Ratio of ending inventory to future sales ...... 10% 10% 10% Budgeted ending inventory ............................ 9,000 13,000 14,000 Add budgeted sales ........................................ 70,000 90,000 130,000 Required units of available merchandise ...... 79,000 103,000 144,000 Less actual (or budgeted) beginning inventory. . (40,000 ) (9,000 ) (13,000 ) Budgeted purchases ...................................... 39,000 94,000 131,000 T OW R OPES Budgeted sales for next month ...................... 90,000 110,000 100,000 Ratio of ending inventory to future sales ...... 10% 10% 10% Budgeted ending inventory ............................ 9,000 11,000 10,000 Add budgeted sales ........................................ 100,000 90,000 110,000 Required units of available merchandise ...... 109,000 101,000 120,000 Less actual (or budgeted) beginning inventory. . (90,000 ) (9,000 ) (11,000 ) Budgeted purchases ...................................... 19,000 92,000 109,000 L IFE J ACKETS Budgeted sales for next month ...................... 260,000 310,000 260,000 Ratio of ending inventory to future sales ...... 10% 10% 10% 23-1
Chapter 23 - Master Budgets and Planning Budgeted ending inventory ............................ 26,000 31,000 26,000 Add budgeted sales ........................................ 300,000 260,000 310,000 Required units of available merchandise ...... 326,000 291,000 336,000 Less actual (or budgeted) beginning inventory. . (250,000 ) (26,000 ) (31,000 ) Budgeted purchases ...................................... 76,000 265,000 305,000 23-2
Chapter 23 - Master Budgets and Planning Problem 23-1B (Continued) Part 2 . Analysis Component The factor that causes the first month’s purchases to be so much smaller is the excess inventory that accumulated just prior to the budgeting period. For example, 40,000 units of water skis are in April’s beginning inventory; however, April sales are budgeted at only 70,000 units. Accordingly, budgeted purchases are smaller because it is management’s goal to reduce the inventory to only 10% of the next month’s sales. This overstocking factor could exist for a number of reasons, including: Management may have simply lost sight of inventory levels, thereby allowing them to reach inappropriately high levels. There may have been some potentially disruptive factor (such as a strike, bad weather, or political uncertainty) that would have temporarily interrupted the smooth delivery of products from the supplier. Thus, management would have found it prudent to accumulate an excess as a temporary safety stock against an interrupted supply. The company’s suppliers may have only recently become more dependable than they were in the past. A supplier may have recently located a new distribution facility nearby, with the result that the merchandise can be delivered more promptly. Competition among suppliers may have caused them to become more customer oriented, with the result that they will deliver products in smaller lots more quickly. This means H2O Sports can now get by with a much smaller safety stock. 23-3
Chapter 23 - Master Budgets and Planning Problem 23-2B (50 minutes) SIRO STEREO Cash Budgets For April, May, and June April May June Beginning balance .................................... \$ 12,000 \$137,500 \$ 157,750 Cash receipts Collection on accounts receivable * .......